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Generalised System of Preferences: Meaning and benefits

GSP promotes economic growth in developing nations and advances intellectual property rights, worker rights, and the rule of law. Learn more about GSP.

In international commerce, trade preferences play a crucial role in promoting global trade equity by providing developing nations with enhanced market access. These preferences help level the playing field, enabling exporters from less developed countries to compete more effectively in global markets. The Generalised System of Preferences (GSP) stands out as a key initiative within this framework, offering significant advantages to exporters in eligible countries. In this blog post, we will discuss the intricacies of GSP, including its benefits, impact, and eligibility criteria.

What is a consignment note (CMR)?

The Generalized System of Preferences (GSP) is a preferential tariff system extended by developed countries, also known as donor countries, to developing countries, referred to as beneficiary countries. Instituted in 1971 under the aegis of the United Nations Conference on Trade and Development (UNCTAD), the GSP scheme is a voluntary trade measure designed to enhance market access for developing nations. GSP provides advantageous or preferential tariff treatment by eliminating duties on thousands of products imported from designated beneficiary countries and territories. This creates an enabling trading environment that supports the economic advancement of developing regions and helps nations protect intellectual property rights, grant worker rights to their citizens, and support the rule of law.¹

Benefits of Generalised System of Preferences (GSP)

Some key benefits that GSP offers to Indian exporters and businesses are as follows:
● Enhanced competitiveness: The reduction or removal of import duties on Indian products makes them more competitive in the foreign market, assuming other factors such as quality remain equal.
● Market penetration and expansion: This tariff preference helps new exporters penetrate new markets and allows established exporters to increase their market share and improve profit margins in donor countries.
● Job creation in developed countries: Many jobs in developed countries are supported by the movement of GSP imports from docks to manufacturers, farmers, and consumers, thereby boosting employment.
● Increased productivity: GSP increases the productivity of companies by lowering the cost of imported materials that manufacturers can use to produce their products.
● Promotion of global values: By assisting recipient nations, GSP promotes global values such as the right to work, upholding the rule of law, and protecting intellectual property rights in these countries.²

Countries that grant GSP preferences

Countries that grant GSP benefits to eligible Indian products include:
● Australia
● Canada
● Czech Republic
● European Union (EU Member States):
○ Austria
○ Belgium
○ Denmark
○ Finland
○ France
○ Germany
○ Greece
○ Italy
○ Luxembourg
○ Netherlands
○ Portugal
○ Spain
○ Sweden
● Japan
● New Zealand
● Norway
● Republic of Belarus
● Republic of Bulgaria
● Republic of Hungary
● Republic of Poland
● Russian Federation
● Slovakia
● Switzerland
● United Kingdom
● United States of America³

How does a product qualify for duty-free treatment under the GSP?

Only products from a beneficiary country, such as India, that meet the rules of origin requirements set by the importing country are eligible for preferential tariff treatment. These rules ensure that the products genuinely originate from the beneficiary country and qualify for the benefits under the GSP.
For instance, in the case of the 15 member states of the European Union, an Indian product is considered eligible only if it meets the requirements specified in the Community legislation, particularly in Regulation (EEC) No. 2454/93, as amended by Regulation (EC) No. 12/97 and Regulation (EC) No. 1602/2000. This adherence to rules of origin is crucial for maintaining the integrity and intended impact of the GSP program, ensuring that only qualifying products enjoy the benefits of reduced or eliminated tariffs in donor countries.⁴

Articles eligible for duty-free treatment under the GSP

GSP-eligible products exported from India can be divided into two groups: Wholly Obtained Products and Products with Import Content.

• Wholly Obtained Products include those that are grown, extracted from the soil, harvested within the country, or manufactured exclusively from these materials. These products qualify for GSP benefits by virtue of the total absence of any materials or components of imported or unknown origin in their manufacture.

