Apr 19, 1989

LESS THAN HALF OF ELIGIBLE GSP IMPORTS RECEIVE GSP DUTY PREFERENCES.

GENEVA, APRIL 18 (BY CHAKRAVARTHI RAGHAVAN) Most of the individual schemes for preferential imports from developing countries under the generalised system of preferences have been improved since inception, but still only less than half of imports of products covered by OECD GSP schemes actually receive GSP treatment, according to the UN Conference an Trade and Development.

In three reports reviewing the implementation of various aspects of the GSP, the secretariat suggests those further improvements (particularly in agricultural sector) and in the rules of origin could benefit developing countries, particularly the least developed countries, without a "significant impact" in the preference-giving country.

The reports bring out that while in 1987, trade valued at some 47 billion dollars received GSP treatment under the schemes of OECD preference giving countries, almost 90 billion worth of imports into these countries are ab initio excluded from GSP.

The secretariat's report for the forthcoming meeting of the special committee on preferences is in response to the mandate of UNCTAD-VII which called upon all preference-giving countries "to continue to improve their autonomous GSP schemes, inter alia, through the expansion of product coverage and in strict generalised, non-discriminatory and non-reciprocal character".

The special committee on preferences was asked to consider in this regard a study to be prepared by the UNCTAD secretariat.

The committee is due to meet from April 24 to 28.

The report (TD/B/C.5/121) notes that the generalised nature of GSP implied that preference would be granted by all industrialised countries to all developing countries under a common system.

But in the negotiations that led to adoption of GSP at UNCTAD, the OECD countries were guided by the principle of equal "burden-sharing", leaving it to each country to determine scope and details of the scheme.

The non-discrimination principle implied that same preferences would be granted to all beneficiaries.

But the various schemes contained an array of restrictions differentiating among beneficiaries through exclusion or limitation of certain products with respect to selected beneficiaries, exclusion of certain countries altogether from benefits, and lower preferential margins to selected countries.

As regards "non-reciprocity", part IV of GATT incorporated new principles into the general post-war GATT trade negotiations based on reciprocity.

Under part IV, third world countries were not fully exempt from reciprocity, but were not to be expected to make contributions in trade negotiations "inconsistent with their individual development, financial and trade needs".

But under the GSP agreed to in UNCTAD, the industrialised countries "clearly agreed to grant concessions to developing countries without requiring counterpart concessions from them".

While the initial GSP schemes were implemented in GATT through a waiver granted to industrial countries, in 1979 GATT gave legitimacy to GSP through the enabling clause.

Preference-giving industrialised countries interpreted the enabling clause to justify withdrawing preferences in whole or in part from beneficiaries which, in their view, had become sufficiently competitive or had attained a higher level of economic development.

But developing countries have argued that the enabling clause gave them the possibility to reach an autonomous decision an their capacity to participate more fully in rights and obligations of GATT. They have demonstrated this willingness through tariff bindings or reductions in the Tokyo round and in the liberalisation of their economies and opening up of their markets in recent years.

Presently, in terms of country-coverage, schemes of OECD countries recognise as beneficiaries all members of the Group of 77. Some of the schemes also extend preferences to Albania, Bulgaria, China, Hong Kong, Hungary, Israel, Mongolia, Muscat, Nauru, Taiwan province of China and Turkey.

Bulgaria and Hungary provide preferences themselves.

The current product coverage is concentrated heavily on semi-manufactured and manufactured products, but with an exceptions or negative list.

A smaller number of agricultural products are in the positive list of products, but most agricultural products are excluded.

Analysing the various individual schemes, UNCTAD reports that since their inception, there has been some improvement in various schemes - through increase in number of beneficiaries, product coverage, larger tariff cuts and some liberalisation of rules of origin.

Among the OECD countries, there have been improvements in product coverage in almost all the schemes, and significantly so in those of the EEC, Finland, Japan, Sweden and Switzerland.

The coverage (imports covered as a percentage of dutiable imports), at 42.2 percent is lowest in the United States. It is also below the OECD average in schemes of Canada, Finland and Sweden.

In the OECD as a whole, only slightly over one-half of dutiable imports from beneficiaries are covered by the GSP.

Utilisation rates or the percentage of preferential to covered products have fallen significantly in the EEC and the U.S.

This is mainly because access to preferences has been increasingly limited by various restrictions.

In the aggregate less than half of the imports of covered products by OECD countries benefit from GSP treatment.

The ratio of preferential imports to dutiable imports for the OECD countries as a whole, while doubling since the inception of the scheme, was "still less than one quarter".

Clearly, UNCTAD reports, all schemes have been improved in the sense that the share of preferential imports in total dutiable imports have risen in practically all preference-giving countries, and quite dramatically in some of them.

But there have been "significant deviations" from multilaterally agreed principles.

