Generalized System Of Preferences Schemes Research Articles

Utilization of GSP schemes as a political and economic determinant of the utilization of North-South FTAs

Many works have examined the variables driving the formation of North-South free trade agreements (FTAs) between developed and developing countries. This study analyzes the determinants shaping their utilization in the contexts of their political economy and of Generalized System of Preferences (GSP) schemes that are unilaterally granted by developed economies to developing countries’ exports. Most of the goods liberalized through GSP are liberalized from early on in North-South FTAs; however, since FTA concessions are legally binding, goods that are excluded or only partially liberalized in GSP will be also excluded or protected in FTAs. As GSP schemes are subject to unilateral restriction/elimination by the developed country, exporters using GSP tariffs will lobby for the non-removable liberalization of their exports through an FTA and subsequently will have a high FTA utilization. These scenarios result in North-South FTAs being used to a great extent to export goods covered by and exported through GSP, thus consolidating pre-FTA trade patterns. These arguments were tested by analyzing disaggregated and rarely accessed data on Thailand’s and Malaysia’s exports through the Japanese GSP and their bilateral FTAs with Japan, as well as interviews with key actors involved in the policymaking of these FTAs. Most sectors in Thailand and Malaysia that benefited from GSP lobbied for FTA liberalization with Japan. Goods previously exported through GSP account for most of FTA utilization and the previous use of GSP preferences has a higher predictive value of subsequent FTA utilization than FTA tariff savings.

On the Legality of the United States Action of Terminating India’s GSP Status

Since the US Presidential Proclamation terminating India status as a Generalized System of Preferences (GSP) beneficiary with effect from 5 June 2019, questions are raised on the WTO legitimacy of such an action. The US measure, which appears to have a punitive element—a move precipitated by lack of reciprocity from India by not providing ‘equitable and reasonable access’ for US products in Indian markets—challenges the fundamentally premise of the GSP schemes. Since the GSP schemes are established to provide economic and developmental opportunities for developing countries, and once established must be administered as per the 1979 General Agreement on Tariffs and Trade Enabling Clause, meaning it must be on a ‘generalised’, ‘non-reciprocal’ and ‘non-discriminatory’ basis, can India raise a legitimate challenge against the US action at the WTO Dispute Settlement Body? Or can the GSP schemes, being voluntary and unilaterally administered, be structured by developed countries as trade policy tools with stringent trade and non-trade conditionalities? The decision of the Appellate Body in European Communities—Tariff Preferences, the contested nature of the Enabling Clause and the heterogeneous nature of developing countries at the WTO makes the interpretation knotty. In this context, this article provides a brief comment on the legal basis of the Enabling Clause in the WTO framework and the legitimacy of the US action of termination of India from the beneficiary status. Keeping aside the legal question, the author is also of the view that time is ripe for India to consider ‘graduating’ itself from such preferential arrangements and engage in binding obligations that are reciprocal and sustainable. JEL Codes: K33, O24

Go Ahead and Trade: The Effect of Uncertainty Removal in the EU’s GSP Scheme

We estimate the trade effect of removing uncertainty about future trading conditions in the context of the 2014 reform of the Generalized System of Preferences (GSP) of the European Union (EU). EU GSP members receive non-reciprocal trade preferences (NRTPs), but only as long as they are not too competitive; i.e. they will graduate in case their share of EU GSP imports in a sector exceeds a certain threshold. However, the 2014 reform removed the threat of these competitiveness-related graduations for members of the GSP+, a sub-scheme of the main programme. We find that the reform increased EU imports from GSP+ countries by about 7% on average whilst tariffs stayed the same. This trade impact is driven by the country-sector pairs most exposed to NRTPs uncertainty pre-reform. The effect is robust to taking into account other aspects of the reform, such as the reduction in GSP membership and changes in tariff margins, respectively.

