GSP, which is short for Generalized System of Preference is a program formulated with the aim of encouraging economic security in developing countries all through the world. Beneficiary countries, like those that are underdeveloped are given special treatment by the GSP program. The goal of GSP is to assist really poor countries improve economically by reducing or eliminating tariffs on certain goods. The idea is to give these struggling countries hope and more opportunities to grow by trading with super powers and developed countries. Only certain products that are produced in abundance by developing countries are suitable for duty free treatment.
From the viewpoint of developing countries as a group, the success of the GSP program has been uncertain. There are also restrictions imposed by various developing countries on the GSP program. For instance, the United States has prohibited countries from GSP coverage on grounds of being communist (Vietnam), being kept on the U.S State Department’s list of countries that are either into terrorism or have nothing against terrorism (Libya), and/or having no respect for U.S intellectual property laws.
It is important to note that most GSP programs are not completely specific in design with regards products. However, some general ideas are adhered to by most countries. Indigenous producers of easy-to-make goods like textiles, ceramics, glass, steel and leather goods have raised protests that they can’t compete with imports of large quantities from developing countries. And so these products have been categorically exempted from GSP coverage under the U.S as well as other GSP programs. Critics are of the opinion that these exempted products are specifically the type that manufactures in a majority of the developing countries are able to export, while developing countries cannot efficiently manufacture things like locomotives or telecommunication satellites.
GSP is implemented by referring to the HS code to identify products.
Those who are in support of the GSP program understand that it isn’t right to conclude that the program has failed in developing countries just because it is facing limitations. Some people say that the GSP program hasn’t equally been beneficial to some developing countries and there are also others who think that from its inception it has benefited richer developing countries more than poorer countries. Countries like Mexico, Taiwan, Hong Kong, Malaysia, Singapore are early beneficiaries of the GSP program, while the least developed countries in the world like Haiti, Nepal, Pakistan and most sub-Saharan African countries got little to no assistance.
GSP and the United States
Products like live cattle, and other pure bred animals used for dairy, poultry and meat, special type of fish, cheese, fruits, nuts, as well as agricultural products like corn are an example of some imported products that are covered by GSP in the United States. Other items like metals, engines, turbines chemicals and mechanical parts are also covered by the GSP program. Another set of common products that the United States imports from foreign countries which are also covered by the GSP program are steel from India, corn from Mexico and textiles from Turkey. You can find the list of countries and products who are eligible for GSP by visiting.
The GSP program assists American companies to grow since goods are being brought into the country in large quantities at affordable rates.
Benefits of GSP
Here are a few examples of benefits brought on by the GSP program:
- Indian exporters benefit by being able to ship product to US using reduced tariffs, opening up the market to them
- Reduced import duty on an Indian products makes it more competitive to importer, other factors that play a role are quality and equity
GSP presents enormous advantages for importers. Basically, GSP has helped importers to move certain products from poor countries to rich countries duty free. This is to say that, all thanks to GSP, importers in countries that have stable economy will save money on receiving certain goods from developing countries. Back in 2012, the United States imported approximately $20 billion worth of products. The GSP made it possible for importers not to pay tariffs on selected imported goods, and by doing so importers were able to save millions for themselves, and at the same time help improve the economy of financially struggling countries. And upon doing all of these, they were still able to speed up the growth in their own market at home. Basically the GSP is encouraging importers to bring certain goods into the country from respective poor countries so that money can be saved and help with fiscal growth.
By July 31st, the GSP eventually expired, but on the 25th of June 2015 U.S president Obama renewed it. During the period of time that GSP wasn’t functioning, the United States alone spent over $1 billion dollars on tariffs for goods that would have been covered under the GSP. Fortunately, importers can go back and get refunds retroactively for the products that were originally covered by the GSP. US Congress recently extended the GSP program until December 31, 2020. However, during the past few years GSP exemptions for various countries have been withdrawn.