What is the Generalised System of Preferences?
Topic of Study [For H2 History Students]:
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 1: Reasons for growth of the global economy
Historical context: Disagreements over the MFN
Before the Generalised System of Preferences (GSP) was introduced in 1971, member nations in the developing world had concerns over the “most favoured nation” (MFN) concept. In particular, these countries argued that the MFN disincentivised more advanced counterparts from supporting tariff reductions and eliminations.
The most-favored-nation (MFN) clause embodied in article I of the General Agreement on Tariffs and Trade (GATT) was the defining principle for a system that emerged in the post-World War II era, largely in reaction to the folly of protectionism and managed trade that contributed to the global economic depression of the 1930s.
An excerpt taken from “Trade Preference Erosion: Measurement and Policy Response” by Bernard M. Hoekman, Will Martin and Carlos Alberto Primo Braga.
About the Generalised System of Preferences
In 1971, the GSP was introduced as part of the General Agreement on Tariffs and Trade (GATT). It functions as a system that grants products that came from developing countries lower tariff rates than those enjoyed under the MFN status. Ideally, the GSP was meant to boost export growth of developing countries and thereby advance economic development.
Unlike trading partners under the MFN status, the GSP features preferential tariffs that apply not only to countries with distinct historical and political relationships, but also to developing nations in general. Examples of such relationships can be observed in the case of US pro-trade policies with its Cold War allies in Asia, such as Japan.
Japan’s GSP
On 1 August 1971, Japan established the GSP, a month after the European Community had done so. The GSP scheme featured two regimes, namely the general preferential regime and a special preferential regime. The first type applies to preferential tariffs on import of designated items that originated from GSP beneficiaries. The second type focuses on duty-free treatment granted to import of designated items that came from least developed countries.
In principle, GSP preferences are not granted in the agricultural-fishery sector, given the weak competitiveness of Japan’s domestic industries. Items that are covered under the GSP are enumerated in a Positive List. Safeguards enable the government to suspend preferential treatment for items on the Positive List under certain conditions.
An excerpt taken from “Trade Preference Erosion: Measurement and Policy Response” by Bernard M. Hoekman, Will Martin and Carlos Alberto Primo Braga.
What can we learn from this article?
Consider the following question:
– How far do you agree that the Generalised System of Preferences have worked effectively in promoting trade liberalisation?
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