Bringing Predictability and Security to Developing Countries Tariff Preferences

Abstract:     
While most economists criticise the GSP for a number of (good) reasons, all preference donors and receivers profess their commitment to what they consider as a tool for developing countries ‘to secure a share in the growth of world trade’. The political support given by both receivers and donors to preferences as an economic development tool means that they will remain part of the landscape of international trade regulation for the foreseeable future.

Under the WTO Enabling Clause, such preferences are allowed if they are generalized, non-reciprocal and non-discriminatory. However, tariff preferences are also often withdrawn on dubious grounds and without due process. This reduces much of their potential value, because traders and investors lack the predictability and security necessary to make long term business decisions based on the market access opportunities that these preferences provide. Indeed, the lack of predictability and security of unilateral tariff preference schemes has been one of the reasons that some developing countries have concluded regional trade agreements (RTAs) under Article XXIV GATT, despite the sometimes heavy price of reciprocity.

In this paper we offer an alternative. Based on a legal examination of tariff preference schemes and their limitations (coverage, graduation, safeguards, and conditionality), we make three practical proposals to provide better security and predictability for both preference beneficiaries and donors:

1. a binding of GSP schemes under Article II GATT (negotiated under Article XXVIII GATT)

2. as an alternative, a dispute settlement regime specifically targeted at unbound preferences, and

3. legally secure rules on limitations to GSP programs, including transparent and objective graduation criteria, which may be bound or unbound.

Contrary to what is often assumed, this paper demonstrates that it is perfectly possible to bind tariff preferences and graduation criteria under existing WTO rules. All it takes is sufficient political will.

Presented at the SIEL 2010 Conference in Barcelona.

Number of Pages in PDF File: 21

Keywords: Enabling clause, conditionality, coverage, developing countries, graduation, GSP, Preferential market access, safeguards, tariff preferences, WTO

JEL Classification: F02, F10, F12, F13, F15, F17

working papers series