The impact of the EU Generalized System of Preferences on exports and GSP utilization by Asian and Latin American countries

• Pages: 80-97
• Published date: 22 March 2013
• Date: 22 March 2013
• DOI: https://doi.org/10.1108/14770021311312511
• Author: Ludo Cuyvers,Reth Soeng
• Subject Matter: Economics

The impact of the EU Generalized

System of Preferences on exports

and GSP utilization by Asian and

Latin American countries

Ludo Cuyvers

Centre for ASEAN Studies, University of Antwerp, Antwerp, Belgium

Centre for Regional Integration Studies, United Nations University,

Bruges, Belgium and

North-West University, Potchefstroom, South Africa, and

Reth Soeng

National University of Management, Phnom Penh, Cambodia and

Centre for ASEAN Studies, University of Antwerp,

Antwerp, Belgium

Abstract

Purpose – The aim of this paper is to investigate the impact of changes in the Generalized System of

Preferences of the European Union, on the EU GSP imports from beneficiary countries in ASEAN and

China, and Latin America, respectively, and the utilization of GSP benefits by these countries for the

period 1994-2007.

Design/methodology/approach – The econometric model specifications used is with unlagged

and one year lagged reactions. GSP dummy variables are added in order to test whether the changes in

the EU GSP has had impact on bilateral trade flows and the degree of utilization.

Findings – The paper finds that EU GSP agricultural imports are negatively affected by the changes

in the EU GSP system, but these of industrial products seem to have positively reacted to changes

in the EU GSP. For imports of textile products, the results are not significant. It is also found that

ASEAN plus China are significantly benefiting more from the EU GSP for industrial and textile

products than the Latin American countries, but the changes in the GSP had no significant different

effect on both groups of countries. The authors estimations also show that the graduation mechanism

in the EU GSP, against beneficiary countries with higher EU market shares, seems to be effective

for industrial products, but in contrast, is working in favour of such countries for textile products. By

and large, the other graduation mechanism in the EU GSP linking GSP benefits and level of

development of the beneficiary country has not been effective.

Originality/value – The paper is the first to address the issue how the many changes in the EU GSP

since 1994 have affected the exports and GSP utilization of beneficiary countries.

Keywords GeneralizedSystem of Preferences, Exports, Utilization,Developing countries

Paper type Research paper

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1477-0024.htm

JEL classification – C23, F13

A previous version of this paper was presented at the 12th International Convention of the

East Asian Economic Association, Seoul, 2-3 October 2010, where the authors benefited from

many useful comments. The authors also benefited greatly from comments by Andre

´Sapir on a

previous version, as well as from two anonymous reviewers.

Journal of International Trade Law

and Policy

Vol. 12 No. 1, 2013

pp. 80-97

qEmerald Group Publishing Limited

1477-0024

DOI 10.1108/14770021311312511

JITLP

12,1

80

1. Introduction

The structure of protection of the advanced nations as evidenced by either nominal tariff

rates or effective rates of protection, is considered as an impediment to the economic

development of less developed countries (LDCs). In 1968, the United Nations Conference

on Trade and Development (UNCTAD) recommended the creation of the preferential

treatment of LDCs under a so-called Generalized System of Preferences (GSP) scheme

implemented by the developed countries (Panagariya, 2002; Cuyvers and

Verherstraeten, 2005; O

¨zden and Reinhardt, 2005). As a result, the EU (then the

European economic community of six Member States) was the first to implement its

GSP in July 1971 (Sapir, 1981), which was subsequently extended and renewed. The

other industrial countries, and Central and Eastern European countries implemented

their GSP schemes soon after the European Union, except the Soviet Union whose GSP

schemes were implemented in January 1965 (Sapir, 1981)[1].

In the present paper we investigate the effect of the EU GSP scheme and the

regulatory changes it underwent, on the GSP exports to the EU and the utilization of

the EU GSP benefits by Asian (the ASEAN countries, plus China) and Latin American

developing countries.

The paper is structured as follows. Section 2 provides a brief description and lists

the major changes of the EU GSP from its inception. Section 3 presents the model for

testing the statistical existence of an EU GSP effect on the developing countries under

study, while data description and methodology is in Section 4. Section 5 presents and

discusses the results. Section 6 concludes.

2. A synopsis of the EU GSP[2]

The GSP was initiated to grant designated beneficiary developing countries a

preferential or even duty-free access to developed nations’ markets, with the primary

aim of assisting the beneficiaries in their economic development efforts. As endorsed by

UNCTAD in 1968, the aim of the GSP is to support the industrialisation of developing

countries by providing preferential treatment of their exports to rich nations. Under the

GSP, developing countries are granted unilateral and non-reciprocal tariff reductions

for their exports of manufactured goods and specified agricultural products to the

developed countries. The EU has applied its GSP since 1971, with regular extensions

and renewals (Cuyvers, 1998).

Since its inception, the EU GSP scheme offered preferential or duty-free access for

most manufactured and semi-manufactured products coming from eligible beneficiary

countries. Certain processed agricultural goods enjoyed full or partial tariff exemptions.

Separate regulations were in place for textile products and products covered by the

European coal and steel community (ECSC) treaty. The amount of preferential imports

was originally also limited through quotas and ceilings, which differed depending on

the origin of the imports and the product group. Beyond these specific thresholds, MFN

duties could be levied again by the EU. Such quantitative restrictions, and other

preconditions specific to certain countries and products, were prolonged or revised

every year. The different product classifications, the complex quantitative restrictions

and the yearly adaptations made the GSP scheme into a rather incomprehensible and

unstable policy instrument.

A drastic reform in 1995 removed all quantitative restrictions on preferential GSP

imports. Moreover, the scheme was no longer to be revised annually, but only once every

EU Generalized

System of

Preferences

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