Impact of Rules of Origin on Market Access in Japan for Developing Countries Under Generalized System of Preferences (GSP)

This paper analyses the impact of rules of origin (ROO) of Japan’s Generalized System of Preferences (GSP) on Japan’s import value using data for 97 countries and territories. Under the GSP scheme, Japan unilaterally provides preferential tariff treatment for goods originating in developing countries to promote their exportation and economic growth. Aiming to capture the restrictiveness of ROO, I construct a synthetic index based on earlier research by Cadot et al. (2006). Regression results show that when the tariff rate under ROO is raised by one point, import value using GSP decreases by 19.2 per cent. This result is statistically significant and robust. An additional finding is that the GSP import value increases by approximately 3 per cent when the tariff rate is reduced by one percentage point. Furthermore, EPA eligibility reduces the GSP import value significantly because when both Economic Partnership Agreements (EPAs) and GSP preferential tariffs are provided to the same product, and if the EPA rate is less or equal to the GSP rate, importers cannot claim GSP. On the other hand, exemption from documentary submission requirements does not affect the GSP import value. These findings have the potential to enable Japan to make trade rules more strategic in response to changes in the global trade environment.

Impact of European Union Generalized System of Preferences scheme on fruit and vegetable exports from East Africa: A preference margin approach

We evaluate the impact of the Generalized System of Preferences (GSP) scheme on horticultural exports from Kenya, Tanzania and Uganda to the European Union (EU). The preference margin, computed as the difference between trade-weighted Most Favoured Nation’s rate and the ad valorem equivalents(, is used as a proxy for the GSP scheme. The zero-inflated Poisson estimator is used to control for overdispersion and excess zero trade flows, while time-invariant effects control for heterogeneity. The findings suggest that the EU-GSP scheme promotes bean exports from the three East African states as well as pepper from Uganda. Conversely, the results suggest that the scheme seems not to enhance export of asparagus from Kenya, vegetables from Tanzania and bananas from Uganda to the EU.

Has Generalized System of Preferences Scheme Influenced Nepalese Exports to the United States? An Empirical Analysis

This paper attempts to evaluate the impact of generalized System of Preferences (GSP) scheme on exports of Nepal to the United States (US). Nepal-US trade is very crucial because the US is still the second largest export destination of Nepal. Thus, it is pertinent to study exports of Nepal to the US under GSP scheme. Empirical results show that impact of GSP scheme is very minimal and negative. Other factors than liberal policy viz. GSP determines exports of Nepal to the US. Weakening exports capacity and declining trade transaction of Nepal to the US is of major concern. In this regard, to sustain the export of existing but declining exportable items like garment, carpet, pashmina and handicrafts and development and promotion of GSP eligible new products and services will only be the resolution of this obstruction.Economic Journal of Development Issues Vol. 17 & 18 No. 1-2 (2014) Combined Issue, Page: 29-39

Creating WTO Law by Stealth: GSP Conditionalities and the EC Tariff Preferences Case

The WTO is witnessing an increasing intrusion of its remit into areas that hitherto were the preserve of the state. This makes the legitimacy of its law creation process critical. The article engages in analyses of the conditionalities in developed countries’ Generalized System of Preferences (GSP) schemes, notably those of the EU. It argues that the maintenance of conditionalities in developed countries’ GSP schemes can result in extra regulatory burdens for developing countries and can have the effect of creating WTO law by stealth. The analyses centre on the Appellate Body decision in the EC – Tariff Preferences case.

A New Approach to Preferences: The Review of the European GSP Scheme

Unilateral trade preferences granted by industrialized countries are a common and widely used instrument to foster exports from developing countries, thereby stimulating economic growth and alleviating poverty. The European Union (EU)’s Generalized System of Preferences (GSP) is one of the most generous schemes worldwide, offering tariff preferences for about 6,200 tariff lines to 176 countries. The authors are of the view that the current EU’s GSP scheme contains some fundamental flaws, in particular with respect to the selection of beneficiary countries and the graduation mechanism. The ongoing reform of the EU’s scheme provides a unique opportunity for overhauling the system as such and targeting trade preferences to those countries that mostly need them. The European Parliament being a new player at the table when it comes to trade policy legislation will certainly shape the reform.

