• UGI USER
  • May 20, 2024
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RENEW THE GENERALISED SYSTEM OF PREFERENCES

Syllabus:

GS 2:

  • Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests.
  • Effect of Policies and Politics of Developed and Developing Countries on India’s interests, Indian Diaspora.

Why in the News?

This article is in the news because the expiration of the U.S. Generalised System of Preferences (GSP) programme in 2020 has left it in limbo. Renewing the GSP is critical for strengthening U.S.-India trade relations and supporting developing countries amid evolving global trade dynamics and supply chain strategies.

Source: ET

Misconceptions about U.S. Foreign Policy

  • Complex Trade Terminology: The “generalised system of preferences” (GSP) is an intricate term in international trade, offering incentives through lower tariffs for developing countries.
  • Adoption by Developed Countries: Nearly all developed countries have implemented GSP over the past half-century to encourage economic reform in developing nations.
  • Customised Programmes: Each developed country tailors its GSP programme based on its criteria for economic reform, ensuring minimal harm to domestic production.
  • Aid for Trade: GSP is the most extensive approach to “aid for trade” within the World Trade Organization’s framework.
  • Strategic Trade Tool: GSP serves as a strategic tool for promoting economic development and reform in developing countries.
About Generalised System of Preferences:

  • Largest and Oldest Programme: GSP is the largest and oldest U.S. trade preference programme, promoting economic development by allowing duty-free entry for numerous products from designated beneficiary countries.
  • Umbrella Scheme: It encompasses most preferential schemes provided by industrialized nations to developing countries.
  • MFN Tariffs: GSP involves reduced Most Favored Nations (MFN) tariffs or duty-free entry for eligible products exported by beneficiary countries to donor markets.

Background

  • UNCTAD Proposal: The concept of granting preferential tariff rates to developing countries was introduced at the first UNCTAD conference in 1964.
  • Adoption and Implementation: GSP was adopted at UNCTAD in New Delhi in 1968 and instituted in 1971.
  • Current Schemes: There are 13 national GSP schemes notified to the UNCTAD secretariat.
  • Granting Countries: GSP preferences are granted by 15 countries: Armenia, Australia, Belarus, Canada, the European Union, Iceland, Japan, Kazakhstan, New Zealand, Norway, the Russian Federation, Switzerland, Turkey, the United Kingdom, and the United States.

Renewing GSP

  • Legislative Renewal: The U.S. GSP programme requires periodic renewal by Congress, a challenging process in a polarised political environment.
  • Expiration and Limbo: The U.S. GSP programme expired in 2020 and remains unrenewed despite bipartisan support.
  • Market Access: GSP provides crucial market access for developing countries, aiding small businesses and women-owned enterprises.
  • Alternatives to Chinese Imports: GSP offers alternatives to Chinese imports, benefiting suppliers in trusted developing markets.
  • Support for Reforms: GSP promotes labour and environmental reforms and intellectual property rights protection, while reducing tariff bills for American companies.

U.S. Domestic and Global Challenges

  • Bipartisan Support: In November, a bipartisan group of Florida House members expressed strong support for GSP renewal, highlighting its importance in reducing dependency on China.
  • Supply Chain Objectives: GSP supports friendshoring and nearshoring, aligning with new supply chain strategies.
  • Economic Benefits: Renewing GSP can lower the tariff burden for U.S. consumers and manufacturers.
  • Bipartisan Agreement: Surprisingly, there is strong bipartisan support for restarting GSP talks with India.
  • Strategic Importance: GSP renewal is crucial for stabilizing market access and supporting economic reforms in developing countries.

U.S.-India Trade Relationship

  • Boosting Trade Negotiations: GSP renewal could pave the way for comprehensive U.S.-India trade negotiations, significantly enhancing the bilateral trade relationship.
  • Pre-2020 Negotiations: Before GSP’s expiration in 2020, U.S. and Indian trade officials were close to finalizing a wide-ranging trade deal.
  • Potential Trade Agreement: An unprecedented bilateral trade agreement could cover $10 billion in trade, including medical devices, agricultural commodities, ethanol, and IT products.
  • Limited Tools for Trade Expansion: Despite significant progress, U.S. and India have limited tools to further boost trade without GSP.
  • FTA Limitations: The Biden administration’s stance against negotiating new free trade agreements restricts potential trade expansion with India.

Strategic Trade Considerations

  • Complementing FTAs: While India is actively negotiating FTAs with other countries, GSP renewal can complement these efforts without requiring a full FTA.
  • Trade Dialogues: Current U.S.-India trade dialogues lack the leverage for ambitious trade negotiations.
  • Private Sector Collaborations: Both countries’ private sectors are increasing investments in critical technologies, but lack regulatory stability.
  • Regulatory Certainty: A strong, enforceable trade agreement can provide the regulatory certainty and ease of doing business necessary for stable investments.
  • Negotiation Opportunities: GSP negotiations can cover various aspects, including trade in goods and services, labour rights, environmental laws, and regulatory practices.

Higher Ambition in U.S.-India Trade

  • Strategic Partnership Growth: The U.S.-India strategic partnership is growing, necessitating higher ambition in trade relations.
  • Collaborative Roles: Both countries play critical roles in the Indo-Pacific region, requiring stronger economic ties.
  • GSP as a Trade Tool: While not a comprehensive solution, GSP is a strong tool for advancing U.S.-India trade relations.
  • Mutual Desire for Progress: Renewing GSP would signal both countries’ commitment to enhancing their trade relationship.
  • Path to Higher Ambitions: GSP renewal is a step towards achieving higher trade ambitions, reinforcing the strategic partnership between the U.S. and India.

Way Forward

  • Legislative Action: The U.S. Congress should prioritize the renewal of the Generalised System of Preferences (GSP) programme to restore benefits for developing countries and strengthen economic ties with key partners like India.
  • Bipartisan Effort: Given the bipartisan support for GSP, legislators should work collaboratively to expedite the renewal process, ensuring that the programme’s benefits are reinstated without further delay.
  • Enhanced Trade Negotiations: Use GSP renewal as a platform to launch comprehensive trade negotiations between the U.S. and India, targeting an increase in bilateral trade and addressing critical sectors like agriculture, technology, and medical devices.
  • Focus on Reforms: Include provisions in the GSP renewal that promote labour rights, environmental sustainability, and intellectual property protection, aligning economic reforms in developing countries with global standards.
  • Support for SMEs: Emphasize the role of GSP in supporting small and medium-sized enterprises (SMEs) in both the U.S. and developing countries, facilitating market access and reducing tariff burdens.
  • Strategic Alliances: Leverage GSP to reduce dependency on Chinese imports, fostering stronger supply chain alliances with trusted developing markets and enhancing economic resilience.
  • Public-Private Partnerships: Encourage collaboration between the private sectors of the U.S. and developing countries to maximize the benefits of GSP, focusing on investments in critical and emerging technologies.

Conclusion

Renewing the Generalised System of Preferences (GSP) is essential for enhancing U.S.-India trade relations and supporting developing economies. It offers significant strategic, economic, and diplomatic benefits, making it a crucial tool in the current global trade environment.

Source:The Hindu

Mains Practice Question

“Discuss the significance of the Generalised System of Preferences (GSP) for the U.S.-India trade relationship. In the context of recent developments, analyze the challenges and opportunities associated with renewing the GSP programme and suggest a way forward to enhance bilateral trade and economic cooperation.”

Associated Articles:

https://universalinstitutions.com/india-us-relationship/