India and GSP : An Overview.

Generalised System of Preference (GSP), Origin and its impact on Indian Exports

·         Tracing the Origin of GSP

·         India and GSP

1.      Overview of Exports

2.      Benefits to Indian exporters.

3.      Impact of withdrawal of GSP.

References.

•       Tracing the Origin of GSP

U.S. trade preference programs such as the Generalized System of Preferences (GSP) provide opportunities for many of the world’s poorest countries to use trade to grow their economies and climb out of poverty.   GSP is the largest and oldest U.S. trade preference program. Established by the Trade Act of 1974, GSP promotes economic development by eliminating duties on thousands of products when imported from one of 120 designated beneficiary countries and territories. 

GSP promotes economic growth and development in the developing world. 
GSP promotes sustainable development in beneficiary countries by helping these countries to increase and diversify their trade with the United States.  The GSP program provides additional benefits for products from least developed countries.  The list of products eligible for duty-free treatment when imported from GSP beneficiaries can be found here.

GSP supports U.S. jobs and helps keep American companies competitive.
Moving GSP imports from the docks to U.S. consumers, farmers, and manufacturers supports tens of thousands of jobs in the United States.  GSP also boosts American competitiveness by reducing costs of imported inputs used by U.S. companies to manufacture goods in the United States.  GSP is especially important to U.S. small businesses, many of which rely on the programs’ duty savings to stay competitive.

GSP promotes American values.
In addition to promoting economic opportunity in developing countries, the GSP program also supports progress by beneficiary countries in affording worker rights to their people, in enforcing intellectual property rights, and in supporting the rule of law.  As part of the GSP Annual Review, USTR conducts in-depth reviews of beneficiary countries’ practices in response to petitions from interested parties.

•       India and GSP

1.      Indian Exports: An Overview   

Indian exports approximately $5 Billion worth of products that fall under the GSP program. Specific sectors such as the gem and jewelry, leather and processed foods are the leading players for GSP exports. Thus, GSP plays a vital role in the Indian economy. However, with periodic reviews of the program, India has been on crossfire due to its question whether it meets the eligibility criteria that require a GSP beneficiary country to assure the U.S. that it will provide reasonable access to its markets. India has to continuously be at the forefront of the GSP program to export its products since the majority of the economy is dependent on exports.

GSP endorses sustainable development in the eligible beneficiary countries under the GSP program helping these countries increase and diversify their trade with the United States. A few of the items that India can export to the U.S. are namely agarbatti, copper items, and kitchen household products, non-electrical lamps and lighting fixtures, etc. All these products are eligible for duty-free treatment when imported by the U.S., thus, promoting economic growth.

India is the world's largest beneficiary of GSP, which dates from the 1970s. Today, there are around 3500 exportable goods under it. According to the USTR, the total US imports under GSP in 2017 was $21.2 billion, of which India was the biggest beneficiary with $5.6 billion.  India’s exports under the scheme were more than 10 per cent of its total exports worth $49 billion to the US in 2017.

2.      Benefits for Indian Exporters

1.      Indirect benefits for the Indian exporter- the Indian exporter benefits by way of reduced tariff or duty-free entry of eligible products.

2.      The elimination of import duty on an Indian product provides a challenge for the importer to be competitive in terms of quality, product output and delivery on time.

The tariff preference aids new exporters to penetrate the market and establish increased exports to the U.S. to grow their market share and improve the profit margins to build the economy.

3.      Impact of GSP Withdrawal

The Indian government believes that, this will have a limited impact. 77 said that it will not have significant impact on India’s exports to US. The Federation of Indian Export Organizations is also of the same opinion. The tariff impact will be to the tune of $190 million annually for India. Some experts believe, the goods exported through GSP included items produced by small and medium enterprises, so it could affect employment in the sector.

