Understanding Generalized System of Preference (GSP)
Generalized System of Preference (GSP) is a tariff preference program developed by developed countries to help developing countries expand their economies. The GSP is designed to provide special trade benefits to developing countries by reducing the burden of tariffs and other trade barriers. This program creates a better market for their products and allows them to increase economic prosperity. The definition of GSP refers to the policy of providing privileged market access by an industrialized country to a number of products from developing countries. In principle, this preference takes the form of reducing or eliminating import duties imposed on products from developing countries. This policy applies on the basis of non-discrimination between recipient countries and is in line with World Trade Organization (WTO) regulations.
The main goal of GSP is to promote economic growth in developing countries through increasing market access for their products. Specifically, this program aims to encourage export diversification, increase foreign investment, and create jobs in these countries. Furthermore, GSP is also designed to reduce global economic inequality between developed and developing countries through fairer trade. The background to GSP comes from an awareness of the importance of international trade in economic development. In the mid-20th century, advanced industrial countries began discussing how they could help developing countries through trade. One of the results of these discussions was the GSP conception, which was formalized at the UN Trade and Development Conference in 1968. Since then, various countries have adopted and implemented the GSP scheme as part of their efforts to help developing countries achieve sustainable economic growth.
History and Development of GSP
The history and development of the Generalized System of Preferences (GSP) has an important role in the context of international trade relations. This program was first proposed in 1968, at the 2nd United Nations Conference on Trade and Development (UNCTAD). The aim is to increase economic growth in developing countries and expand domestic employment opportunities through increasing exports. The origins of GSP can be traced back to the period of decolonization and renewal of global economic structures after World War II. At that time, newly independent countries wanted to reduce their dependence on their former colonial powers, as well as create fairer and more mutually beneficial conditions in international trade. By using the most favored nation (MFN) principle, GSP provides preferences in the form of reduced or eliminated import duties for products from developing countries.
Over time, GSP policies have undergone various changes and evolution. First of all, initially the program only covered manufactured goods, but was later expanded to cover agricultural products and the service sector. Furthermore, tariff preferences are applied more selectively for products or sectors that are considered more strategic for the importing country. Additionally, GSP is experiencing geographic expansion, with other developed countries also adopting the program, including Japan and the European Union. However, GSP policies are not always perfect and remain the subject of debate in the field of international trade. The main criticism of the GSP is that tariff preferences are ineffective at increasing exports from developing countries or reducing trade imbalances. In addition, issues such as rules of origin and efforts to create new dependencies by developed countries are also often in the spotlight. However, these imperfections do not reduce the strategic value of GSP as an instrument in international trade relations and efforts to create sustainable and inclusive development in developing countries. Therefore, continuing to review and encourage improvements to GSP policies in order to achieve the expected goals is important in the current dynamics of global trade.
GSP implementation in various countries
One example of GSP implementation in developed countries is the United States. Through U.S. regulations Trade Act of 1974, America offered tariff reductions and tax breaks for a number of products imported by developing countries. The primary goal of the United States’ enactment of the GSP was to promote more inclusive economic growth worldwide and support positive foreign direct investment. Apart from the United States, GSP has also been implemented in the European Union. The European Union is a pioneer in implementing GSP as a form of trade assistance aimed at helping developing countries access global markets. In 1971 the European Union began implementing a tariff preference scheme for developing countries, which was followed by subsequent periods of changes in the forms and benefits provided.
Although GSP is essentially a tariff incentive provided by developed countries to developing countries, variations in the form, benefits, and implementation criteria of GSP occur from one country to another. For example, several countries such as Japan and Canada have eligibility mechanisms and require compliance with environmental and social standards in order to benefit from GSP. In addition, variations in the benefits provided to GSP recipient countries also depend on the type of products imported and the degree of dependence of the country’s economy on international trade. Therefore, there is a need for regular evaluation of GSP policies so that they can be adapted to the needs and conditions of the dynamic global economy.
Impact and Controversy Related to GSP
The positive impact of the Generalized System of Preferences (GSP) can be felt by both parties, namely recipient countries and donor countries. From the recipient country’s perspective, GSP provides wider market access for its export products. This tariff preference scheme helps create new jobs in developing countries, maintain stable economic growth, and increase foreign exchange reserves. On the other hand, donor countries also benefit from GSP such as continued trade relations and the provision of cheaper imported products to their consumers. However, the GSP also has a controversial impact regarding the tariff preference system. First, this policy results in inter-economic discrimination in which only a certain group of countries are recipients of GSP benefits. This causes differences in competitiveness between countries, thus affecting overall global trade. Second, GSP often does not cover all products from recipient countries due to prohibitions or quotas in this scheme.
Ethical issues that arise in the implementation of GSP include the potential for exploration of natural resources and labor in developing countries. Preferential tariff policies can encourage increased exploitation of natural resources, which can have a negative impact on the environment and cause unsustainability. In addition, GSP can also trigger unfair labor practices, such as child labor and exploitation of low-wage workers. In addressing ethical and sustainability issues related to GSP, it is important for recipient and donor governments to take proactive steps. Donor countries must implement strict sustainability requirements in their GSP schemes, as well as monitor their implementation effectively. Recipient countries must also be aware of the long-term impacts of these policies on their environment and society, and take action to prevent these potential problems. Thus, good collaboration between recipient countries and donor countries in implementing the GSP scheme will enable more inclusive and sustainable economic growth by reducing negative impacts on the environment and promoting fair and ethical labor practices.