The New GSP+ Beneficiaries: Ticking the Box or Truly Consistent with ILO Findings?

In the past decade, the European Union (EU) has committed itself to promoting the social dimension of globalization, focusing mostly on the promotion of labour standards internationally through increased cooperation with the International Labour Organization (ILO) and by means of its external trade policies. This article addresses these two dimensions of the Union’s global social policies, by examining whether EU practise in Generalized System of Preferences (GSP) labour conditionality has been consistent with ILO assessments. In particular, we utilize a ‘hierarchy of condemnation’ to examine the implementation record of core labour standards (CLS), as evaluated by the ILO committees entrusted with assessing countries’ observance of conventions. This analysis makes clear that, although EU decisions to sanction countries through its GSP scheme are traceable to the level of condemnation by the ILO, consistency between the granting of GSP+ incentives and ILO assessments is less clear-cut and cannot entirely be explained by the EU’s attempts to use GSP+ to stimulate the implementation of CLS. Finally a number of explanations for these findings are given, pointing in particular to path-dependent processes in the EU decision-making system.

The Generalized System of Preferences of the United States: Does It Promote Industrialization and Economic Growth in Least Developed Countries?

The Generalized System of Preferences (GSP)—a system of differential and favorable trade arrangements toward less developed countries, adopted by the General Agreement on Tariff and Trade (GATT)—has been around since the early 1970s. A primary objective of these schemes has been to promote industrialization and economic growth in less developed countries through trade rather than aid. The outcome of such programs has, however, been mixed. This paper identifies some of the underlying political and economic dynamics which led to the dismal performance of the GSP schemes of the United States in respect to the industrialization and economic growth of the Least Developed Countries (LDCs). The paper suggests that the effectiveness of GSP schemes could be significantly improved if they were brought under the binding WTO rules, if greater resources were directed to removing supply constraints in the LDCs, and if developed countries granted unwavering market access to LDC exports.

A Comparative Study of U.S and Japanese Generalized System of Preferences

Exports help developing countries to expand their production, promote industrialization and accelerate their economic growth. They played an important part in the economic transformation of Southeast Asian countries. The Generalized System of Preferences (GSP) is one of the ways in which developing countries can increase their exports to the markets of developed nations. The GSP, a unilateral, non‐reciprocal program agreed under the United Nations provides preferential duty entry to numerous products imported into developed countries by eligible developing countries. The objective of this study is to examine the role of GSP in stimulating exports of developing countries. It also provides a comparative appraisal of the GSP schemes of the United States and Japan. The paper also makes certain recommendations to make GSP schemes more efficient and applicable to particular situations.

A preference for development: the law and economics of GSP

The Generalized System of Preferences (GSP), authorized by the 1979 Enabling Clause under GATT, allows importing nations to extend preferential tariff treatment to the products of developing countries. India recently brought a successful WTO complaint challenging aspects of the EC preference scheme, claiming that it impermissibly discriminated among developing countries. We analyze the law and economics of discrimination within GSP schemes, assessing the implications of the Appellate Body decision in the case brought by India, and noting the economic costs and benefits of imposing tight nondiscrimination obligations on trade preferences for developing countries. We conclude that the case against discriminatory preferences is at best an uneasy one, both in legal and in economic terms. We also note that the ostensible justification for GSP schemes in the fist instance – to promote growth and development – is unlikely to be served terribly well by existing GSP policy.

A diffusion model of the process of implementing the generalized system of preferences

This paper uses a two-stage approach to study the process of adopting tariff preferences under the Generalized System of Preferences (GSP) and to identify factors that influence the dynamic adoption process. First, logistic growth functions of the share of preferential exports in total exports over time are estimated to provide measures of the adoption rate and upper limit participation value for developing country beneficiaries under each GSP scheme. The second step relates these parameters to measures of market access for GSP-covered products. Results indicate the process of implementing a tariff preference scheme mirrors a dynamic diffusion process whereby beneficiaries increase their share of preferential exports in total exports over time.

