GSP scheme

The Generalized System of Preferences (GSP) is a framework under which industrialized economies extend unilateral tariff preferences to imports from developing countries, without requiring equivalent concessions in return. It was endorsed at the second UN Conference on Trade and Development (UNCTAD II) in New Delhi in 1968 and operationalized through the GATT's 1971 waiver, later made permanent by the 1979 Enabling Clause (Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries). The Enabling Clause is the legal basis that allows GSP to coexist with the WTO's Most-Favoured-Nation (MFN) obligation under GATT Article I.

Each donor country designs its own GSP scheme, choosing eligible beneficiaries, covered products, margins of preference, rules of origin, and graduation thresholds. Major historical schemes include those of the European Union, United States, Japan, United Kingdom, Canada, Australia, Norway, and Switzerland. The EU operates a tiered system comprising standard GSP, GSP+ (additional preferences conditional on ratifying 27 core conventions on human rights, labour, environment, and good governance), and Everything But Arms (EBA) for Least Developed Countries. The US scheme, first authorized by the Trade Act of 1974, has lapsed and been renewed several times by Congress.

GSP preferences are conditional and revocable. Donors typically suspend benefits for graduation (when a country or sector becomes competitive), for breaches of labour or human-rights standards, or for foreign-policy reasons. The WTO Appellate Body's 2004 ruling in EC – Tariff Preferences (brought by India) clarified that donors may differentiate among beneficiaries only on the basis of objective development, financial, or trade needs, not arbitrary political criteria.

Critics note that utilization rates are often low due to restrictive rules of origin, preference erosion from MFN liberalization, and uncertainty from periodic renewals. Supporters argue GSP remains a flexible tool to integrate developing economies into world trade, particularly for LDCs that lack the negotiating leverage to secure reciprocal market access.