March 6, 2019

U.S. President Donald Trump notified Congress his "intent to terminate" preferential trade benefits to India and Turkey under the Generalized System of Preferences (GSP) eligibility criteria. 


  • Under the United States Generalized System of Preferences (GSP) programme, nearly 2,000 products including auto components and textile materials can enter the US duty-free if the beneficiary developing countries meet the eligibility criteria established by Congress. 

  • The GSP criteria include respecting arbitral awards in favour of US citizens or corporations, combatting child labour, respecting worker rights, providing intellectual property protection and providing the US with equitable and reasonable market access. 

  • Countries can also be graduated from the GSP programme, depending on factors related to economic development. 

  • India was the largest beneficiary of the programme in 2017 with USD 5.7 billion in imports to the US given duty-free status and Turkey the fifth largest with USD 1.7 billion in covered imports. 

Recent decision: 

  • USA has given a 60-day withdrawal notice to India on the GSP benefits extended by US. 

  • According to U.S. President Donald Trump, India had "not assured" the US that it would "provide equitable and reasonable access" to the markets of India in accordance with the GSP eligibility criteria. 

  • Trump, who has vowed to reduce US trade deficits, has repeatedly called out India for its high tariffs. In October 2018, the US President described India as a "tariff king" as he reiterated his allegations that India has a high tariff rate on various American products. 

Possible impact on India: 

  • India’s Department of Commerce feels the impact is “minimal”, given that Indian exporters were only receiving duty-free benefits of $190 million on the country’s overall GSP-related trade of $5.6 billion. 

  • Some experts feel the move will not have a major impact on India also because it has been diversifying its market in the Latin American and the African region. 

  • At the same time, the move could hit Indian exporters if it gives an edge to competitors in its top export categories to the US. 

  • This could impact India’s competitiveness in items groups such as raw materials in the organic chemicals sector alongside items such as iron or steel, furniture, aluminium and electrical machinery. India’s exports of organic chemicals to the US stood at $1.4 billion in 2017, US Census data showed. 

  • According to the Commerce Ministry, about 1,900-odd products exported to US with GSP may be impacted. 

Options for India: 

  • These changes announced may not take effect until at least 60 days after the notifications are sent to the US Congress and the governments of India, and will be enacted by a Presidential Proclamation. 

  • Commerce Secretary Anup Wadhwan indicated that the government would continue to engage in “internal” discussions on these issues and that the “door for discussions” with the US was “always open”. 

  • India, in June 2018, had intended to impose higher tariffs on 29 goods imported from the US in retaliation to the country’s decision to impose hefty tariffs on imported steel and aluminum products. The move, which could potentially impact products like walnuts, almonds and chickpeas, has been deferred several times. 

Concluding remarks: 

  • The amount of price advantage India has versus competitor countries and what happens to their GSP privileges will determine the extent to which India’s exports will be impacted.