A Generalized Preferential Tariff or Scheme (GPT/GSP) is an instrument of trade facilitation and development assistance granting tariff preferences on a unilateral basis. It allows exporters from developing countries to pay reduced or zero customs duties on their exports to the country or free trade zone that operate the scheme. The countries eligible for GSP are defined by a list taking into account various economic indicators. Such lists are revisited periodically in order to consider economic progress and regional aspects too.
GSP in the EU
The review of the GSP list took place during 2012, as a result of which a number of countries – having grown internationally more competitive – were removed from the list. The removal of certain high-income Gulf States (e.g. UAE, Oman) or of Russia for instance does not take us by surprise.
World politics also shape the GSP list. The newly independent South Sudan, as well as the turmoil-shaped Myanmar/Burma have also been (re)added to the GSP list. The changes will come into force 1st of January 2014 (with certain roll-over provisions) and reduce the number of beneficiaries from 176 to 89 countries.
In addition, the EU identified certain products exported by some of the beneficiaries of the new GSP (e.g. footwear from China or textiles from India) that had become so competitive that they no longer need support to be successfully exported to the EU. These products will not receive GSP preferences as from 1 January 2014 to 31 December 2016, when the list will be reviewed again.
This year Canada also decided to review the beneficiaries of its “General Preferential Tariff” list and decided to remove 72 countries. This change will be effective from 1st of January 2015 on. Among others, Brazil, China, India and Russia (the so-called BRIC countries) will no longer benefit from GPT preferences. These countries will instead fall under the “Most-Favored-Nation” clause and will be subject to a higher duty rate.
Why does it matter?
Free trade agreements undoubtedly provide the most benefits for international trade. Nevertheless, being an instrument of international law, the time lag between their negotiation and the subsequent national ratification process may stretch to several months, making the initial euphoria fade until implementation. GSP (if operated by a territory) on the other hands provides constant benefits to traders, which are often disregarded.