The Generalized System of Preferences (GSP) is a trade program that allows developed countries to provide preferential tariff treatment (lower or zero tariffs) on imports from developing and least developed countries (LDCs). This helps promote economic growth and export opportunities for developing nations.
Key Features of GSP
- Tariff Reductions – Developed countries reduce or eliminate tariffs on specific goods from developing nations.
- Non-Reciprocal – Beneficiary countries do not need to offer the same trade benefits in return.
- Product Coverage – Typically includes agricultural products, textiles, and industrial goods.
- Country Eligibility – Developing countries must meet specific criteria (such as labor rights and intellectual property standards) to qualify.
- Time-Limited – GSP benefits are subject to periodic renewal by donor countries.
Benefits of GSP
- 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.
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
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 | ||
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
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.
FAQs
What is the Generalized System of Preferences (GSP)?
GSP is a trade program that allows developed countries to grant preferential tariff treatment (lower or zero tariffs) to developing and least developed countries (LDCs) to promote economic growth and trade.
Who qualifies for GSP benefits?
Developing and least developed countries qualify if they meet specific economic, labor, and governance criteria set by the donor country. Countries can lose GSP status if they no longer meet these requirements.