The central pillar of the multilateral rule-based trading system enshrined in the GATT/WTO is the acceptance and operation of the Most Favoured Nation principle. This means that every member of GATT/WTO should invariably accord the same, identical, equal and non-discriminatory treatment to all imports irrespective of the countries of origin.
However, the Generalized System of Preferences (GSP) is an officially agreed exception to the MFN principle which was proposed at the first meeting of the United Nation Conference on Trade and Development (UNCTAD) with a view to assisting the developing countries in their exports and development efforts. In 1964, the First United Nations Conference on Trade and Development (UNCTAD) started to look into ways and means of granting special trade preferences to developing countries.
Main objectives of granting trade preferences to developing countries were :
• to enhance export earnings of developing countries
• to promote industrialization, and
• to encourage the diversification of their economies.
In 1968, UNCTAD recommended the creation of a "Generalized System of Tariff Preferences" under which industrialized countries would grant autonomous trade preferences to all developing countries.
In order to implement the system a waiver was required from Article 1 of the GATT which prohibits discrimination. This waiver was granted in 1971 by adopting the "enabling clause" of the GATT to create the legal framework for the "Generalized System of Tariff Preferences" (GSP). Under this framework developed countries were authorized to establish individual Generalized Schemes of Tariff Preferences.
The enabling clause was adopted originally for ten years, and renewed in 1979, for an indefinite period of time thereafter.
The individual countries which have implemented their GSP schemes are;
EU , USA , Australia , Canada , Japan , Switzerland , Norway , New Zealand , Poland , Belarus , Bulgaria , Republic, Slovakia , Hungary and Russian Federation.
EC GSP Scheme
The European Community was the First to implement their GSP scheme in 1971.
Until 1995 the main features of the EC GSP Scheme were quotas and ceiling for individual countries and products. Since 1995, EU's GSP did away with any quantitative limitations.
The current EU's GSP scheme entered into force from 1 st July 2002 and will last until the end of 2005.
Duty Preferences under EU GSP scheme are received by 132 developing countries and 49 least developed countries (LDC's)
The objectives of the current EU's GSP scheme are promotion of sustainable economic and social development in developing countries by fostering environmental promotion and the respect of fundamental social rights.
The arrangements available under the EU's GSP are;
• General arrangements
• Special incentive arrangements for the protection of labour rights
• Special incentive arrangements for the protection of the environment.
• Special arrangements for LDC's
• Special arrangements to combat drugs production and trafficking.
Product Coverage under EU GSP
Products are classified under two categories.
• non-sensitive products (enjoy duty free access to EU)
• sensitive products (benefit from a duty reduction)
Total product coverage under EU's GSP general arrangements is approximately 7000 items.
Non-sensitive product 3300
Sensitive products 3700
Tariff preferences under the general arrangements.
Non-sensitive products - duty free
Sensitive products - flat rate reduction of 3.5 percentage
point of MFN rate, except textiles and clothing ( Sri Lanka receives different rates at present)
Textile and clothing - enjoy a reduction by 20% ( Sri Lanka receives a different rate)