The Generalized System of Preferences, or GSP, is a preferential tariff system which provides for a formal system of exemption from the more general rules of the World Trade Organization (WTO), (formerly, the General Agreement on Tariffs and Trade or GATT). Specifically, it’s a system of exemption from the most favoured nation principle (MFN) that obliges WTO member countries to treat the imports of all other WTO member countries no worse than they treat the imports of their “most favoured” trading partner. In essence, MFN requires WTO member countries to treat imports coming from all other WTO member countries equally, that is, by imposing equal tariffs on them, etc.

GSP exempts WTO member countries from MFN for the purpose of lowering tariffs for the least developed countries, without also lowering tariffs for rich countries.

The idea of tariff preferences for developing countries was the subject of considerable discussion within the United Nations Conference on Trade and Development (UNCTAD) in the 1960s. Among other concerns, developing countries claimed that MFN was creating a disincentive for richer countries to reduce and eliminate tariffs and other trade restrictions with enough speed to benefit developing countries.

In 1971, the GATT followed the lead of UNCTAD and enacted two waivers to the MFN that permitted tariff preferences to be granted to developing country goods. Both these waivers were limited in time to ten years. In 1979, the GATT established a permanent exemption to the MFN obligation by way of the enabling clause. This exemption allowed contracting parties to the GATT (the equivalent of today’s WTO members) to establish systems of trade preferences for other countries, with the caveat that these systems had to be “generalized, non-discriminatory and non-reciprocal’ with respect to the countries they benefited (so-called “beneficiary” countries). Countries were not supposed to set up GSP programs that benefited just a few of their “friends.’

Market Access Facilities

Market Access Facilities for Bangladeshi Exportable

Bangladesh as a Least Developed Country (LDC) is enjoying duty free market access or reduced tariff rate facilities to export to various developed and developing countries in the world. This facility is enhanced and privileged by the membership of World Trade Organization (WTO). Besides, Bangladesh is the member of different regional trade blocs. Thus the country enjoys duty free or reduced tariff rate access to other member countries.

WTO members always recognize the necessity of providing Duty Free Quota Free (DFQF) market access to LDCs. It was decided in the 6th WTO Ministerial Conference held in Hong Kong in 2005. All developed countries will provide DFQF market access to LDCs for at least 97% tariff lines. Bangladesh is getting DFQF market access to different markets. This is the first legally binding decision on DFQF for LDCs.

  1. Generalized System of Preferences (GSP):
  • Bangladesh is getting GSP facilities from 38 countries;
  • European Union – 28 countries.
  • Others – Australia, Belarus, Canada, Liechtenstein, Japan, New Zealand, Norway, Russian Federation, Switzerland and Turkey – 10 countries.
  1. EU GSP– Generalized System of Preference to developing countries and LDCs which was adopted in 1968 and became effective in 1971. EU GSP offers either lower tariffs or completely duty-free access for imports from 90 developing countries and territories into the EU market.

EU GSP scheme also grants duty free access for the 50 least developed countries under “Everything but Arms (EBA)” scheme. EBA grants duty-free quota-free access to all products, except for arms and ammunitions, covering 99% of all tariff lines.EU adopted a reformed GSP law on 31 October 2012, which made applicable from 1 January 2014.

Rules of Origin: Rules for identification of origin of goods

  • Two types :
    1. Wholly obtained: Products are wholly obtained in a single beneficiary country (or in the EU, in the case of bilateral accumulation) if only that country has been involved in their production.
    2. Substantially transformed – requires substantial/sufficient production activities to be done in the exporting country.

Substantial transformation can be ascertained mainly by three criteria:

  • Value addition criteria: Minimum domestic content or maximum import content
  • Specific process criteria: Minimum manufacturing processes to be undertaken
  • CTH (Change of Tariff Heading) criteria: Change of Chapter, Change of Tariff Heading (CTH), Change of Tariff Sub-heading (CTSH) etc.
  1. GSP Scheme of Japan and Bangladesh: Japan originally established its Generalized System of Preferences scheme (GSP) on August 1, 1971.

Japan’s GSP scheme includes a general preferential regime and a special preferential regime.

Japan grants preferential tariff treatment under its GSP scheme to 137 developing countries and 14 territories.

LDCs are granted duty free and quota free market access in 5415 products of which 1383 are agricultural products and 4034 are industrial products.

Rules of Origin:

  • Recognized as originating in that country under the origin criteria of the Japanese GSP scheme, and
  • Transported to Japan in accordance with its rules for transportation.
  • RMG from Bangladesh is getting one stage policy in determining Rules of Origin to Japanese market.
  1. GSP Scheme of Australia: Duty-free and quota-free entry from the 49 LDCs and East Timor (treated as an LDC) with effect from 1 July 2003.
  • The preferential scheme GSP-50 for LDCs offers duty free treatment to all LDCs in case of all tariff lines.

Rules of Origin:

  • the final process of the imported good must have been carried out in the beneficiary country;
  • At least 50% of the total cost of the final product must consist of labour/material from one or more developing countries (or Australia).
  1. GSP Scheme of New Zealand: Duty free quota-free (DFQF) access for all least developed countries on 1 July 2001.
  • The preferential scheme GSP-50 for LDCs offers duty free treatment to all LDCs in case of all tariff lines.

Rules of Origin:

  • wholly obtained in a LDC/LLDC, or
  • Partially manufactured in a LDC/LLDC.
  • The final process of the imported good must have been carried out in the beneficiary country;
  • At least one-half of the factory works cost of the finished products is represented consist of labour/material from one or more developing countries or from New Zealand.

 

Frequently Asked Question (FAQ)

What is the meaning of GSP in export?

The Generalised System of Preferences (known as GSP for short) is a scheme whereby a wide range of industrial and agricultural products originating in certain developing countries are given preferential access to the markets of the European Union.

What is GSP in India?

Generalized System of Preferences (GSP) is a preferential tariff system extended by developed countries (also known as preference giving countries or donor countries) to developing countries (also known as preference receiving countries or beneficiary countries).

What is a Form A certificate of origin?

In a printed form or as an electronic document, it is completed by the exporter and certified by a recognized issuing body, attesting that the goods in a particular export shipment have been produced, manufactured or processed in a particular country. A “Certificate of Origin” is also called a “Form A”

What is GSP in garments?

The EU’s Generalised System of Preferences (GSP) scheme, which provides garment manufacturers with duty-free access to the EU market–subject to certain conditions relating to the origin of the materials used in the manufacture of the garment.

What is Export Promotion Bureau?

The Export Promotion Bureau (EPB) is a Bangladesh government agency located within the Ministry of Commerce. It is responsible for developing the nation’s export industry.

What is the meaning of Export Processing Zone?

Export processing zones (EPZs) are areas within developing countries that offer incentives and a barrier-free environment to promote economic growth by attracting foreign investment for export-oriented production.

Which countries will be benefited from the GSP facility?

  • European Union – 28 countries.
  • Others – Australia, Belarus, Canada, Liechtenstein, Japan, New Zealand, Norway, Russian Federation, Switzerland and Turkey – 10 countries.

 

Generalized System of Preferences (GSP) Form A
GSP Form A

 

Advertisements