History
The idea of tariff preferences for developing countries was the subject of considerable discussion within the United Nations Conference on Trade and Development (UNCTD) 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.'
Since the early 1990s a historic change affecting developing countries has occurred within the WTO. Namely, WTO rules have been extended to cover both textiles and agricultural products. For nearly all of the WTO's (and GATT's) existence, which started in 1948, textiles and agricultural products were excluded from WTO/GATT coverage because they were so sensitive to GATT's primary promoters, the United States and Europe. That situation has changed, and under new WTO rules, many textile tariffs and quotas already have been eliminated, and liberalization of trade policy also is occurring on the complex agricultural front. In many cases, textiles and agricultural products, including value-added products like flour rather than raw agricultural goods like wheat, are the main products that many of the world's least developed countries are able to export competitively.
Read more about this topic: Generalized System Of Preferences
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