The United States of America (USA) President Donald Trump has terminated India’s designation as a beneficiary developing nation under the GSP (Generalized System of Preference) trade program with effect from 5th June 2019. It ended because India no longer complied with the statutory eligibility criteria. The latest development in the trade ties was due to India’s new rules on e-commerce that restrict the way Amazon.com Inc. and Walmart-backed Flipkart do business in a rapidly growing online market. The imposition of higher tariffs on electronic products and smartphones put a broader trade package the two sides were working on through last year into pieces. With this, India could lose a vital U.S. trade concession, under which it enjoys zero tariffs on $5.6 billion of exports to the United States.
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. The objective of GSP was to give development support to poor countries by promoting exports from them into the developed countries. GSP promotes sustainable development in beneficiary countries by helping these countries to increase and diversify their trade with the United States.
Resultantly, Indian exporters benefit indirectly through the benefit that accrues to the importer by way of duty-free entry of eligible Indian products. Reduction or removal of import duty on an Indian product made it more competitive to the importer – other things (e.g. quality) being equal.
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. India exports nearly 50 products of the 94 products on which GSP benefits are stopped
Removal of GSP indicate a tough trade position by the US; especially for countries like India who benefited much from the scheme. India is the 11th largest trade surplus country for the US and India enjoyed an annual trade surplus of $ 21 bn in 2017-18.