Generalized system of Preferences | Advantages | Limitations

Generalized system of Preferences (GSP)

The implementation of Generalized system of Preferences is one of the important achievements of UNCTAD. Originally, this system was conceived in Geneva conference held in 1964. Under this system, developing countries were allowed preferential tariffs rates in respect of their exports of certain products to developed countries. The rationale behind the implementation of Generalized system of Preferences is that developed countries should be aided through trade rather than through monetary aid.

Advantages of GSP:

Generally, developing countries export agricultural products, manufactured and semi-manufactured products which have a declining trend in the world market. Particularly agricultural products have to be marketed in competition with the products of industrially advanced countries. As advanced countries make use of sophisticated technology, their cost of production is comparatively cheap. So, developing countries do not get remunerative prices for their export commodities. In view of these, developing countries are allowed to compete on preferential basis. While imports of products from developed countries are subject to normal rates of duties, exports of developing countries would be more competitive.

Disadvantages or limitations of GSP

In spite of the above advantages, GSP suffers from certain limitations:

1. The scope of GSP scheme is limited. Only dutiable products are covered under this scheme. So, the developing countries cannot take advantage of the GSP in respect of duty free products. Export of duty free products by developing countries suffers.

2. GSP gives only marginal relief to the export of agricultural products. In many countries, agricultural products are outside the purview of GSP.

3. Even manufactured products like textiles, leather products and petroleum products are not covered under the scheme.

4. Some of the GSP schemes limit the volume of exports. Ceilings that limit the quantity of imports adversely affect the export prospects of less developed countries