Generalized System of Preferences
Encyclopedia
The Generalized System of Preferences, or GSP, is 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 doing so for rich countries). 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.'
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.
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
.
More generally, 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.
about GSP programs in general. Introduction to the U.S.
GSP program by the U.S. Trade Representative
. Information from the European Commission
on the E.U.
GSP arrangements. Introduction to Japan
's GSP program by the Japanese Ministry of Foreign Affairs
.
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
(WTO), (formerly, the General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...
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 doing so for rich countries). The idea of tariff preferences for developing countries was the subject of considerable discussion within the United Nations Conference on Trade and Development
United Nations Conference on Trade and Development
The United Nations Conference on Trade and Development was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues....
(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
Enabling clause
In 1979, as part of the Tokyo Round of the General Agreement on Tariffs and Trade , the enabling clause was adopted in order to permit trading preferences targeted at developing and least developed countries which would otherwise violate Article I of the GATT...
. 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.'
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
Vietnam
Vietnam – sometimes spelled Viet Nam , officially the Socialist Republic of Vietnam – is the easternmost country on the Indochina Peninsula in Southeast Asia. It is bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea –...
), being placed on the U.S. State Department's list of countries that support terrorism (Libya
Libya
Libya is an African country in the Maghreb region of North Africa bordered by the Mediterranean Sea to the north, Egypt to the east, Sudan to the southeast, Chad and Niger to the south, and Algeria and Tunisia to the west....
), and failing to respect U.S. intellectual property laws.
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
Taiwan
Taiwan , also known, especially in the past, as Formosa , is the largest island of the same-named island group of East Asia in the western Pacific Ocean and located off the southeastern coast of mainland China. The island forms over 99% of the current territory of the Republic of China following...
, Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
, and Malaysia, more recently Brazil and India - while providing virtually no assistance to the world's least developed countries, such as Haiti
Haiti
Haiti , officially the Republic of Haiti , is a Caribbean country. It occupies the western, smaller portion of the island of Hispaniola, in the Greater Antillean archipelago, which it shares with the Dominican Republic. Ayiti was the indigenous Taíno or Amerindian name for the island...
, Nepal
Nepal
Nepal , officially the Federal Democratic Republic of Nepal, is a landlocked sovereign state located in South Asia. It is located in the Himalayas and bordered to the north by the People's Republic of China, and to the south, east, and west by the Republic of India...
, and most countries in sub-Saharan Africa
Sub-Saharan Africa
Sub-Saharan Africa as a geographical term refers to the area of the African continent which lies south of the Sahara. A political definition of Sub-Saharan Africa, instead, covers all African countries which are fully or partially located south of the Sahara...
. The U.S., however, has closed some of these gaps through supplemental preference programs like the African Growth and Opportunity Act
African Growth and Opportunity Act
In May 2000, the U.S. Congress approved legislation known as the African Growth and Opportunity Act, or AGOA . The purpose of this legislation was to assist the economies of sub-Saharan Africa and to improve economic relations between the United States and the region...
and a newer program for Haiti, and Europe has done the same with Everything But Arms
Everything but Arms
Everything but Arms is an initiative of the European Union under which all imports to the EU from the Least Developed Countries are duty free and quota free, with the exception of armaments. EBA entered into force on 5 March 2001. There are transitional arrangements for bananas, sugar and rice...
.
More generally, 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.
External links
Information from the UNCTADUnited Nations Conference on Trade and Development
The United Nations Conference on Trade and Development was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues....
about GSP programs in general. Introduction to the U.S.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
GSP program by the U.S. Trade Representative
Office of the United States Trade Representative
The Office of the United States Trade Representative is the United States government agency responsible for developing and recommending United States trade policy to the president of the United States, conducting trade negotiations at bilateral and multilateral levels, and coordinating trade...
. Information from the European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
on the E.U.
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
GSP arrangements. Introduction to Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
's GSP program by the Japanese Ministry of Foreign Affairs
Ministry of Foreign Affairs (Japan)
The is a cabinet level ministry of Japan responsible for the country's foreign relations.The ministry is due to the second term of the third article of the National Government Organization Act , and the Ministry of Foreign Affairs Establishment Act establishes the ministry...
.