• Products with Import Content are manufactured wholly or partially from materials, parts, or components imported into India or of unknown origin. These products qualify for GSP if the imported or unknown origin materials, parts, or components used in their manufacture have undergone sufficient working or processing in India.⁵

What documentation is required for obtaining GSP duty-free treatment?

To obtain duty-free treatment under the Generalized System of Preferences (GSP), exporters from beneficiary countries like India must provide specific documentation. Typically, customs authorities in GSP-offering countries require information in Form 'A' (prescribed for GSP Rules of Origin). This form must be duly filled out by the exporters and certified by the authorized agencies.⁶
Exporters who require a Certificate of Origin (CoO) for GSP should apply on the DGFT electronic platform: www.coo.dgft.gov.in. They must fill in the application and include details about the exporter, product, and raw materials. Uploading a commercial invoice is mandatory to file the CoO application.⁷

Impacts of Generalised System of Preferences (GSP) withdrawal

In March 2019, the United States government announced the revocation of India's GSP status. The withdrawal significantly impacted India’s export-oriented sectors, including pharmaceuticals, textiles, agricultural products, and automotive parts. At the time of withdrawal, India was the largest beneficiary of the GSP program, with over 1,945 Indian products covered under it.⁸
In 2023, India and the U.S. agreed to begin talks on restoring GSP benefits to domestic exporters. Both countries are expected to engage in discussions to find a way to reinstate the benefits and support India's export sectors.⁹

Conclusion

In conclusion, the Generalized System of Preferences (GSP) has played a pivotal role in promoting economic growth and enhancing the global competitiveness of Indian exporters. Understanding the intricacies of GSP, from eligibility criteria to required documentation, is crucial for maximizing its benefits. Despite challenges such as the recent withdrawal of GSP benefits by the US, ongoing discussions offer hope for reinstating these advantages. As e-commerce exports continues to expand, the relevance of GSP in facilitating seamless and cost-effective cross-border trade becomes increasingly significant for Indian exporters. For more assistance with e-commerce exports from India, exporters can leverage the tools and solutions offered by e-commerce export programs like Amazon Global Selling.

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Frequently Asked Questions

· What is the disadvantage of GSP in export?

If beneficiary countries reduce their GSP privileges, Indian exporters may face risks due to changes in GSP eligibility requirements or an overreliance on GSP preferences. Additionally, GSP may not cover all goods or industries that are significant to India, which limits the overall economic benefit of the program. This can lead to vulnerabilities in export strategies and reduced market competitiveness for sectors not included in the GSP scheme.

· Is GSP under WTO?

The Generalised System of Preferences (GSP) has its legal foundation in the WTO's Enabling Clause, officially called the “Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries."

· How can someone modify the list of articles eligible for GSP treatment?

To modify the list of articles eligible for GSP treatment, exporters or relevant stakeholders must engage with the appropriate government authorities or trade bodies. This typically involves submitting a formal request or proposal to the governing body responsible for the GSP program, such as the Ministry of Commerce or a similar trade authority.

Published on June 26, 2024.

Sources:
1. https://unctad.org/topic/trade-agreements/generalized-system-of-preferences
2. https://www.eicindia.gov.in/WebApp1/pages/menuInfo/generalised_system_of_preferences.xhtm
3. https://www.eicindia.gov.in/WebApp1/pages/menuInfo/generalised_system_of_preferences.xhtml#:
4. https://www.eicindia.gov.in/WebApp1/pages/menuInfo/generalised_system_of_preferences.
5. https://www.eicindia.gov.in/WebApp1/pages/menuInfo/generalised_system_of_preferences.
6. https://fieo.org/view_section.php%3Fid%3D0,583
7. https://www.nsez.gov.in/Resources/Trade/Documents%20for%20GSP%20issuance.pdf
8. https://www.orfonline.org/research/understanding-the-impact-of-gsp-withdrawal-on-indias-top-exports-to-the-us
9. https://www.thehindu.com/business/Economy/india-and-us-to-discuss-gsp-restoration-issue-to-find-solution-says-piyush-goyal/article67001489.ece
10. https://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htm

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