Exports of certain leather goods, including handbags and accessories, to the US would get impacted due to the duty benefit withdrawal by America under its GSP program, Council for Leather Exports (CLE) said. CLE Chairman P R Aqeel Ahmed said “Import duty in the range of 6 to 9 per cent would be invoked on these leather goods which further give competitive advantage to items exported from Indonesia, Myanmar and Cambodia.”

According to Ganesh Kumar Gupta, President, the Federation of Indian Export Organisations (FIEO), under the existing GSP framework, India was getting tariff preference on 5111 tariff lines out of 18770 tariff lines in the US and only 2165 tariff lines, the tariff lines advantage was 4% or more. India’s export to the US stood at $50.57 billion in 2017 with a GSP tariff advantage of only $190 million, which was less than 0.4% of our exports. Naturally, its withdrawal will have a marginal impact.” he said, besides highlighting one anomaly in the US president’s decision. Historically, GSP has been extended to developing nations to as a non-reciprocal treatment, yet while making a case for acting against India, the US has linked it with market access and tariff reduction, which is against the basic tenets of GSP.

Urging the Government to extend fiscal support to those products where GSP tariff advantage was significant particularly in the labour-intensive sectors, Gupta hoped that the exporters would be able to absorb the duty loss where it is 2-3%.

Echoing Similar thoughts, Mahavir Pratap Sharma, Chairman, Carpet Export Promotion Council (CPEC), whose domain historically benefitted from country’s GSP privilege, foresees zero impact of the US move on Indian carpets shipments to the US- its largest overseas market (representing about 50% of total Indian items being exported).

Sharma feels that the GSP would not make any difference to the carpets sector since out of the five types of carpets; only one type (with very low export figures) is currently capitalizing on GSP’s preferential advantage. “Now, even if 6% duty is imposed on such items, our items will still remain the preferred choice in the US market as they are cost effective and enjoy market leadership,” he said, adding that specific sectors such as apparel wherein Indian items are competing neck-to-neck on price front with a GSP status-holding competing country (e.g. Bangladesh) will be impacted once the new export rules comes into effect.

Contrary to this, representatives from the country’s leather sector hold a different view. Expressing concerns that the sector’s US-directed exports could now be adversely impacted by the scrapping of the GSP, Puran Dawar, Agra Footwear Manufacturers and Exporters Chamber (AFMEC), says that the decision would certainly have a bearing on the leather goods exports to the US and this comes at a time when the made-in-India items, on the US turf are already grappling with stiff competition, with items especially from China and Vietnam.

The US represents the highest share in Indian Leather exports and the Council for Leather Exports (CLE) has set an ambitious target to accomplish exports of $10 billion by 2024-25 from the current level of $5.73 billion, and experts opine that Trump’s decision might derail the pace here, to some extent.

Industry body FIEO has revealed that since India is predominantly exporting intermediate and semi-manufactured goods to the US under the GSP, the same has helped in cost effectiveness and price competitiveness of US downstream industry. Expressing similar views, Bipul Chatterjee, ED, Consumer unity and Trust Society (CUTS) International, says, “Most of the items exported under the GSP schemes were intermediate products that are being used to manufacture value-added items in the US, so as a result, the cost of production will go up both for the American producers and for the end user/ consumers- which is not a desirable scenario for the cause of bilateral Indo-US trade”

All the above stated information and data were furnished from the reputed and reliable newspapers which helped me to infer the impact of GSP withdrawal for Indian exports to the US. Statements of various government officers and representative from various organisations were helpful in the research work. Though the GSP withdrawal has started from June 6, 2019 the impact would be seen in few months. 

References

• https://ustr.gov/issue-areas/trade-development/preference-programs/generalized-system-preference-gsp
• https://www.thehindubusinessline.com/economy/policy/india-to-wait-for-us-proclamation-on-gsp-withdrawal-before-imposing-retaliatory-tariffs/article26981183.ece

      Directorate General of Foreign Trade: https://dgft.gov.in
·         Due credits to various other newspapers and organizations whose data I have knowingly or unknowingly included in my research work.