Apr 4, 1985

GSP SCHEMES AIM AT GREATER DIFFERENTIATION.

GENEVA, APRIL (IFDA/CHAKRAVARTHI RAGHAVAN)— Improvements made in 1934 in the schemes of Generalised System of Preferences (GSP) aim "at bringing about greater differentiation among developing countries in the application of preferential treatment", according to the UN Conference on Trade and Development.-

In a report (TD/B/C.5/96) to the UNCTAD Special Committee on Preferences, the secretariat notes that the improvements in the schemes in 1984, with respect to product coverage and tariff cuts, could be characterised as "very modest".-

"In general", the report adds, "efforts continue to be made to improve the benefits of the system with respect to the least developed countries on the one hand, and to make it more restrictive with respect to other beneficiaries considered to be more competitive".-

In 1984, Canada and the U.S. extended their respective GSP schemes for a further period, and with this all GSP schemes have now been renewed beyond their initial ten-year period.-

But while other GSP schemes have been extended for another ten years, the U.S. scheme has been renewed only for 8-1/2 years, up to July 4, 1993.-

In a general assessment of the GSP, the report says that although the GSP has not reached its full potential in terms of trade coverage, preferential imports have shown a significant increase, rising from 12 billion dollars in 1976 to about 32 billion in 1982.-

In real terms, estimates indicate that about a quarter of these imports may be attributed to GSP-induced trade expansion.-

But after more than 13 years of operation, GSP imports account for a small portion of dutiable imports from beneficiaries, and a yet smaller portion of total imports from them.-

Expansion of product coverage to include agricultural and labour-intensive products of export interest to the Third World, and in particular the Least Developed Countries (LDCs) among them, "can have a significant impact on the effectiveness of the GSP as well as on the wider distribution of its benefits among beneficiaries", UNCTAD says.-

The report notes that at Belgrade UNCTAD, the "role, objectives and character" of the GSP, as determined at UNCTAD-II (1968) were reaffirmed, and in particular its "generalised, non-discriminatory and non-reciprocal character".-

The Conference also asked the Trade and Development Board to study the operation of the GSP and assess its "effectiveness" and "stability".-

Effectiveness, UNCTAD suggests, should mean the extent to which benefits derived from GSP has enabled Third World countries to achieve the objectives of increasing their export earnings, promoting their industrialisation, and accelerate their rates of economic growth.-

"Stability", of the GSP concerned the maintenance of its character, and depended on the methods of application of the preferential treatment.-

There was a broad agreement, according to the report, that GSP has played a positive role in improving access of Third World countries to the markets of industrial countries.-

There was also agreement that its other objectives of greater industrialisation and faster economic growth have not been fully met in the Third World.-

It was for this reason that the duration of the GSP system had been extended for another ten years.-

The main disagreements over the GSP, the secretariat notes, relate to the methods of its application.-

All GSP schemes contain restrictive features of one kind or another, with regard to one or more of the various elements of the system, namely, beneficiary lists, product coverage, depth of tariff cuts, safeguards and rules of origin.-

Significant improvements were made during most of the first decade of the GSP.-

But beginning with the second decade, there was a considerable slow-down in such improvements, in addition to the introduction of an official policy by preference-giving countries to bring about greater differentiation in the application of preferential treatment among beneficiaries.-

This policy of "graduation" has taken many forms and, under the major schemes, consists in applying strict limitations on preferential imports from individual countries considered more competitive, as in the case of EEC and Japan, or, as in the case of the U.S., of phasing out and eventually eliminating from preferential treatment the more economically advanced Third World countries.-

The U.S. has also viewed the GSP as an opportunity for Third World countries to progressively align their trade policies with the generally applicable rules of international trading system.-

Similarly, Switzerland has seen it as an opportunity to encourage these countries to pursue "a more liberal policy on imports".-

Thus, the GSP has become part and parcel of the larger debate of whether or not, and if so, in what way, Third World countries should assume greater obligations under the international trading system.-

Two types of differential treatment enjoyed by the Third World are being questioned in this debate.-

The first concerns use by the Third World of protective measures for development.-

Subject to certain conditions, article XVIII of GATT allows Third World countries to take protective actions or other measures affecting imports to promote the establishment of particular industries and to apply quantitative restrictions for balance-of-payments (BOP) purposes.-

The second concerns preferential access to markets under the GSP, reflecting the shift of emphasis in the Third World to outward industrialisation policies.-

Graduation from these two types of differential treatment, thus implies, a phasing out of the more favourable treatment under GSP and a simultaneous phasing-in process, whereby Third World countries would contribute to the removal of their protective measures and participate more fully in the framework of rights and obligations under the applicable trade rules.-

However, UNCTAD points out, empirical economic studies of the issues have never been made and the issues have been largely discussed in the context of legal considerations of rights and obligations under the trading system.-

Arguments for and against the modification or withdrawal of preferential treatment, it suggests, must be examined on the basis of economic factors identified as the parameters for GSP at UNCTAD-II, and the economic factors outlined in the 1979 framework agreement of the GATT.-

These include the need for an increase in export earnings, promotion of industrialisation and acceleration of economic growth rates of the Third World, taking account of their development, financial and trade needs, as well as of the improvement in their trade situation and the progress of their economic development.-

The improvement in the trade situation of the Third World needs to be assessed with greater precision, UNCTAD argues.-

Among these are:

-- To what extent can the affected countries compete in industrial country markets without tariff advantage on their current exports?

-- In view of their development needs, to what extent does loss of tariff advantages prevent the affected countries from acquiring the competitiveness necessary for further diversification of their exports?

-- And in view of modification or withdrawal of tariff advantages, to what extent would the GSP be improved for other beneficiaries?

The UNCTAD secretariat plans to undertake studies in this including the effects of modification or withdrawal of GSP benefits on the countries concerned, over the short and long term - such as decline in economic activity, BOP problems and indebtedness.-

The adverse effects of sudden and unilateral change in the character of the GSP would also need to be analysed, with attention given to the identifying the specific needs of the countries that would be unfulfilled, and the alternatives that could be adopted to meet such needs, within a broader context of trade and development cooperation.-