On Monday, January 14th,
2013, my group had a presentation about Generalized System of Preferences (GSP).
So, the purpose of this article is to recall the definition of GSP, and then to
bring to light some of the critics that have been done about this concept.
First, as stated in Resolution 21
taken at the UNCTAD 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; and
(c) To accelerate their rates of economic
growth."
Thus, is the GSP the final solution to
enhance the economy of poor countries? Many economists believe that GSP does
not seem to be a suitable instrument to promote sustainable economic growth and
development of low-income countries. Here are the major argument that they
present to support their opinion.
First, GSP schemes are criticized
for being not so much an instrument to promote the exports of developing
countries but more the means to improve the trade position of industrialized
countries (see e. g. Mattoo et al., 2003). An example for this so-called
opportunistic behavior is the specific design of RoO criteria. As a commonly
used condition, local content rules require a minimum value-added within the
exporting country. GSP schemes typically allow so-called partial cumulation of
local content which means that intermediate input factors imported from the GSP
granting country can also be included in the local value-added required by RoO.
As a result, GSP receiving countries are likely to import intermediate inputs
from the GSP granting country which thereby also benefits from GSP.
Additionally, to be eligible for
GSP, companies have to comply with complex rules of origin (RoO) which induce
costs for administrative procedures and specific technical requirements. Since the
various GSP granting countries demand different RoO, the corresponding costs for
the exporters can be prohibitively high. For instance, Anson et al. (2005)
estimate the costs of compliance with RoO in the North American Free Trade
Agreement (NAFTA) at 6%. UNCTAD (2003) argues that compliance costs may
generally be higher in developing countries than in developed economies due to
the lack of administrative and industrial capacities.
Second, 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.
In the United States and many other rich countries, domestic producers of
"simple" manufactured goods, such as textiles, leather goods,
ceramics, glass and steel, have long claimed that they could not compete with
large quantities of imports. Thus, such products have been categorically
excluded from GSP coverage under the U.S. and many other GSP programs. 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.
Furthermore, not all developing
countries have the same needs: the last twenty to thirty years have seen the
emergence of more advanced developing countries, which are mow globally
competitive. On the other hand, many poorer countries are lagging behind. They are
affected by competition from more advanced emerging countries and have suffered
during the global economic crisis. Despite this, most advanced emerging
economies are the biggest beneficiaries of GSP, accounting for around 40% of preferential
imports under GSP. There is significant competition between GSP beneficiaries. Hence
the need to concentrate preferences on those that most need them: low and lower
middle income countries.
To conclude, there are many
arguments that support that the effects of GSP have been found to be controversial
to the expected results. However, some of these gaps have been closed by the
U.S. through creation of supplemental preference programs like the African
Growth and Opportunity Act. Also, EU is proposing to reform the GSP in order to
achieve a better focus on those countries in need, promote care principles of
sustainable development and good governance, and enhance legal certainty and
stability.
Sources:
·
Bernhard Herz and Marco
Wagner, The Dark Side of the GSP. [Online]: German Council of Economic
Experts, February 26, 2010. Available from: http://www.sachverstaendigenrat-wirtschaft.de/fileadmin/dateiablage/Arbeitspapiere/The_Dark_Side_of_the_Generalized_System_of_Preferences.pdf
·
William H. Cooper, CRS
Report for Congress, GSP. [Online]: Congressional Research Service, The Library
of Congress, Updated July 10, 2007. Available from: http://fpc.state.gov/documents/organization/89919.pdf
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