Academic journal article Multinational Business Review

A Comparative Study of U.S and Japanese Generalized System of Preferences

Academic journal article Multinational Business Review

A Comparative Study of U.S and Japanese Generalized System of Preferences

Article excerpt

ABSTRACT:

Exports help developing countries to expand their production, promote industrialization and accelerate their economic growth. They played an important part in the economic transformation of Southeast Asian countries. The Generalized System of Preferences (GSP) is one of the ways in which developing countries can increase their exports to the markets of developed nations. The GSP, a unilateral, non-reciprocal program agreed under the United Nations provides preferential duty entry to numerous products imported into developed countries by eligible developing countries. The objective of this study is to examine the role of GSP in stimulating exports of developing countries. It also provides a comparative appraisal of the GSP schemes of the United States and Japan. The paper also makes certain recommendations to make GSP schemes more efficient and applicable to particular situations.

INTRODUCTION

The Generalized System of Preferences (GSP) provides preferential duty-free entry to numerous products imported into developed countries from designated beneficiary developing nations. The program of tariff preferences granted by 27 developed countries is intended to assist developing countries in their economic development by encouraging greater diversification and expansion of their production and exports, promoting industrialization and accelerating economic growth (Onyejekwe, 1995; Yusuf, 1982; Lahoud, 1982).

The GSP was implemented in Japan in 1971. It took effect in the U.S in 1976 based on Title V of the U.S. Trade Act of 1974. An important principle of the GSP is its non-reciprocity and unilateralism in orientation. Even though the principle of non-discriminatory trade has been a cornerstone of the GATT/WTO for many years, GSP proponents successfully claimed that developing countries need temporary help in order to enable them compete in world trade. This meant that developed countries could not expect reciprocal trade concessions from developing countries in exchange for their preferential treatment for the latter's exports. The GATT doctrine of the most favored nation standard that requires reciprocity was modified to satisfy the needs of developing countries. Part IV of the GATT dispenses with reciprocity in the case of developed - developing country trade (Yusuf, 1982). GSP schemes are administered by each developed country based on their own unilateral standards. In view of the absence of multilateral framework, GSP schemes differ across countries in terms of eligible countries and products, depth of tariffconcessions, safeguard measures and rules of origin (Espiell, 1974; GATT, 1979).

In 2002, total duty-free imports under the GSP amounted to $18 billion accounting for 1.5 percent of US imports. During the same year, Japan's GSP imports were estimated at $15 billion accounting for 4.6 percent of its total imports (Trademap-US aid, 2003). The total tariff revenue foregone has gone down over the years partly due to the reduction in MFN rates following the implementation of the Uruguay Round Agreements.

Studies on GSP are quite limited. Empirical estimates on the overall size of such benefits are rarely found. This is attributable to the absence of comprehensive disaggregated data on GSP imports to donor countries. Existing studies on the US GSP tend to focus on the legal and regulatory aspects of the scheme. There is hardly any work that provides a comparative appraisal of GSP schemes in different countries. This study attempts to provide one of the critical "missing links "in existing research by assessing the impact of GSP on beneficiary countries. It also compares two of the biggest GSP schemes available to developing countries. The dearth of research on the GSP of the US and Japan is also surprising in view of the plethora of studies undertaken on the GSP of the European Union. There is a need for more comparative studies that shed light on the GSP schemes of other developed nations to identify problem areas and make appropriate recommendations to make GSP schemes effective and efficient for donors and beneficiaries. …

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