GSP and Development: Increasing the Effectiveness of Nonreciprocal Preferences

The intellectual foundations of nonreciprocal preferences were first laid out in the 1960s, as several scholars noted developing countries’ increasing reliance on highly volatile, low-value-added exports like agricultural and mineral commodities. The Generalized System of Preferences (GSP), which became the mechanism for implementing nonreciprocal preferential market access, was developed in this context. GSP was envisioned as part of a larger development strategy that included import-substitution policies, infant industry protection, and preferential access to developed countries’ markets. As GSP granted preferential access over World Trade Organization (WTO) most favored nation (MFN) rates, development economists anticipated that it would provide developing countries’ economies with the competitive edge they needed to diversify and grow. At present, thirteen countries or groups of countries have established GSP schemes and, despite criticism over the discretionary and conditional nature of some of these countries’ schemes, commentators acknowledge that nonreciprocal preferences have had a positive effect on development and economic growth in beneficiary countries. Despite their positive impact, however, nonreciprocal preference programs have met resistance in some countries. In the United States, for instance, continuation of U.S. GSP was recently the subject of a prolonged and contentious Congressional debate. Moreover, given the widespread effects of the global economic recession, policy makers may face increasing pressure to evaluate whether the potential benefits of nonreciprocal preference programs justify their costs. Such an evaluation is advisable. Its findings could streamline nonreciprocal preference programs and improve how they function. Removing eligibility for imports with few realized benefits would increase tariff revenue and free up economic resources that could be used to improve market access for other, more important imports. Oil products, for example, result in relatively few developmental benefits, but they consistently account for a significant percentage of imports under some countries’ nonreciprocal preference programs. On the other hand, expanding market access for agricultural products and processed foods could result in significant benefits for beneficiary countries. While domestic political resistance may prevent implementation of all potential reforms, at least some reforms will likely be feasible. In light of these issues, this Note will analyze how nonreciprocal preference schemes can be implemented more effectively. When applicable, it will also evaluate the feasibility of potential reforms.