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Generalized System of Preferences – Definition

Generalized System of Preferences (GSP) Definition

Generalized System of Preferences (GSP) is a scheme favoring global trade for the purpose of facilitating economic growth between developed nations. It is a trade preference program that permits duty-free or low-duty entry of products from developing countries and territories.

GSP is also called generalized preferential tariff (GPT). The GSP exempts nations from WTO (World Trade Organization) rules and policies. GSP saves nations from Most Favored Nation principle that allows member countries of WTO to consider every nation falling under WTO at par when it’s about tariffs. GSP gives exemptions to WTO member nations from this MFN principle so as to reduce tariff rates for the least developed nations. Further, developed or rich nations need to pay the actual amounts of tariffs, and don’t receive any reduction in them.

History of Generalized System of Preferences

In 1960s, UNCTAD (United Nations Conference on Trade and Development) discussed on the topic of introducing tariff preferences for developing nations. Developing countries were of the view that MFN had a monetary disadvantage for developed/affluent countries for lowering tariffs and easing up other trade regulations with a view to offer advantage to developing nations.

Starting in 1971, the GATT allowed for two waivers of the MFN to developing countries that last for 10 years. In 1979, the GATT developed a permanent exemption allowing WTO members (at the time, “contracting parties”) to establish trade preference programs with other countries, if they are generalized, non-discriminatory, and non-reciprocal with the beneficiary country.

In generally, most member countries have complied with GSP program guidelines. Some member countries have excluded other countries for various political reasons. Some will argue that the GSP program are not fully generalized with regard to products. Many common goods that are subject to disparate production costs and comparative advantages among countries have been excluded for protectionist reasons. Many would also argue that the GSP has benefited some classes of developing countries while leaving many highly underdeveloped countries out.

References for Generalized System of Preferences

Academic Research on Generalized System of Preferences (GSP)

·       Trade benefits under the EEC generalized system of preferences, Sapir, A. (1981). European Economic Review, 15(3), 339-355.

·       Labor rights in the generalized system of preferences: A 20-year review, Compa, L., & Vogt, J. S. (2000). Comp. Lab. L. & Pol’y J., 22, 199.

·       The US Generalized System of Preferences and its impacts, Sapir, A., & Lundberg, L. (1984). In The structure and evolution of recent US trade policy (pp. 195-236). University of Chicago Press.

·       India’s WTO Challenge to Drug Enforcement Conditions in the European Community Generalized System of Preferences: A Little Known Case with Major …, Howse, R. (2003). Chi. J. Int’l L., 4, 385.

·       The perversity of preferences: GSP and developing country trade policies, 1976–2000, Özden, Ç., & Reinhardt, E. (2005). Journal of Development Economics, 78(1), 1-21.

The degeneralization of the Generalized System of Preferences (GSP): questioning the legitimacy of the US GSP, Mason, A. M. (2004). Duke LJ, 54, 513.

·       General equilibrium effects of the US generalized system of preferences, Brown, D. K. (1987). Southern Economic Journal, 27-47.

·       Accounting for Underutilization of Trade Preference Programs: US Generalized System of Preferences, Hakobyan, S. (2010). University of Virginia.

·       A little less conversation: The EU and the (non) application of labour conditionality in the generalized system of preferences (GSP), Vogt, J. (2015). International Journal of Comparative Labour Law and Industrial Relations, 31(3), 285-304.

·       The US Generalized System of Preferences for Developing Countries: International Innovation and the Art of the Possible, Graham, T. R. (1978). American Journal of International Law, 72(3), 513-541.

·       Trade and welfare effects of the European schemes of the Generalized System of Preferences, Brown, D. K. (1989). Economic Development and Cultural Change, 37(4), 757-776.

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