The Generalized System of Preferences (GSP) is a preferential tariff system that developed countries extend to Least Developed Countries (LDCs) and other developing nations. It involves offering reduced tariffs or duty-free entry for eligible products, aiming to facilitate the economic development of beneficiary countries.
GSP Benefits for Indian Exporters:
- Indian exporters historically benefited from GSP, which allowed duty-free entry of certain products into the United States.
- The program covered 1,937 products from India, with an estimated value of $5.6 billion. Key sectors benefiting included textiles, engineering, gems and jewelry, and chemical products.
U.S. Withdrawal of GSP Benefits for India (2019):
- In 2019, the United States Trade Representative (USTR) decided to withdraw GSP benefits for certain Indian goods.
- The withdrawal affected India’s exports to the U.S., particularly in sectors like textiles, engineering, and gems and jewelry.
Reasons for GSP Withdrawal:
- Issues in Dairy and Medical Device Sectors:
- Disputes arose between India and the U.S. in the dairy and medical device sectors.
- India’s regulatory requirements for dairy imports, such as feed-related certifications, created challenges for the U.S. dairy industry.
- Increased prices of medical devices in India due to regulatory changes negatively impacted the U.S. medical device industry.
- Trade Relationship Strain:
- GSP withdrawal was part of broader trade tensions between India and the U.S. during the Trump administration.
- Prior to GSP withdrawal, the U.S. had raised tariffs on steel and aluminum imports from India, and there were disputes over India’s export subsidy regime.
India’s Response and WTO Involvement:
- India responded to GSP withdrawal by implementing retaliatory measures, including higher tariffs on specific U.S. products, such as almonds, apples, and walnuts.
- India also initiated a challenge at the World Trade Organization (WTO), contesting higher steel and aluminum tariffs imposed by the U.S.
Broader Trade Dynamics:
- The GSP withdrawal was part of a larger context of trade challenges between India and the U.S., reflecting the Trump administration’s approach to trade policy.
- India’s imposition of retaliatory tariffs and WTO challenges signaled its commitment to defending its trade interests.
Conclusion: The withdrawal of GSP benefits by the U.S. was a significant development in U.S.-India trade relations, reflecting broader trade disputes. The dynamics highlighted the complexities of trade negotiations and the impact of regulatory differences on bilateral economic interactions. Resolving such disputes often involves a combination of diplomatic efforts and engagement through international trade forums like the WTO.
Rules of Origin (ROO) in International Trade: Understanding and Significance
Definition: Rules of Origin (ROO) refer to the criteria and regulations used to determine the country of origin for a specific product in international trade. The determination of the origin of goods is crucial as it affects the application of tariffs, trade preferences, and various trade restrictions.
Key Aspects of Rules of Origin:
- Determination of Country of Origin:
- ROO establish the conditions and criteria under which a product is considered to originate from a particular country.
- The determination involves assessing factors such as where the product was manufactured, the extent of value addition, and other relevant criteria.
- Impact on Tariffs and Trade Preferences:
- The application of tariffs and trade preferences often depends on the country of origin.
- Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) typically require a certain level of value addition in the member countries to qualify for tariff concessions.
Example: U.S.-Mexico-Canada Agreement (USMCA):
- The USMCA, which replaced the North American Free Trade Agreement (NAFTA), includes specific rules of origin for various products, including automobiles.
- As an example, the USMCA stipulates that 75% of automobile content must be manufactured in North America for those automobiles to qualify for preferential, duty-free treatment. This requirement aims to encourage regional production and integration.
Significance of Rules of Origin:
- Promoting Regional Integration:
- ROO are designed to encourage regional economic integration by promoting intra-regional trade and production.
- They discourage the practice of merely transshipping goods through a member country to benefit from preferential trade agreements.
- Ensuring Fair Competition:
- ROO help prevent circumvention of trade rules by ensuring that products genuinely meet the criteria for preferential treatment.
- They contribute to fair competition and prevent non-members from taking advantage of trade agreements.
- Supporting Economic Development:
- By requiring a certain level of value addition, ROO aim to support economic development within member countries.
- They incentivize investments, job creation, and technology transfer.
Conclusion: Rules of Origin play a crucial role in shaping the dynamics of international trade by influencing tariff application and trade preferences. They serve as a mechanism to ensure that the benefits of trade agreements are directed toward genuine economic integration and development among member countries.
