Generalised Scheme of Preferences

The European Union (EU) has suspended Generalised Scheme of Preferences (GSP) tariff concessions for India affecting key export sectors

What is the Generalised Scheme of Preferences (GSP)

• Origin: The GSP was instituted in 1971 under the aegis of the United Nations Conference on Trade and Development (UNCTAD) to promote exports from developing countries.
• Definition: The Generalized System of Preferences (GSP) scheme is a voluntary trade measure implemented by developed countries that provide an advantageous, or “preferential”, tariff treatment to imports from developing countries
• Tariff Preferences: The scheme allows for reduction or complete elimination of customs duties on selected products exported by Beneficiary Developing Countries (BDCs) to preference-granting developed countries.
• GSP-Granting Countries: 
• • At present, 14 countries and groupings extend GSP preferences, including the European Union, United Kingdom, United States, Japan, Canada, Australia, Switzerland, Norway, New Zealand, Turkey, Russia, and others.
  • Each operates its own scheme with distinct product coverage and eligibility conditions.

Impact on Indian Exports

• Coverage: Around 87% of India’s exports to the EU will now face full Most Favoured Nation (MFN) tariffs.

• Residual Benefits: Only about 13% of exports, mainly select agricultural products, leather goods, and handicrafts, retain GSP benefits
• Sectors Affected: GSP benefits withdrawn across almost all major industrial sectors, including  Minerals, Chemicals, Plastics & rubber, Textiles and garments, Stone and ceramics, Precious metals and Machinery and electrical goods among others.
• Garment and Textile Sector: It is Highly price-sensitive sector; loss of tariff advantage is likely to undermine competitiveness.
  • EU buyers may shift towards Bangladesh and Vietnam, which continue to enjoy duty-free or lower-duty access.

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