Trade Effects of the Generalized System of Preferences

All the developed countries that agreed to be donors under the proposal for Generalized System of Preferences (GSP) adopted at the first UNCTAD session in 1964, have introduced their individual (GSP) schemes.1 Under these schemes, imports of a large number of manufactures and semimanufactures from less developed countries are permitted at zero or reduced tariff rates up to a certain maximum amount. The full tariff rates continue to apply to imports from other countries. Attention has focused on the institutional arrangements underlying the schemes, the nature and possible effects of quantitative limitations such as import ceilings and tariff quotas, and the estimation of probable demand responses to preferential tariff cuts in developed countries under specific schemes [3,4, 8, 11, 12, 13 and 14]. An underlying assumption of the GSP has been that a preferential treatment of imports from less developed countries would promote the exports of manufactured and semimanufactured products from these countries. The purpose of , this study is not to test or otherwise quantify this hypothesis as such. Rather, this study seeks to provide a comprehensive assessment of the global trade effects of all the schemes, taken individually as well as collectively, by estimating the trade creation, (i.e., increase in world trade) and trade diversion, (i.e., decline in the exports of non-preferred countries) effects. These estimates are drawn upon