The central pillar of the multilateral rule-based trading system enshrined in the GATT/WTO is the acceptance and operation of the Most Favoured Nation principle. This means that every member of GATT/WTO should invariably accord the same, identical, equal and non-discriminatory treatment to all imports irrespective of the countries of origin.
However, the Generalized System of Preferences (GSP) is an officially agreed exception to the MFN principle which was proposed at the first meeting of the United Nation Conference on Trade and Development (UNCTAD) with a view to assisting the developing countries in their exports and development efforts. In 1964, the First United Nations Conference on Trade and Development (UNCTAD) started to look into ways and means of granting special trade preferences to developing countries.
Main objectives of granting trade preferences to developing countries were:
To enhance export earnings of developing countries
To promote industrialization, and
To encourage the diversification of their economies.
In 1968, UNCTAD recommended the creation of a "Generalized System of Tariff Preferences" under which industrialized countries would grant autonomous trade preferences to all developing countries.
In order to implement the system a waiver was required from Article 1 of the GATT which prohibits discrimination. This waiver was granted in 1971 by adopting the "enabling clause" of the GATT to create the legal framework for the "Generalized System of Tariff Preferences" (GSP). Under this framework developed countries were authorized to establish individual Generalized Schemes of Tariff Preferences.
The enabling clause was adopted originally for ten years, and renewed in 1979, for an indefinite period of time thereafter.
The European Community was the First to implement their GSP scheme in 1971.
Until 1995 the main features of the EC GSP Scheme were quotas and ceiling for individual countries and products. Since 1995, EU's GSP did away with any quantitative limitations.
The current EU's GSP scheme entered into force from 01/01/2014 and will last until the end of 2023.
The general arrangement covers over 6200 tariff lines out of a total of approximately 7100 tariff lines with non-zero tariffs. Roughly 2300 lines are not covered by the scheme as standard tariffs (so-called “most favoured nation” or MFN) are already at 0.
Depth of Tariff Cuts
Tariff preferences offered by the current GSP scheme differ according to the sensitivity of the products concerned.
non-sensitive products enjoy duty-free access to the European Union market, while sensitive products benefit from tariff reductions.
The current GSP rate for sensitive products is calculated by applying one of following reductions:
A flat rate reduction of 3.5 percentage points to the most-favoured-nation duty (applicable to the ad valorem duties).
A 30 per cent reduction in the most-favoured-nation duty where only specific duties apply;
A flat rate reduction of 3.5 percentage points applicable to the ad valorem duties only, where duties are composed of both ad valorem and specific duties.
Limited exceptions apply to textiles and clothing, the most-favoured-nation duties for which shall be reduced by 20 percent.
With respect to agricultural products listed in HS chapters 1–24, wherever customs duties comprise an ad valorem duty and one or more specific duties, the preferential reduction is limited to the ad valorem duty.
Where the customs duties specify a maximum duty, that maximum duty shall not be reduced. Conversely, where the customs duties specify a minimum duty, that minimum duty shall not apply.
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