Hindu Editorial Analysis : 22-May-2024

The Generalized System of Preferences (GSP) is currently a key topic in discussions between India and the United States. This trade scheme, established in 1971, aims to support developing countries by allowing them to export goods to developed countries with lower tariffs. Understanding the GSP’s background and its significance can shed light on its role in international trade, especially for India.

What is the GSP?

The GSP is a voluntary trade program created under the United Nations Conference on Trade and Development (UNCTAD). Here are some important points about the GSP:

  • Purpose: It helps developing countries boost their export growth, especially in manufacturing.
  • Customization: Each developed country designs its GSP program with specific criteria to ensure it benefits their economic reforms while avoiding harm to domestic industries.
  • U.S. Program: The GSP is the largest and oldest trade preference program in the U.S., indicating its importance in American trade policy.

Importance of the GSP

The GSP is crucial for several reasons:

  • Market Access: It helps developing countries access global markets, which is vital for their economic growth.
  • Empowerment: It supports small businesses and women-owned enterprises, allowing them to expand beyond local markets.
  • Competition: GSP provides alternatives to Chinese imports, helping trusted suppliers in developing nations.
  • Promoting Reforms: It encourages improvements in labor rights, environmental sustainability, and intellectual property protection.

In today’s world, where countries are reconsidering their supply chains, the GSP could be a valuable tool for India and the U.S. to strengthen their economic ties.

Issues with the GSP

Despite its benefits, the GSP has challenges:

  • Concentration of Benefits: The advantages of the GSP are often concentrated in a few countries and specific products.
  • Compliance Challenges: Some beneficiaries struggle to meet eligibility requirements, particularly regarding worker rights and intellectual property protections.
  • Controversy: There are debates over duty-free access for certain sensitive products, creating tension between nations.

Additionally, the private sectors of both countries are working together in high-tech industries, but they face challenges due to unstable regulations.

U.S. Withdrawal of GSP for India

On June 5, 2019, the U.S. withdrew India’s GSP benefits. Renewing these benefits could open doors for broader trade negotiations, covering various areas:

  • Trade in goods and services
  • Labor rights protections
  • Environmental law enforcement
  • Regulatory practices

Why In News

India and the U.S. are currently engaged in discussions aimed at restoring the Generalized System of Preferences (GSP), a move that could significantly enhance trade relations between the two nations and provide vital economic support to India’s developing sectors.

MCQs about The Generalized System of Preferences (GSP) and U.S.-India Relations

  1. What is the primary purpose of the Generalized System of Preferences (GSP)?
    A. To increase tariffs on imports from developing countries
    B. To provide lower tariffs for imports from developing countries
    C. To eliminate all trade barriers between developed and developing countries
    D. To regulate domestic production in developed countries
    Correct Answer: B. To provide lower tariffs for imports from developing countries
    Explanation: The GSP aims to support developing countries by allowing them to export goods to developed countries with lower tariffs, facilitating their export growth.
  2. Which of the following is a benefit of the GSP for developing countries?
    A. It guarantees free trade agreements with all developed nations.
    B. It helps small businesses and women-owned enterprises access larger markets.
    C. It provides automatic financial aid to developing countries.
    D. It ensures equal trade relations with all countries.
    Correct Answer: B. It helps small businesses and women-owned enterprises access larger markets.
    Explanation: The GSP specifically supports small businesses and women-owned enterprises by enabling them to expand beyond limited domestic markets.
  3. What significant change occurred on June 5, 2019, regarding India and the GSP?
    A. The U.S. expanded GSP benefits to more Indian products.
    B. India withdrew from the GSP program entirely.
    C. The U.S. withdrew India’s GSP benefits.
    D. Both countries agreed to permanently end GSP discussions.
    Correct Answer: C. The U.S. withdrew India’s GSP benefits.
    Explanation: On June 5, 2019, the United States withdrew the GSP benefits previously granted to India, which affected trade relations between the two countries.
  4. Which of the following is a concern related to the GSP?
    A. It benefits all developing countries equally.
    B. Beneficiaries may not comply with eligibility requirements.
    C. It has no impact on labor rights or environmental issues.
    D. All products under GSP receive equal tariff reductions.
    Correct Answer: B. Beneficiaries may not comply with eligibility requirements.
    Explanation: Some beneficiaries face challenges in meeting the GSP eligibility criteria, particularly regarding compliance with labor rights and intellectual property protections.

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