A preference for development: the law and economics of GSP

Abstract

The Generalized System of Preferences (GSP), authorized by the 1979 Enabling Clause under GATT, allows importing nations to extend preferential tariff treatment to the products of developing countries. India recently brought a successful WTO complaint challenging aspects of the EC preference scheme, claiming that it impermissibly discriminated among developing countries. We analyze the law and economics of discrimination within GSP schemes, assessing the implications of the Appellate Body decision in the case brought by India, and noting the economic costs and benefits of imposing tight nondiscrimination obligations on trade preferences for developing countries. We conclude that the case against discriminatory preferences is at best an uneasy one, both in legal and in economic terms. We also note that the ostensible justification for GSP schemes in the fist instance – to promote growth and development – is unlikely to be served terribly well by existing GSP policy.