Generalized System of Preferences

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The Generalized System of Preferences, or GSP, is a preferential tariff system which provides for a formal system of exemption from the more general rules of the World Trade Organization (WTO), (formerly, the General Agreement on Tariffs and Trade or GATT). Specifically, it's a system of exemption from the most favored nation principle (MFN) that obliges WTO member countries to treat the imports of all other WTO member countries no worse than they treat the imports of their "most favored" trading partner. In essence, MFN requires WTO member countries to treat imports coming from all other WTO member countries equally, that is, by imposing equal tariffs on them, etc.

GSP exempts WTO member countries from MFN for the purpose of lowering tariffs for the least developed countries, without also lowering tariffs for rich countries.

History[edit]

The idea of tariff preferences for developing countries was the subject of considerable discussion within the United Nations Conference on Trade and Development (UNCTAD) in the 1960s. Among other concerns, developing countries claimed that MFN was creating a disincentive for richer countries to reduce and eliminate tariffs and other trade restrictions with enough speed to benefit developing countries.

In 1971, the GATT followed the lead of UNCTAD and enacted two waivers to the MFN that permitted tariff preferences to be granted to developing country goods. Both these waivers were limited in time to ten years. In 1979, the GATT established a permanent exemption to the MFN obligation by way of the enabling clause. This exemption allowed contracting parties to the GATT (the equivalent of today's WTO members) to establish systems of trade preferences for other countries, with the caveat that these systems had to be "generalized, non-discriminatory and non-reciprocal' with respect to the countries they benefited (so-called "beneficiary" countries). Countries were not supposed to set up GSP programs that benefited just a few of their "friends.'

Since the early 1990s, a historic change affecting developing countries has occurred within the WTO. Namely, WTO rules have been extended to cover both textiles and agricultural products. For nearly all of the WTO's (and GATT's) existence, which started in 1948, textiles and agricultural products were excluded from WTO/GATT coverage because they were so sensitive to GATT's primary promoters, the United States and Europe. That situation has changed, and under new WTO rules, many textile tariffs and quotas already have been eliminated, and liberalization of trade policy also is occurring on the complex agricultural front. In many cases, textiles and agricultural products, including value-added products like flour rather than raw agricultural goods like wheat, are the main products that many of the world's least developed countries are able to export competitively.

Effects[edit]

From the perspective of developing countries as a group, GSP programs have been a mixed success. On one hand, most rich countries have complied with the obligation to generalize their programs by offering benefits to a large swath of beneficiaries, generally including nearly every non-OECD member state. Certainly, every GSP program imposes some restrictions. The United States, for instance, has excluded countries from GSP coverage for reasons such as being communist (Vietnam), being placed on the U.S. State Department's list of countries that support terrorism (Libya), and failing to respect U.S. intellectual property laws.[1]

Criticism has been leveled noting that most GSP programs are not completely generalized with respect to products, and this is by design. That is, they don't cover products of greatest export interest to low-income developing countries lacking natural resources. In the United States and many other rich countries, domestic producers of "simple" manufactured goods, such as textiles, leather goods, ceramics, glass and steel, have long claimed that they could not compete with large quantities of imports. Thus, such products have been categorically excluded from GSP coverage under the U.S. and many other GSP programs. Critics assert that these excluded products are precisely the kinds of manufactures that most developing countries are able to export, the argument being that developing countries may not be able to efficiently produce things like locomotives or telecommunications satellites, but they can make shirts.

Supporters note that even in the face of its limitations, it would not be accurate to conclude that GSP has failed to benefit developing countries, though some concede GSP has benefited developing countries unevenly. Some assert that, for most of its history, GSP has benefited "richer developing" countries - in early years Mexico, Taiwan, Hong Kong, Singapore, and Malaysia, more recently Brazil and India - while providing virtually no assistance to the world's least developed countries, such as Haiti, Nepal, and most countries in sub-Saharan Africa. The U.S., however, has closed some of these gaps through supplemental preference programs like the African Growth and Opportunity Act and a newer program for Haiti, and Europe has done the same with Everything But Arms.

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