Trade preferences have long been an instrument of foreign and commercial policy, employed to establish closer relations, both economic and political, between the countries concerned. Preferential treatment by developed countries of imports from developing countries has, in addition, become a firm element of development-oriented policies. The various existing regimes of trade preferences for developing countries can be classified into three major categories: (i) the Generalized System of Preferences (GSP); (ii) special preferential regimes for groups of developing countries; and (iii) regional free-trade arrangements between individual developed countries and given groups of developing countries.
(i) The origins of the GSP date back to the 1960s, when the need to improve trading conditions for developing countries was discussed in Geneva at UNCTAD I (1964). The establishment of a GSP was subsequently decided on in New Delhi at UNCTAD II (1968), and took concrete form in an UNCTAD understanding in October 1970.[1] The GSP was to provide tariff preferences for all developing countries, on a non-discriminatory and non-reciprocal basis, mainly for manufactures and semi-manufactures, in order to overcome the dependence of developing countries on exports of raw materials with their unfavourable long-term price trends and pronounced short-term quantity and price fluctuations. However, the consequent violation of the most-favoured nation (MFN) principle was inconsistent with fundamental GATT rules, but this problem was eventually solved in a general way by adoption of the “Enabling Clause” in GATT in 1979 (see below, Section 6). The EU was the first grouping of developed countries to introduce its GSP scheme, in July 1971, but other developed countries followed soon after.
Though the GSP followed an approach that was agreed at the multilateral level and all developed countries provide preferences under this regime, the precise scope and coverage of preferential treatment provided is decided unilaterally by each preference-giving country. The schemes thus differ from one country to another. These differences relate to all aspects of the schemes, i.e. product coverage, margins of preference, rules of origin, specific preferences for the least-developed countries, criteria for graduation of beneficiary countries (or some of their exports) out of the system once they reach given levels of economic development or export performance, and additional provisions such as commitment of the beneficiary countries to certain labour rights or environmental standards.
The schemes also differ in the extent to which they cover agricultural products. All include some agricultural products, but the number and type of products included differ widely, as does the size of preference margins. For example, in 1992 the EU’s scheme applied to 168 beneficiary countries and included 530 agricultural products, while that of the United States applied to 133 developing countries and covered 467 agricultural products, and that of Japan applied to 151 beneficiary countries and covered 289 agricultural commodities (Yamazaki, 1996, p. 412). In aggregate (i.e. for all agricultural products covered and for all beneficiary countries), the preference margin amounted to 14 percent of the value of imports in EU, 6 percent in the United States, and 16 percent in Japan (calculated from Yamazaki, 1996, p. 414).
(ii) In addition to the GSP, some developed countries provide special and more favourable tariff preferences to limited groups of developing countries, usually linked to them through previous colonial ties or regional political relationships. The most prominent special regimes are those maintained by the EU under the Lomé Convention (now the Cotonou Agreement) for African, Caribbean and Pacific (ACP) countries and the Caribbean Basin Initiative (CBI) of the United States, which was recently extended to the sub-Saharan African countries by the African Growth and Opportunity Act. Under these special regimes, preference margins are usually larger than those accorded under the GSP, and more products are covered. In some cases, preferences even cover some ‘sensitive’ agricultural products that are totally excluded from GSP treatment, such as sugar both in the EU regime for ACP countries and in the CBI of the United States. Preference margins for selected agricultural products under these special regimes can be quite large. For example, the Lomé Convention’s sugar protocol guarantees beneficiaries the same sugar price as EU producers receive. Preferences granted by EU to banana imports from the ACP countries are also very specific. Together with the related restrictions on imports from non-ACP countries, they have given rise to major difficulties in GATT/WTO, as became clear in the various successive banana disputes.
The special preferential regimes for limited groups of developing countries have recently also run into difficulties in GATT/WTO because they are not in line with the “Enabling Clause”, which covers only preferential treatment for all developing countries as provided under the GSP (see below, Section 6). In response to the resulting need for a restructuring of the special preferential regimes, the EU decided, on 26 February 2001, to provide duty-free treatment to essentially all imports from LDCs, under a scheme dubbed the “Everything but Arms” (EBA) Initiative.[2] Under this arrangement, it will provide duty-and quota-free access to EU markets for nearly all goods to all 48 (now 49) LDCs recognised by the United Nations.[3] Duty-free access will not be provided for arms (25 tariff lines). For three agricultural products (bananas, sugar and rice), duty-free access will be implemented in three (and for bananas four) progressive steps within three/four years.
Inside the EU, strong resistance was voiced against zero-duty treatment of some agricultural products under this Initiative. In particular, the EU’s sugar and rice lobbies argued vigorously against it, fearing that it would fatally undermine the sustainability of the Union’s highly protective market regimes for sugar and rice. They were concerned that the LDCs might export, in line with the rules of origin, the totality of their domestic sugar and rice production to the EU, while importing their domestic consumption requirements from the world market. In addition, it was feared that the LDCs might import raw rice, process it and then export it back to the EU, adding sufficient value so as to meet the rules of origin requirements.[4] That might then force the EU to liberalize its market regimes for these products, not least because it cannot re-export these quantities under the existing WTO constraints on subsidised exports. It would be difficult to overcome such fears by tightening the rules of origin. After all, for homogeneous products like sugar it is not only hard to check the actual origin of a given shipment but also virtually impossible to prevent the preference-receiving country from exporting all its domestic production, while consuming imported produce.[5] An alternative solution might have been to set quotas for preferential imports, and this was indeed considered in the EU in the context of the debate about the EBA initiative and ‘sensitive’ products such as sugar. However, in the end no quotas were set to limit the duty-free access under the EBA scheme, though safeguard measures can be brought to bear if “serious difficulties” should arise on EU markets.
(iii) Not least because of the problems caused in GATT by the special preferential regimes for limited groups of developing countries, some developed countries have begun to convert some of these regimes into GATT-consistent regional free-trade arrangements, with reciprocal trade liberalization between the developed and developing countries concerned. One example is the New Euro-Mediterranean Agreements that EU has concluded with several countries in the Mediterranean basin, and which are still being negotiated with other countries in that region.[6] Reciprocal regimes of a similar nature are supposed to replace in the future the EU’s Lomé preferences for those ACP countries that are not LDCs (see below, Section 6). Though such regional free-trade regimes have historically originated from non-reciprocal trade preferences for developing countries, they no longer belong to the category of tariff preferences for developing countries in a strict sense. These reciprocal regimes will, therefore, also not be covered any further in this study.
In summary, preferences for developing countries come in three major forms: the Generalized System of Preferences; special preferential regimes for limited groups of developing countries (such as Lomé/Cotonou or the Caribbean Basin Initiative); and regional free-trade areas between developed and developing countries. However, the last form, involving reciprocal preferences, does not belong to the category of trade preferences for developing countries in a strict sense.
