Generalized System of Preferences Trade Privilege

The generalized System of Preferences (GSP) is a special tax system on export and import trades instituted to promote and help the growth of developing countries. It was established on January 1, 1976, by the Trade Act of 1974. United Nations Conference on Trade and Development (UNCTAD) is the main host organization for the establishment of GSP.

GSP is fundamentally different from the Most Favoured Nation (MFN) concept. MFN works to offer equal tariff rules and regulations to all other countries. On the other hand, GSP is a differential tariff system and allows a nation to impose differential tax regulations on different countries based on the fact that it is a developed country or a developing country. The rules of MFN as well as GSP come under World Trade Organization (WTO). 

To encourage and support the equal growth of different countries worldwide the GSP offers tariff reductions for developing and least developed countries (LDCS).

Initially, the General Agreement on Tariff and Trades (GATT) under the leadership of UNCTAD instituted two changes in MFN to permit tax preferences but these were for a limited period of 10 years. After the first 10 years, in 1979, GATT promoted complete permanent changes to MFN that allowed the designing of a system of trade preferences for developing countries and LDCs. These rules, albeit differential is regulated, any country is obligated to form a generalized, non-discriminatory, and non-reciprocal trade system for the beneficiary country members and should not be biased towards some countries only. 

Today at least 13 countries provide these GSP to other developing countries and LDCs. These countries include-

• Australia
• Belarus
• Canada
• European Union
• Iceland
• Japan
• Kazakhstan
• New Zealand
• Norway
• Russia
• Switzerland
• Turkey
• USA

Features of GSP:

• GSP aims at promoting and boosting economic growth as well as development in developing countries
• GSP offers concessions on imports from beneficiary countries even sometimes zero-tariff/ trade taxes.
• Gives zero or very low taxes on the export of many products from developing beneficiary countries to the market of GSP-providing countries as listed above. 
• GSP offers a reduced tariff on a total of 4800 products from almost 129 beneficiary countries. 
• The products largely involve agricultural products, fisheries, meat, animal husbandry, handicrafts, etc. these products are a major part of special products that most developing countries export. 

Effects of GSP:

According to experts, be it the supporters or critics, the effects of GSP are kind of complicated and mixed. Most developed countries experience an obligation to generalize their tariff systems for the benefit of developing countries. Through the rule of generalized and non-reciprocal system design, some countries like the USA manage to exclude some specific countries from inclusion in the beneficiary countries list. Also, some reports say that GSP programs from many countries are not completely generalized in the terms of beneficiary countries’ lists as well as product lists. Some do not include the products of greatest export interest to developing countries and LCDs. 

Besides all this criticism and confusion, we cannot deny that the GSP has at least helped a certain level of growth and development in developing countries. 

GSP, USA and India:

During the ruling of former USA president, Donald Trump, the USA withdrew the GSP preference to India, with effect from June 2019. USA was already on the path of reducing the overall GSP preferences completely and had withdrawn GSP preferences over about 94 products in 2018 itself. 

India exported about 50 products from these 94 products for which the USA canceled GSP preferences in 2018. Thus this was expected to affect Indian trade and economy. On the other hand, some experts say that about 90 percent of Indian exports to the USA market were through the normal route and were not eligible for any concession even before. Thus India will not experience the major effect of the USA’s new stand on GSP.

Conclusion:

GSP was started by UNCTAD with the broader vision of promoting trade in developing countries and enhancing sustainable growth as well as development in these countries. According to these, countries offering GSP should have generalized unbiased schemes for a tariff on different developing countries and LDCs. This has albeit helped the developing countries to some extent. But also, according to some experts, GSP is still inefficient to meet its complete aim. This is due mainly to some biases and improper design of GSP systems in some countries.