On March 4th, the current Trump administration announced the end of its GSP trade with two nations – India and Turkey. The decision was justified on the grounds that both countries no longer meet the program’s statutory eligibility criteria.
To fully understand the whole situation, we need to start at the beginning –
What Is GSP?
GSP or Generalized System of Preferences trade program allows developing nations that meet its pre-set eligibility criteria to enjoy duty-free import of goods in the USA.
This is specifically applicable to home-grown goods that stand to benefit both the designated nation, which is in this case either India or Turkey and the importing state(USA)
Such goods stand to enjoy cent percent duty-free import provided they meet certain conditions:
- The sum of the cost or value of materials produced in the country added to the processing costs incurred in the beneficiary nation (in this case, USA) must be equal to at least 35% of the cost at the time of the entry of the goods in the beneficiary country
This special status is further granted only on adherence of a few more conditions by the designated country, including but not limited to:-
“Respecting arbitral awards in favor of the United States citizens or its corporations, combating child labor, respecting internationally recognized worker rights, providing adequate and effective intellectual property protection, and providing the United States with equitable and reasonable market access.”
Why Are Importers Losing Their GSP Status?
If sources are to be believed, 2017 alone saw India enjoy a GSP of (approx.) $5.7 billion, whereas Turkey benefited by (approx.) $1.7 billion on its imports. Thus, it’s obvious that the importers stand to lose a lot in terms of the import duty they will now be accountable for.
The US Trade Representative (USTR) had previously released a statement saying that the number of reviews related to adherence to the GSP eligibility criteria for most developing nations will be increased, in both quality and quantity. This was done to ensure that the requirements were being met fully by the developing nations and the program’s objectives were being realized effectively.
As per media reports, Turkey, a GSP veteran since 1975 is set to step up from this status as studies reflect an increased Gross National Income per capita along with an observed decline in the poverty rate and a diversified export economy across the nation. All of these add up to make it a nation no longer in need of preferential benefits in the eyes of the USTR.
Despite being the largest beneficiary of the GSP program, especially in recent years, India is also no longer a part of this trade program. This is being attributed to a failure on India’s part to ensure the United States “equitable and reasonable access to its markets across numerous sectors.”
Adding insult to the injury are the rigid trade barriers in India that are said to have an adverse effect on US commerce. Since India has continuously shown reluctance in revising the said trade barriers to allow US goods easier access to the Indian market, it is no surprise that it has finally lost its GSP beneficiary status.
How does this affect the importers?
The administration is required to provide a 60-days notice period to the countries in question before implementing the revoke comes into effect. Also, such a revoke is reversible should the country in question start adhering to the required eligibility criteria and the implied conditions.
For now, both India and Turkey need to brace themselves for complete removal of all GSP related rights and benefits after the notice period ends for them. A more detailed notice is set to be released soon.