Regional Trading Arrangements (RTA) and Multilateralism under WTO
Regional Trading Arrangements (RTAs), such as preferential trade agreements (PTAs) and free trade agreements (FTAs), coexist with the World Trade Organization (WTO) and are seen as complementary rather than conflicting. Here are key points to understand their relationship:
- Coexistence and Complementarity:
- RTAs have existed alongside the WTO since its establishment in 1995.
- Both RTAs and the WTO share the goal of promoting economic integration through liberalized global trade.
- RTAs are considered complementary to the multilateral trading system under the WTO.
- Objectives and Benefits:
- RTAs promote regional economic integration and cooperation among member countries.
- The creation of regional trade blocs fosters economic relationships, trade creation, and increased efficiency through enhanced competition.
- Free trade within a region is seen as a stepping stone towards globalization, preparing countries to face global competition.
- Open Regionalism:
- Open regionalism involves external liberalization by trade blocs, reducing barriers on imports from non-member countries while members liberalize trade among themselves.
- It aligns with the principle of not prejudicing globalization and multilateralism.
- Advantages of Regional Free Trade:
- Implementation of regional free trade agreements is often more feasible than achieving globalization, which may face resistance at the national level.
- Governments can resist domestic protectionist pressures more effectively at the regional level before embracing global trade liberalization.
- Deeper integration at the regional level allows comprehensive economic cooperation beyond trade, including investments and collaborations.
- Examples of Regional Trading Arrangements:
- Trans-Pacific Partnership (TPP): A proposed trade agreement involving countries such as Australia, Canada, Japan, and others. The United States withdrew, leading to the formation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
- Regional Comprehensive Economic Partnership (RCEP): Proposed Free-Trade Agreement (FTA) involving ASEAN member states and partners like China, Japan, and others. India opted out.
- African Continental Free Trade Agreement: Signed by 44 African countries, creating the world’s largest free-trade area.
- USMCA (NAFTA 2.0): Agreement between the United States, Mexico, and Canada, updating the North American Free Trade Agreement.
- Other Regional Trade Arrangements:
- European Free Trade Association (EFTA)
- South Asia Free Trade Agreement (SAFTA)
- Mercosur in South America
- Andean Community of Nations (CAN)
- Economic Community of West African States (ECOWAS)
- Southern African Development Community (SADC)
In summary, RTAs play a crucial role in fostering regional economic integration, providing stepping stones towards globalization, and complementing the objectives of the WTO’s multilateral trading system. The coexistence of regional and global trade efforts contributes to a more interconnected and dynamic international trade landscape.
FAQs
1. What is the Generalized System of Preferences (GSP)?
The Generalized System of Preferences (GSP) is a program by developed countries that provides preferential tariff treatment to goods imported from developing countries. This means that developing countries can export certain goods to developed countries with lower or no customs duties.
2. How does the GSP benefit India?
India is a major beneficiary of the GSP program. The duty-free or reduced tariff access to developed country markets helps Indian exporters to be more competitive and increase their exports. This can lead to economic growth, job creation, and poverty reduction in India.
3. What are the challenges of the GSP for India?
One challenge is that GSP benefits can be withdrawn if a developing country reaches a certain level of economic development. This can put pressure on India to maintain its GSP eligibility while continuing to develop its economy.
Another challenge is that some developed countries have tightened their GSP eligibility criteria in recent years. This can make it more difficult for India to qualify for GSP benefits on certain products.
4. What are the trade dynamics between India and developed countries under the GSP?
The GSP has helped to increase trade between India and developed countries. India exports a wide range of products under the GSP, including textiles, clothing, handicrafts, and agricultural products.
However, there are also concerns that the GSP can lead to developed countries focusing their imports on a narrow range of labor-intensive goods from developing countries. This can hinder the development of more sophisticated industries in developing countries.
5. What is the future of the GSP for India?
The future of the GSP for India will depend on a number of factors, including the economic development of India, the policies of developed countries, and the rules of the World Trade Organization (WTO).
India will need to continue to diversify its economy and develop new industries in order to maintain its eligibility for GSP benefits. Developed countries will need to balance the interests of their domestic industries with the goal of promoting development in poorer countries. The WTO will need to ensure that the GSP is implemented in a fair and transparent manner.
In case you still have your doubts, contact us on 9811333901.
For UPSC Prelims Resources, Click here
For Daily Updates and Study Material:
Join our Telegram Channel – Edukemy for IAS
- 1. Learn through Videos – here
- 2. Be Exam Ready by Practicing Daily MCQs – here
- 3. Daily Newsletter – Get all your Current Affairs Covered – here
- 4. Mains Answer Writing Practice – here
