Generalized System of Preferences

Generalized System of Preferences (GSP)

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Generalized System of Preferences (GSP)

Generalized System of Preferences (GSP) is a preferential trade arrangement extended by developed countries to developing countries. Developed countries give GSPs to imports from India. GSP involves reduced tariffs of eligible products exported by India to the markets of GSP providing countries. GSP promotes sustainable development in India by helping our country to increase and diversify trade with the developed countries. India is one of the major beneficiaries in terms of export volume realized under GSP. In this article, we will look at the Generalized System of Preferences (GSP) in detail.

Know more about Agricultural Export Policy

Objective of GSP

The objective of the Generalized System of Preferences is to provide development support to developing countries by promoting exports into developed countries. The Generalized System of Preferences furnishes opportunities for many of the world’s poorest countries to use trade to grow the economy and climb out of poverty.

Benefits of GSP

The benefits of the Generalized System of Preferences (GSP) for Indian traders are explained in detail below:

  • Indian traders benefit indirectly through the benefit that accrues to the importer by way of reduced tariff or duty-free entry of eligible Indian products
  • Removal of import duty on Indian goods makes it more competitive to the importer – other things being equal.
  • This tariff preference helps the new exporters to penetrate a market and established exporters to increase the market share and to improve upon the profit margins, in the donor country.

Under GSP, there was zero/low concessional tariff on imports from India. The developed countries’ government selects a group of poor countries and a set of products and offers lower-than-normal tariffs than it applies to imports from all other WTO (World Trade Organization) countries.

Difference between GSP and the Usual Trade Law

As per the normal trade arrangement, the World Trade Organization members must give equal preferences to trade partners. There should not be any discrimination between the countries. This trade arrangement under the WTO is known as the Most Favored Nation (MFN) clause. The World Trade Organization allows members to give special and differential treatment for developing countries like zero-tariff imports. This is an exemption for Most Favored Nation.

Countries that Extend GSP Benefits

Generalized System of Preferences (GSP) is extended by the following 29 developed countries. In addition to this, countries like Kyrgyzstan. Lithuania, Kazakhstan, and Ukraine also providing preferential tariff treatment to a few Indian goods.

EU Member States

Australia Republic of Bulgaria Austria Italy
Canada Republic of Hungary Belgium Luxembourg
Czech Republic Republic of Poland Denmark Netherlands
European Union Russian Federation Finland Portugal
Japan Slovakia France Spain
New Zealand Switzerland Germany Sweden
Norway United States of America Greece United Kingdom
 Republic of Belarus Ireland

Products Covered under GSP

The products covered under the GSP are explained in detail below. Products exported from India will be divided into two groups as follows:

  • Wholly obtained products
  • Products with Import Content

Wholly Obtained Products

The wholly obtained products are those which have been entirely manufactured and produced in India. The following products are considered as wholly obtained products:

  • Grown
  • Mineral products extracted from its soil or its sea-bed
  • Vegetable products harvested in India
  • Live animals born and raised in India
  • Products obtained in India from live animals
  • Products obtained from hunting in India
  • Recovery of lead from used motor car batteries
  • Products obtained from fishing conducted in India
  • Products obtained of sea
  • Goods manufactured exclusively from the above-mentioned items
  • Used articles collected in India
  • Scrap and Waste resulting from manufacturing operations conducted in India
  • Products obtained in India exclusively from products specified such as iron sheets and bars produced from Iron ore
  • Cotton fabrics are woven from raw cotton
  • Recovery of metals from metal shavings

Products with Import Content

Products with Import Content means that the goods manufactured wholly or partially from materials, imported from other countries into India.

  • Products with Import Content qualify for the benefit of GSP if the materials of imported or unknown origin are used in the manufacturing of such products. The manufacturing process should have undergone processing in India

Note: The exported goods of the unknown origin will be treated as they were imported. New Zealand accepts products completely produced in India from imported raw materials, irrespective of the source, as wholly obtain.

Rules of Origin for Qualify GSP

The exported goods must fulfil the requirements of the rules of origin laid down by the importing country to get the benefit of the Generalized System of Preferences (GSP). The Rules of origin comprise a set of requirements laid down by the importing country, which must be fulfilled by the Indian product to be eligible for preferential tariff treatment upon import in that country. The three components of rules of origin are listed as follows:

Origin Criteria: The origin criteria determine whether the product can be considered to be originating in the country of export (beneficiary country).

Transport Conditions: The transport conditions specify the mode of transportation from the country of export to the developed country so that the goods in question qualify for preferential tariff treatment upon import in the country of the consignee

Documentary Evidence: The documentary evidence will serve as the proof for products to be granted Generalized System of Preferences benefits at the border of the importing country

In addition to the above-mentioned rules, few Supplementary Rules may have a bearing on the origin of the product under consideration.

Other Rules of GSP

Below mentioned supplementary rules may have a bearing on the origin of the final product to qualify for GSP:

  • Donor Country Content Rule
  • Cumulation
  • The Two Steps Rule
  • Returned Articles
  • Neutral Elements
  • Unit of Consideration

Donor Country Content Rule

According to this rule, if a product was manufactured in India using the raw materials of the donor country (developed country) and exported to the same country, then such products will be considered as the product. Originating in India. The Donor Country Content Rule applies to the following countries:

EU, Japan, New Zealand, Australia, Canada, Norway, Poland, Bulgaria, Czech Republic, Hungary, Russian Federation Switzerland,- Belarus, and Slovakia apply this rule. Switzerland The trader need to provide documentary evidence of the originating status of materials imported from them. Note: Some of the donor countries like EU, Japan, Norway, Poland and

Cumulation Rule

This rule allows a product to be manufactured in India with labour and materials from other beneficiary countries without affecting the originating status.

The Two Steps Rule

According to The Two Steps Rule, when an imported material is transformed in India into another product following the origin rule for this product, and when this product is embodied into still any other product, the whole product is considered originating when the origin of C has to be determined.

Returned Articles

If an originating product exported from India to a country and returned to India, then the product will be to be treated as non-originating unless it can be satisfactorily demonstrated the following:

  • The product returned are the same as the exported product
  • The product returned has not undergone any operation beyond what was necessary to preserve them in good condition in the importing country.

Neutral Elements

The origin of Power, Plant, Equipment, Fuel, Machines or Tools used to produce a product will not be considered while determining the origin of the product for getting the benefit of GSP.

Unit of Consideration

According to this rule, for determining the origin of goods, each article in a consignment will be considered separately.

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Renu is experience content writer specialised in compliances and company rules.