Generalised system of preferences

Why in news?

• A recent resolution adopted by the European Parliament, urging the EU Commission to consider a temporary withdrawal of the GSP+ status given to Sri Lanka, has put the spotlight back on the country’s human rights situation.
• Sri Lanka regained the GSP +, or the EU’s ‘Generalised Scheme of Preferences’ in 2017, under the former Maithripala Sirisena-Ranil Wickremesinghe administration, on Colombo’s commitment to implement 27 international conventions on human rights, labour conditions, protection of the environment and good governance. The status effectively removes import duties on goods from Sri Lanka entering the EU.

What is Generalised system of preferences?

• The Generalized System of Preferences, or GSP, is a preferential tariff system that provides tariff reduction on various products for developing countries.
• Developed nations like USA and EU has a system of GSPs
• The EU's Generalised Scheme of Preferences (GSP), created following UNCTAD recommendations in 1971, helps developing countries (DC) by making it easier for them to export their products to the European Union.
• This is done in the form of reduced tariffs for their goods when entering the EU market.
• The GSP is a specific instrument focussing on a single dimension only: tariff preferences for trade in goods. It does not have the ambition or the possibility to tackle other problems faced by developing countries.
• GSP takes a differentiated approach for different nations and provides a sliding scale of preferences according to different needs:
  • General/standard arrangement - duty reductions for ca. 66% of all  EU tariff lines for beneficiaries in general. Currently, 30 countries and territories enjoy these reductions.
  • Special Incentive Arrangement for Sustainable Development and Good Governance, or "GSP+" - zero duties for essentially the same 66% tariff lines for  countries which ratify and effectively implement core international human and, Highlights of the Generalised Scheme of Preferences labour rights, environment and good governance conventions. Currently, there are  13 beneficiaries.
  • Everything But Arms, or "EBA" special arrangement for the Least Developed Countries (LDCs) - full duty-free, quota-free access for all products except arms and ammunition. Currently, there are 49 beneficiaries.

Relation with Most Favoured Nation principle:

• "Most-Favoured Nation" (MFN) principle dictates that equal treatment must be accorded to all WTO Members.
• The GSP however uses an "Enabling Clause" in MFN principle which allows for an exception to the MFN clause in case of trade originating from developing and least developed countries.

Prelims Question

Consider the following statements regarding “Generalised system of preferences:
1.It is applicable only to trade between USA and European Union.
2.It provides an exemption to the most favoured nation principle of WTO.
Which among the above statements is/are correct?
(a)1 only 
(b)2 only 
(c)Both 1 and 2
(d)Neither 1 nor 2

Answer to prelims question