In the pantheon of obscure international trade terminology, the “generalised system of preferences,” or GSP, has a special place. GSP refers to an approach that has been adopted by nearly all developed countries for roughly the last half-century to offer incentives for economic reform in developing countries through lower tariffs. Each developed country has customised its own GSP programme to identify qualification criteria it deems important in economic reform, although all ensure that their programmes are constructed to avoid harm to domestic production. In short, it is the oldest and most far-reaching approach to “aid for trade” in the modern multilateral trading system, embodied in the World Trade Organization.
Renewing GSP
What is unique about the GSP programme in the U.S. is that its authorising legislation periodically expires until Congress sees fit to renew the programme. New legislation is never an easy proposition, especially in a polarised environment, making bipartisan legislation a herculean endeavour. That is the case with GSP now. The U.S. programme expired in 2020 and despite repeated assurances of bipartisan support, it remains in limbo.
GSP can play a vital role in establishing stable market access for developing countries that otherwise struggle to tap into global trade flows. It can be especially valuable for small businesses and women-owned enterprises, thus helping to empower them beyond limited domestic markets. More recent analysis suggests that GSP is vital in offering alternatives to Chinese imports and providing an advantage to suppliers in trusted developing country markets. GSP criteria promote reforms on labour and environmental sustainability and intellectual property rights protection. GSP imports also help reduce the tariff bills paid by American companies, many of which are small- and medium-sized enterprises.
The coalitions of support in the U.S. are diverse. Last November, a bipartisan group of Florida members of the House penned a letter expressing their strong support for GSP renewal on an urgent basis, highlighting its importance in sourcing away from China and lowering the tariff bill for Florida’s consumers and manufacturers. In an era of friendshoring and nearshoring, GSP can be an effective tool in pursuing new supply chain objectives. Surprisingly, there is even strong bipartisan support for restarting GSP talks with India.
U.S.-India trade relationship
While there should be no need to offer additional arguments in favour of renewing GSP without further delay, the U.S.-India trade relationship may help to put support over the top. It is accepted wisdom that GSP renewal would offer an avenue for wide-ranging U.S.-India trade negotiations that can help in vaulting the bilateral trade relationship from the $200 billion it is presently at to a much higher level. It is clear there needs to be higher ambition on trade in order to take the U.S.-India strategic relationship even further.
Before the expiration of the GSP programme in 2020, negotiations between the Office of the U.S. Trade Representative and the Indian Ministry of Commerce and Industry had come close to sealing a wide-ranging deal. Estimates at the time suggested that an unprecedented bilateral trade agreement between the U.S. and India might cover as much as $10 billion in trade, including medical devices, several agricultural commodities, corn-based ethanol used for fuel, and information technology products.
The U.S. and India have already come a long distance in their trade relationship. Yet the tools they have available to achieve this increase in trade are limited. Even though India has gone into overdrive in negotiating free trade agreements (FTAs) with a wider circle of trading partners, including the European Union, the U.K., the European Free Trade Association, Australia, and the UAE, the Biden administration is clear that the U.S. will not negotiate FTAs with any country for the moment. There are several trade dialogues between the two, but these lack the leverage for a hard-nosed trade negotiation that can shoot for ambitious results. The private sectors in both countries are teaming up to increase investments in high-profile sectors across critical and emerging technologies from smartphone manufacturing to semiconductor production, but they lack the stability in regulatory certainty and ease of doing business that a strong, enforceable trade agreement can bring.
This is where GSP should come into the picture. Each side would have much to gain through negotiations on India’s GSP benefits when the U.S. Congress acts to renew the programme. Short of a change in U.S. administration policy on negotiating FTAs again, no other trade tool or policy could be more effective with India than GSP. Depending on what qualification criteria the Congress includes in the final renewal legislation, a GSP negotiation could cover trade in goods and services, protections for internationally accepted labour rights and restrictions on child labour, enforcement of environmental laws, and provisions on good regulatory practice and other areas relevant to ease of doing business.
As the U.S.-India strategic partnership continues to grow and the two countries play critical, collaborative roles in the Indo-Pacific, they should aim much higher in their trade relationship. GSP is not the full answer to comprehensively achieving this, but it would be a strong statement of their mutual desire to be on this path.
