INTERNATIONAL TRADE LAW

PROFESSIONAL SKILL DEVELOPMENT ACTIVITY

GENERALISED SYSTEM OF PREFERENCE

SUBMITTED BY:

PARAS MITHAL ANIRUDH KAUSHAL

36510303815 4__10303815
IV-D
 INTRODUCTION:

The Generalized System of Preferences, or GSP, is a preferential tariff system which provides
tariff reduction on various products. The concept of GSP is very different from the concept of
MFN .MFN status provides equal treatment in the case of tariff being imposed by a nation but in
case of GSP differential tariff could be imposed by a nation on various country whether it is a
developed country or a developing country. Both the rules comes under the purview of wto.GSP
provides tariff reduction for least developed countries but MFN is only for not discriminating
among WTO members.

The Generalized System of Preferences (GSP) is a U.S. trade program designed to promote
economic growth in the developing world by providing preferential duty-free entry for up to
4,800 products from 129 designated beneficiary countries and territories. GSP was instituted on
January 1, 1976, by the Trade Act of 1974. The GSP program has effective dates which are
specified in relevant legislation, thereby requiring periodical reauthorization in order to remain in
effect. GSP expired on July 31, 2013, and was most recently reauthorized on June 29, 2015
(effective July 29, 2015) for a period of two and a half years. The relevant legislation permits
retroactive extension of GSP benefits. As in past circumstances when GSP was reauthorized with
retroactive effect, importers of GSP-eligible products may seek reimbursement for tariffs paid
during the lapse in GSP coverage. Importers who filed their entries electronically, used the
appropriate special program indicator for GSP (e.g. "A" or "A+"), and paid duty on GSP-eligible
goods, will receive an automatic refund. For entries made without using the special program
indicator for GSP you will want to contact the port where the goods entered and request your
GSP status from U.S. Customs and Border Protection (CBP). Often GSP authority lapses before
it is renewed, in which case duties on imports that are normally covered are held in escrow
pending renewal. If any item's GSP status changes, thereby losing eligibility for duty-free
treatment, the duties held in escrow will not be refunded to the importer.
 HISTORY:
The idea of tariff preferences for developing countries was the subject of considerable discussion
within the United Nations Conference on Trade and Development (UNCTAD) in the 1960s.
Among other concerns, developing countries claimed that MFN was creating a disincentive for
richer countries to reduce and eliminate tariffs and other trade restrictions with enough speed to
benefit developing countries.

In 1971, the GATT followed the lead of UNCTAD and enacted two waivers to the MFN that
permitted tariff preferences to be granted to developing country goods. Both these waivers were
limited in time to ten years. In 1979, the GATT established a permanent exemption to the MFN
obligation by way of the enabling clause. This exemption allowed contracting parties to the
GATT (the equivalent of today's WTO members) to establish systems of trade preferences for
other countries, with the caveat that these systems had to be "generalized, non-discriminatory
and non-reciprocal' with respect to the countries they benefited (so-called "beneficiary"
countries). Countries were not supposed to set up GSP programs that benefited just a few of their
"friends.'

 THE OBJECTIVE OF GSP:

The objective of GSP was to give development support to poor countries by promoting exports
from them into the developed countries. According to the US Trade Representative Office
website, GSP promotes sustainable development in beneficiary countries by helping these
countries to increase and diversify their trade with the United States. “GSP provide opportunities
for many of the world’s poorest countries to use trade to grow their economies and climb out of
poverty” – USTR. According to the USTR, “GSP also boosts American competitiveness by
reducing costs of imported inputs used by U.S. companies to manufacture goods in the United
States.”
 WHO ARE THE BENEFICIARIES UNDER GSP?
The beneficiaries of GSP are around 120 developing countries. As of 2017, India and Brazil
were the major beneficiaries in terms of export volume realized under GSP. Imports from China
and some developing countries are ineligible for GSP benefits. The beneficiaries and products
covered under the scheme are revised annually.

 WHICH ARE THE PRODUCT GROUPS COVERED

UNDER GSP?
The products covered under GSP are mainly agricultural products including animal husbandry,
meat and fisheries and handicraft products. These products are generally the specialized products
of the developing countries.

 WHAT IS THE DIFFERENCE BETWEEN GSP AND

THE USUAL TRADE ARRANGEMENT UNDER WTO?
Under the normal trade laws, the WTO members must give equal preferences to trade partners.
There should not be any discrimination between countries. This trade rule under the WTO is
called the Most Favored Nation (MFN) clause. The MFN instructs non-discrimination that any
favorable treatment to a particular country. At the same time, the WTO allows members to give
special and differential treatment to from developing countries (like zero tariff imports). This is
an exemption for MFN. The MSP given by developed countries including the US is an exception
to MFN.
 SIGNIFICANCE OF GSP IN INDIA- US RELATIONS:
The US has decided to withdraw the Generalized System of Preferences (GSP) benefits provided
to India and few other developing countries. GSP is an arrangement that allows concessional or
zero tariff imports from developing couturiers into the US. Withdrawal of the GSP benefit is
expected to adversely affect exports from India.

Developed countries including the US, EU, UK, Japan etc., gives GSPs to imports from
developing countries. GSP involves reduced/zero tariffs of eligible products exported by
beneficiary countries to the markets of GSP providing countries. The US has a strong GSP
regime for developing countries since its launch in 1976, by the Trade Act of 1974. In the past,
thousands of products were imported from nearly 120 designated beneficiary countries and
territories.

 Procedure for GSP in the case of the US:- Under GSP, there were zero/low
concessional tariff on imports from developing countries. The US government selects a
group of poor countries and a set of products and offers these countries lower-than-
normal tariffs than it applies to imports from all other World Trade Organization
countries. The USTR makes annual reviews about the types of commodities to be
selected under GSP and the countries to be benefited.
 Trump administration’s approach on GSP:- The Trump administration has decided to
withdraw GSP for 94 products from all GSP beneficiary developing countries on the
route to completely phased out. GSP withdrawal covers mainly Agricultural and
handicraft products and is effective from November 1, 2018 onwards. According to the
Washington Post, in 2016, the GSP covered only $19 billion, or less than 3 percent, of
U.S. imports.
 Impact of GSP withdrawal on India:- India exports nearly 50 products of the 94
products on which GSP benefits are stopped. The GSP removal will leave a reasonable
impact on India as the country enjoyed preferential tariff on exports worth of nearly $ 5.
6 billion under the GSP route out of the total exports of $48 bn in 2017-18. In total India
exports nearly 1,937 products to the US under GSP. According to the Washington Post,
90 percent of Indian/Brazilian exports to America face normal US tariffs and hence will
remain unaffected from the exit of the GSP program. Removal of GSP indicate a tough
trade position by the US; especially for countries like India who benefited much from the
scheme. The US was insisting India to reduce its trade surplus. India is the 11th largest
trade surplus country for the US and India enjoyed an annual trade surplus of $ 21 bn in
2017-18.