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Generalized System of Preferences (GSP)

Generalized System of Preferences

Generalized System of Preferences (GSP)

A 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 on 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 developed countries. India is one of the primary beneficiaries in terms of export volume realized under GSP. This article will look in detail at the Generalized System of Preferences (GSP).

Know more about Agricultural Export Policy

Objective of GSP

The Generalized System of Preferences aims to provide development support to developing countries by promoting exports to 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 penetrate a market and established exporters to increase their market share and improve the donor country’s profit margins.

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

Difference between GSP and the Usual Trade Law

As per the regular 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 unique and differential treatment for developing countries like zero-tariff imports. This is an exemption for Most Favored Nation.

Countries that Extend GSP Benefits

Twenty-nine developed countries extend the Generalized System of Preferences (GSP). In addition to this, countries like Kyrgyzstan. Lithuania, Kazakhstan, and Ukraine also provide 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 have been entirely manufactured and produced in India. The following products are considered 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 from sea
  • Goods manufactured exclusively from the items mentioned above
  • 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 are goods manufactured wholly or partially from materials imported from other countries into India.

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

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

Rules of Origin for Qualify GSP

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

Origin Criteria: The origin criteria determine whether the product can be considered to originate 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 land of the consignee

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

In addition to the rules mentioned above, a 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 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 the EU, Japan, Norway, Poland and

Cumulation Rule

This rule allows a product to be manufactured in India with labor 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 effect is considered originating when the origin of C has to be determined.

Returned Articles

Suppose an originating product is exported from India to a country and returned to India. In that case, 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 product’s source for getting the benefit of GSP.

Unit of Consideration

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


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