Background
The Generalized System of Preferences (GSP) is an international trade mechanism designed to facilitate market access for exports from less developed countries (LDCs) by applying preferentially lower tariffs than the usual rates. This system aims to promote economic growth in developing countries by incentivizing exports.
Historical Context
The GSP mechanism was first introduced in the early 1970s by member countries of the General Agreement on Tariffs and Trade (GATT), the precursor to the World Trade Organization (WTO). European countries and Japan initiated these agreements in 1971-72, Canada followed in 1974, and the United States implemented its GSP in 1976. Despite the preferential tariffs, the impact of GSP agreements has been limited, particularly due to various exceptions in sensitive sectors and overall reductions in tariffs through subsequent trade negotiations.
Definitions and Concepts
Generalized System of Preferences (GSP)
An international trade mechanism in which developed countries grant preferential duty reductions to imports from less developed countries to promote economic growth and integration into the global market.
Major Analytical Frameworks
Classical Economics
Classical economists argue that reduced tariffs under GSP should increase trade flows and contribute to economic growth due to the comparative advantages of the benefiting countries.
Neoclassical Economics
Neoclassical perspectives view GSP as a means to alter the market equilibrium by reducing the prices of imported goods from less developed countries, thus potentially boosting both supply and demand.
Keynesian Economics
Keynesians could consider GSP policies as a form of international fiscal stimulus, using tariff reductions to spur economic activity and output in less developed countries, leading to a multiplier effect.
Marxian Economics
Marxist analysis might critique GSP as a mechanism benefiting capitalist economies more than the recipient nations, arguing that it may perpetuate dependency rather than providing paths to sustainable development.
Institutional Economics
From this viewpoint, GSP can be seen as a policy tool driven by institutional frameworks and governance systems aiming to foster international economic cooperation and restructure economic relations between developed and developing nations.
Behavioral Economics
Behavioral economists may study how the expectation of preferential treatment under GSP alters business and consumer behaviors in both less developed and industrialized countries.
Post-Keynesian Economics
Post-Keynesians might focus on the role of GSP in rectifying global inequities and its potential impacts on industrial policy and macroeconomic stability in less developed economies.
Austrian Economics
Austrian economists may be skeptical about the efficacy of GSP, considering it a market distortion that may lead to inefficiencies and unintended consequences.
Development Economics
GSP falls under development economics, which examines policies meant to improve the economic conditions in less developed countries. The key focus is to understand how such preferential treatments influence long-term developmental outcomes and poverty reduction.
Monetarism
Monetarists could analyze the implications of GSP on monetary variables such as exchange rates, money supply, and inflation within recipient countries.
Comparative Analysis
Comparatively, while GSP has facilitated some degree of market access for exports from less developed countries, its overall effectiveness has been mixed due to sectoral exceptions and the progressive reduction of global tariffs through broader trade agreements.
Case Studies
- Impact of GSP on textile exports in Bangladesh.
- The role of GSP in agricultural exports from Kenya.
- Evaluation of GSP’s effect on economic growth in Sri Lanka.
Suggested Books for Further Studies
- “The International Harmonization of Competition Laws” by Willard Taylor Delawie
- “Governing through Trade: The Power of International Trade” by Dtine De Bièvre & Andreas Dür
- “Politics, Economics, and Welfare Reform” by Landis Jackson
Related Terms with Definitions
- Tariffs: Taxes imposed on imported goods which can influence trade flows and domestic markets.
- General Agreement on Tariffs and Trade (GATT): The international legal foundation regulating global trade before the establishment of the WTO.
- World Trade Organization (WTO): An international organization established to oversee and facilitate global trade, succeeding GATT in 1995.
- Less Developed Countries (LDCs): Nations with lower levels of economic development, often characterized by lower GDP per capita and standard of living.
The GSP system remains a relevant but evolving tool in the broader context of international trade policy. Understanding its frameworks and impact allows for better insights into global trade dynamics and economic development strategies.
