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Generalized System of Preferences (GSP)
The Generalized System of Preferences (GSP) is a formal system of exemption from the more general rules of the World Trade Organization (WTO) as well as is 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.

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.

As stated in Resolution 21 (ii) taken at the UNCTAD II Conference in New Delhi in 1968, the objectives of the generalized, non reciprocal, non discriminatory system of preferences in favour of the developing countries, including special measures in favour of the least advanced among the developing countries, should be:

(a) to increase their export earnings;
(b) to promote their industrialization;
(c)To accelerate their rates of economic growth.

In 1971, the GATT (General Agreement on Tariff and Trade) followed the lead of UNCTAD and enacted two waivers to the MFN that permitted tariff preferences to be granted to developing country goods.

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.

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.)

In fact, the least developed countries (LDCs) receive special and preferential treatment for a wider coverage of products and deeper tariff cuts.

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. 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.

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.

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.

Dec 31, 2011 10:10
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