Generalised System of Preferences: An Overview

The foundational principle of WTO law is non-discrimination. In particular, the Most Favoured Nation obligation means no WTO member can treat some partners less favourably than others. There are exemptions to this rule, and one of these concerns preferential tariffs that can be granted to certain categories of developing countries by developed ones. Preferences are one of the issues that lie at the nexus between trade and development. Here are some issues for the UK to consider post-Brexit.

The Generalised System of Preferences was negotiated through the United Nations Conference on Trade and Development (UNCTAD) in the 1960s. Enacting such schemes required a waiver from GATT law, which is to be found in the 1979 Decision on Differential and More Favourable treatment, known more generally as the “Enabling Clause”.

In addition to providing enhanced market access opportunities to developing countries, the intention of the scheme was to ensure that there was no discrimination between the intended beneficiaries. The aim was to break from the largely colonial system of preferences that had existed in the past. This does not preclude the right of preference-donors to exclude certain developing countries from the scheme, or grant them a lower level of preference, provided this is done on an objective basis reflecting their level of development. The Enabling Clause also provides for the ability to “graduate” countries out of preference schemes as they develop.

The Enabling Clause also provides for a higher level of preferential treatment for the poorest of the developing countries – the Least Developed Countries, a category defined by the UN that now includes 47 countries. A separate decision agreed in 2000 allowed developing countries to provide preferences to this same group.

The UK currently provides preferences through the EU’s preference regime. This EU maintains different levels of preferences depending on the income group of the recipient: a standard GSP for low and lower-middle income countries; an enhanced GSP for vulnerable low and low-middle income countries; and expanded preferences for least-developed countries giving the latter duty and quota free access to the single market for all products bar arms and ammunition.

The EU also applied special preferences for group of African, Caribbean and Pacific countries. This required a special waiver from WTO Members. Partly because of the political difficulties associated with obtaining such a waiver, the EU opted instead to pursue an approach of negotiating reciprocal free trade agreements with groups of ACP partners.

On leaving the EU, the UK will need to consider what approach it takes to preferences. According to the Overseas Development Institute, around 1.3 billion Euros in goods is exported to the UK under EU preference scheme. The UK’s approach to the question will be conditioned by its wider approach to trade, and indeed to development. For example, a policy of unilateral liberalisation on a non-discriminatory basis has its merits, both for the UK and for partners that currently face high tariffs in a few specific products. But this would also erode the preferential margin (the difference between MFN tariffs and preferential rates) currently received by some poorer nations.