Non-Tariff Measures and Industrial Nation Imports of GSP-Covered Products

The Generalized System of Preferences (GSP) program was proposed at the first United Nations Conference on Trade and Development (UNCTAD) held in 1964.' Under the GSP, most industrial nations extend tariff preferences to certain manufactured and semi-manufactured articles exported from designated beneficiary developing countries, while retaining most-favored-nation (MFN) duties on imports from non-preferred supply sources. Tariff preference margins create static price advantages intended to enhance the competitiveness of exports from beneficiaries and encourage investment in export-related activities. Several studies have identified features of GSP schemes which limit access to preferential treatment thereby reducing the effectiveness of the schemes as trade creating instruments [9; 10; 16]. First, an initial agreement to have a non-discriminatory GSP led preference-giving countries to approve exhaustive beneficiary lists and simultaneously limit product coverage to avoid undue market disruption caused by import surges from advanced beneficiaries. Many low technology and unskilled labor intensive products of export interest to beneficiaries are statutorily excluded from eligibility under most schemes.2 A second factor limiting utilization is the GSP's stated intention to shift production emphasis from primary products to manufactured goods. Most processed and semi-processed agricultural, forestry, and fishery products of export interest to beneficiaries are treated as falling outside the GSP. Third, ceilings on preferential imports and graduation, advanced as means of restricting trade shares for the poorer beneficiaries by limiting preferential trade shares of the more advanced suppliers, basically operate as safeguards for import-sensitive activities.3 Finally, complex Rules of Origin and other administrative regulations unduly restrict preferential imports of assembled items.

The Effects of Trade Preferences for Developing Countries

At the 1964 and 1968 United Nations Conferences on Trade and Development the developing countries pressed for, and the developed countries finally agreed to, the granting of preferential tariff treatment on the formers' manufactured exports. Such a discriminatory measure runs counter to the non-discrimination or most-favored-nation (MFN) principle set out in the first article of the General Agreement on Tariffs and Trade and a GATT waiver was necessary before the developed countries could introduce their individual schemes under the Generalized System of Preferences (GSP).' Since their introduction between 1971 and 1976, these schemes have aroused opposition not only from protectionist forces in the donor countries and from supporters of the non-discrimination principle, but also from economists arguing that the GSP yields little benefit to the developing countries who would do better to seek MFN tariff cuts on goods in whose production they possess a comparative advantage. The developing countries have, however, been if anything more skeptical of MFN tariff cuts since the introduction of GSP, because such cuts would erode the value of their preference margins. The relative merits of GSP versus MFN tariff cuts from the developing countries' perspective is partly an empirical matter, which could be settled by estimates of the trade creating and trade diverting impact of GSP. Such estimates require values for GSP beneficiaries' parameters, about which our knowledge is limited. In this paper I contend that the most influential estimates of GSP effects sidestep this requirement in a manner which guarantees the predominance of trade creation, whereas consideration of plausible parameter values and of the design of actual GSP schemes suggests trade diversion to be more significant. The standard partial equilibrium model with infinitely elastic supply (Figure 1) has proven popular for estimating the effect of non-preferential tariff changes, largely because of its meager data requirements. It is, however, inappropriate for preferential tariff changes because all imports come from the same source and all-or-nothing diversion of nonbeneficiaries' trade is predicted. This difficulty can be circumvented, while remaining within the

The Generalized System of Preferences and the Comparative Advantage of Less Developed Countries in Manufactures

One of the proposals of the first United Nations Conference on Trade and Development in 1964 was the establishment of a system of preferential tariff rates favouring existing imports from less developed countries under which all developed countries would unilaterally reduce their tariff duties charged on imports from less developed countries while maintaining most¬ favoured-nation rates1 on imports from other (developed) countries. The idea was later extended to cover all manufactured products and came to be known as the Generalized System of Preferences (GSP). The first GSP scheme was introduced by the European Economic Community on July 1, 1972. It was followed by schemes of Austria, Denmark, Finland, Ireland, Japan, New Zealand, Sweden, Switzerland and the United Kingdom. Some socialist countries have also implemented GSP schemes.