Mar 17, 1984
GSP SCHEMES HAVE BENEFITED THIRD WORLD, BUT NEED IMPROVEMENTS.
GENEVA, MARCH 24 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The preferential import schemes of the Industrial world, favouring the developing countries under the General System of Preference (GSP), have had a "substantial impact" on Third World exports, according to a study done for the UN Conference on Trade and Development.-The study, by Prof. Craig R. Macphee of the University of Nebraska (U.S.A.), is of the effect over 1970-80 of the schemes of the U.S.A., the EEC and Japan which account for 90 percent of all GSP imports in the world.- Preferential imports under the GSP schemes "have not suddenly flooded the markets" and have had "very little" effects on the Industrial countries, the study concludes.- "Even an unlimited, across-the-board GSP would increase the total imports of the EEC, Japan and the united states by only the amount of trade creation: nine billion dollars or a 9.8 percent increase", the study says.- As a share of their Gross Domestic Product (GDP), this import growth would be a miniscular 0.14 percent, it notes.- Developing countries would benefit from such fundamental improvements in the GSP schemes.- But barring such improvements, these countries "will have to rely almost exclusively on their own devices for increasing exports".- "Their optimal export strategies should concentrate on in creasing competitiveness and product diversification with an eye to avoiding GSP limitations and/or other tariff measures", the study adds.- Can the world realistically expect any new policy initiatives to significantly increase imports from the developing countries? In the current climate of protectionism, this is a question to which economists can provide no objective answer, the study says.- If rationality entered the policy-making process, it would be easy to answer in the affirmative.- Enlarging political and economic interdependence means that growth in production, employment, income, and living standards in the developing countries is also in the best interests of the developed countries.- This growth need not create unemployment and stagnation in the developed countries if they would follow policies to facilitate the reallocation of resources.- Tariff preferences, the study avers, are perhaps the least costly way to achieve faster growth in the developing countries since the buyers in the developed countries obtain cheaper goods, while producers in the developed countries find more prosperous customers in the developing countries.- The idea of GSP was first mooted at UNCTAD-I in 1964, and UNCTAD-II in 1968 called for "generalised, non-reciprocal, non-discriminatory system of preferences in favour of the developing countries".- Though initially resisted by the OECD countries, individual GSP schemes were put into place in the 70’s.- The GSP schemes, the study says, did not achieve their potential mainly because the schemes implemented did not conform to the principles agreed to at UNCTAD.- Instead of a single, comprehensive and simple system, preferences were implemented under 16 different schemes.- Under them, preferences were denied to many products exported by the developing countries. The product coverage was less than one-half of all dutiable imports from the beneficiaries.- Some schemes introduced an element of reciprocity, making beneficiary status conditional on certain undertakings by the preference giving countries.- Some schemes were also discriminatory and certain developing countries were denied benefits completely or on products of importance to their export trade.- There were also limitations imposed in the U.S., EEC and Japanese schemes.- And the rules of origin were very complex and demanding.- As a result, only about one quarter of the dutiable imports from the developing countries actually received preferential treatment.- "Clearly the system can no longer be considered mutually acceptable, and developing countries have repeatedly requested major improvements in the GSP schemes over the last decade", the study points out.- No doubt some improvements have been made. The beneficiary lists have been expanded and there are very few exceptions, though a few developing countries are being "graduated" out of the schemes, at least for selected products.- The product coverage has been expanded to include additional items, and unlimited preferential-duty free entry has been granted to the least developed countries.- The safeguard mechanisms have been actually used to deny preferential treatment on a selective if not exceptional basis.- Despite the imperfections, the GSP schemes have had a modest impact on the export earnings of the developing countries.- After making allowances for other factors contributing to increased imports from the Third World, the study estimates that imports are 39 percent larger because of the GSP than would have been the case through competitive effects alone.- This means that four billion dollars or 28 percent of the 1980 imports of preferential products are attributable to the GSP-induced trade expansion.- But because of the low product coverage and restrictive GSP limitations, 78 percent of the growth in dutiable imports or 56 billion dollars, occurred without any benefits from the GSP.- Thus, the preferential imports still accounted for only a very small share of total imports from the beneficiary countries.- Viewing as "fallacious" some of the criticisms about the GSP, the study say, that the size of the trade creation and diversion effects of GSP, imply that tariff cuts were passed on to buyers in the form of lower prices and did not accrue to importing agents alone.- Also, the developing countries responded with increased production, and the consequent increase in preferential imports from the beneficiaries was substantial.- The study estimates that as a result of the tariff reductions in the Tokyo Round agreements, the preferential tariff margins decreased far more than the average reductions in all Most-Favoured-Nation (MFN) tariffs.- On balance the gains from the Tokyo Round were more than offset by the loss of trade diversion. There was a net loss of 920 million dollars or one percent of dutiable imports from GSP beneficiaries in 1980.- Only in the case of the U.S.A. was there a slight gain from MFN tariff reductions.- The loss to the developing countries in the EEC was even greater, since the estimates ignored the erosion of special preferences.- "Clearly, there is a need for changes in trade policies which will have a substantial positive impact on exports of manufactures from the developing countries, although this is not the goal of all recent policy initiatives".- As to the changes being proposed, the study says that improvements in the GSP would yield greater benefits to beneficiaries than any other policy proposals.- Unlimited, across-the-board preferential tariff treatment, it estimates, would increase imports from beneficiaries by 24 billion dollars or 35 percent - six times larger than under current schemes.- But even after improvements, if the textile trade continued to be restrained under the Multifibre Arrangements (MFA), the preferential trade effects would be reduced to seven billions.- Since the EEC and Japanese schemes rely more on limitations, their preferential imports would rise more than that of the U.S. by the elimination of limitations.- The U.S. scheme excludes a higher proportion of products. If the U.S. would increase its product coverage, preferential imports would increase.- Underlining these differences, the study adds, "as long as preference-giving countries subscribe to the idea of burden-sharing, then negotiations on GSP improvements must address themselves simultaneously to the issues of product coverage and limitations".- Proposals for complete elimination of all MFN import duties would have the same effects as MFN reductions in the Tokyo Round.- Only if the MFA is abandoned at the same time as elimination of MFN tariffs, would the developing countries have a net gain in exports of about four billion dollars.- If textiles trade continues to be restrained, the beneficiaries of GSP schemes would actually lose 1.6 billion of trade.- As for proposals for "graduation" of some developing countries out of GSP, and giving them intermediate tariff preference rates (between GSP and MFN rates) in return for trade concessions by them, an idea mooted by the U.S.A., the study says that the graduated countries would lose and "intermediate preferences will be preferences in name only".-