The Generalized System of Preferences : How Much Does It Matter for Developing Countries?

The Generalized System of Preferences scheme is a voluntary trade measure implemented by developed countries that provide an advantageous, or ‘preferential’, tariff treatment to imports from developing countries. The scheme is expected to contribute to developing countries' export growth particularly in the manufacturing sector.

The Generalized System of Preferences (GSP) scheme is a voluntary trade measure implemented by developed countries that provide an advantageous, or "preferential", tariff treatment to imports from developing countries. The scheme is expected to contribute to developing countries'' export growth particularly in the manufacturing sector. Five decades since its inception, the GSP scheme stands at a crossroads. The effectiveness of tariff incentives as a tool to foster exports has eroded over time as trade liberalization processes proceed at multilateral, regional, and unilateral levels, and as the relevance of tariffs to overall trade costs declines. The question arises as to whether the relevance and effectiveness of tariff preferences remain valid today. Focusing on the GSP schemes of the Quad economies (Canada, European Union, Japan, and the United States of America), which accounted for nearly 50 per cent of global imports in the period between 2004 and 2018, the study provides an objective assessment of tariff advantages offered under the GSP by quantifying the economic "value" of preferential treatment and the obstacles to the realization of its full potential. While sharing the same objective of providing preferential market access to imports from developing countries, the GSP schemes of different countries are non-homogeneous sets of national measures. Each GSP scheme is designed according to the granting country''s national interests. Across GSP schemes, there is no threshold or minimum requirement in terms of product/country coverage and the level of tariff advantages. Hence, the objective of the study is not to bring value judgment as to which scheme is better or worse relative to others but to take stock of the state of tariff preferences offered under the four representative schemes.