Explained: The Turkey and India Trade ‘Preferences’ Trump’s Threatening to Pull

(Bloomberg) -- U.S. President Donald Trump says he intends to remove India and Turkey from a trading arrangement known as the “generalized system of preferences,” or GSP, which grants breaks on tariffs to developing nations to help boost their exports. The decades-old set-up, also offered by the European Union and 11 other countries, is intended to help poorer countries grow and improve living standards. It’s the latest target in Trump’s bid to shake up world trade.

1. How does GSP work?

It allows members of the World Trade Organization to lower tariffs on goods from certain countries by exempting them from the Most-Favored Nation principle, under which WTO members are otherwise obliged to treat imports from all other members equally.

2. Who offers it and who receives it?

As well as the EU and the U.S., GSP is offered by Australia, Belarus, Canada, Iceland, Japan, Kazakhstan, New Zealand, Norway, Russia, Switzerland and Turkey. Each has its own list of eligible beneficiaries. There are more than 175 recipients, including some of the offerers, such as Turkey and Belarus. The U.S. eligibility list runs three pages.

3. What’s the history?

It was instituted in 1971 through the United Nations Conference on Trade and Development to help developing countries -- particularly the poorest -- promote trade. The system goes beyond lowering tariffs and involves raising awareness about rules and regulations and export opportunities.

4. What’s the issue with India and Turkey?

Trump says India -- the largest beneficiary of the program in 2017 with $5.7 billion in imports to the U.S. given duty-free status -- does not give “equitable and reasonable” access to its markets. He says Turkey is no longer a “developing country based on its level of economic development.”

5. Has GSP worked?

Academic studies suggest GSP helps developing countries’ exports in the short run but hampers them in the long run, while also making countries less likely to liberalize their own trade policy. Critics also state that many of the products poorer countries would like to export are often excluded from GSP, such as clothing and farm goods. Supporters note that the system has contributed over the years to creating an enabling trading environment for developing countries.

The Reference Shelf

  • United Nations Conference on Trade and Development list of GSP beneficiaries.
  • A QuickTake explaining Trump’s trade war and the global fallout.
  • The European Union’s GSP policy in a nutshell.

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