From the start, the GSP schemes have been hedged about by "a vast array" of restrictions, which have resulted in a differential application of preferential treatment among beneficiaries.

These measures have taken various forms: ab initio exclusion of selected countries, exclusion of selected beneficiaries with respect to specific products, and a priori limitations on preferential imports through tariff quotas, ceilings and maximum country amounts.

Other measures used include limitations through competitive need exclusions, granting of less favourable preferential treatment to selected beneficiaries, and, at times, escape-clause action.

The effect of all these, UNCTAD notes, has been to reduce considerably the trade opportunities under the system in its first decade.

And since 1980, new discriminatory measures have been introduced which have "further undermine the stability and effectiveness of the system".

Under the EEC scheme, preferential imports were originally determined on the basis of a general formula, which included a growth factor.

Since 1981, the Administration of sensitive products has been carried out through individual tariff quotas and individual ceilings, resulting in greater sensitivity in the scheme.

The U.S. scheme, renewed in 1985, now provides for five types of graduation: a per capita income threshold to exclude beneficiaries outright from the scheme, country graduation and exclusion from benefits at the discretion of the U.S. President, the normal product graduation (using standard competitive need formula), a discretionary product graduation, and a provision for accelerated product graduation.

Until recently, UNCTAD points out reciprocity had not played an overt role in determination of GSP benefits.

But in recent years, the U.S. (and to some extent also the EEC) have begun to use reciprocity as a condition for continuation of GSP privileges.

Preferential treatment has been made conditional on the practices and policies of beneficiaries, not only in trade but also in other areas.

Since the criteria for determining the kinds of policies that beneficiaries are expected to follow are discretionary and unilateral, their proliferation could lead to serious weakening of the whole concept of the GSP as a tool of international economic cooperation, UNCTAD comments.

While the GSP has helped third world countries in their export efforts and there have been improvements in most of the schemes, the underlying principles concerning the generalised, non-discriminatory and non-reciprocal nature of the GSP have not been strictly adhered to.

"If the trends towards discretionary exclusions, limitations of benefits, and the use of GSP treatment as a bargaining tool to extract policy changes from preference-giving countries are allowed to gather further momentum, the benefits which developing countries obtain from GSP could be severely restricted", UNCTAD warns.

In assessing the trade effects of the GSP system (in terms of developments since UNCTAD-VII), UNCTAD estimates that in 1987 trade valued at some 47 billion dollars received GSP treatment under the various schemes of the OECD preference-giving countries.

"However, some 55 percent of products eligible for GSP were denied such treatment due to quantitative limitations and failure to comply with rules of origin".

According to UNCTAD analysis "almost 90 billion dollars worth of imports into these countries are ab initio excluded from GSP".

In the EEC and Japan, the excluded products are heavily concentrated in the agricultural sector.

In the United States, industrial products account for the preponderant share of imports of excluded products.

Excluded products represent a high proportion of total imports from the least developed countries (LDCS).

For the EEC, it was an average of 74 percent of all dutiable imports from the LDCS (in 1984). For agricultural products alone, this proportion was as high as 84 percent.

However, UNCTAD adds, many LDCS receive preferential treatment in the EEC market under the Lome convention.

In Japan, 53 percent of dutiable agricultural imports from LDCS were excluded from preference in 1986.

In the United States, the proportion for industrial products (in 1986) was 63 percent.

"These figures suggest that an expansion of product coverage of the GSP schemes, particularly in the area of agriculture, would be of great benefit to the developing countries, and especially the LDCS", UNCTAD says.

"The amounts exported by developing countries, and excluded from GSP benefits are a small proportion of consumption in the preference-giving countries. But they form an important proportion of exports of developing countries in each of these markets".

"This suggests that the impact an preference-giving countries would probably be small. On the other hand, extension of GSP benefits to excluded agricultural products could well result in a measurable shift in the pattern of origin of such imports into the developed countries, to the benefit of developing countries".

UNCTAD also points out that an analysis of excluded products in the schemes of the major countries (U.S., EEC and Japan) highlight the importance for the third world countries, especially the LDCS, of improvements in the product coverage of agricultural products.

The beneficiaries of GSP, particularly the major beneficiaries, constitute important markets for exports of manufactures of the preference-giving countries, UNCTAD notes.

In 1986, third world countries absorbed nearly one. Of every five dollars of total manufactures exported by the OECD countries. This ratio was considerably higher in some individual sectors producing high technology or complex goods.

The improvements in product coverage (under GSP) were likely to result in trade diversion in favour of beneficiary third world countries.

License import demand in these countries is constrained by foreign exchange availabilities; an increase in their export earnings would lead to a rise in their imports from preference-giving countries of a similar magnitude.

"On the other hand, the developed market-economy countries that lost exports as a result of the preference-induced shift in the sourcing of imports are unlikely to reduce their imports, since import demand in these countries does not depend primarily on foreign exchange availabilities".