Discuss 10 motives behind the GSP scheme offered voluntarily by

developed countries, with detailed explanations & real examples

in international trade

1. The first motive for donor countries to offer the GSP scheme to
developing countries is the voluntariness of GSP
Donor countries are not obligated to issue GSP to any country, all
decisions about GSP are made by donor countries such as a list of
beneficiary countries, a list of goods to which GSP applies, free to
decide the tax rate,... Rules of GSP from donor countries can be
fundamentally different from each other.
Developed countries are not required to issue GSP to any country
while MFN will mandate that you issue it to all countries that are
members of the World Trade Organization (WTO) and must issue it
equally to all countries. But with GSP, it will be different from all
decisions made by developed countries, such as which country to
issue, what goods are subject to GSP, and the freedom to decide the
tariffs they want to apply to the goods.
Example:
The US still has to issue MFN for Vietnam because Vietnam is a
member of the World Trade Organization (WTO). But for GSP, the US
does not issue GSP to Vietnam even though Vietnam is a member of
the WTO, because this is the US GSP and the WTO cannot intervene.
Because the political system of Vietnam is different from the political
system of the US, they have the right not to choose Vietnam to offer
GSP. The US only grants GSPs to countries that meet their
conditions.
Furthermore, unlike the MFN, the tax imposed by the GSP is decided
by the US. As the U.S. tax for birds of prey living in MFN is 1.8%, while
in GSP it will be tax-free.

2. Ensure and control that the goods imported by donor countries

do not violate any laws they comply with
By offering a GSP scheme, donor countries can persuade and
encourage beneficiary countries to meet certain conditions,
non-economic, that they want when exchanging trade, such as
intellectual property rights. The GSP helps beneficiary countries
establish domestic focal points to increase the use of the GSP, the
GSP disseminates information on regulations and procedures
governing trade under this regime, and the GSP provides
information on trade-related regulations such as anti-dumping and
 countervailing duties, customs regulations, import licensing
procedures, and other trade laws that prescribe favorable conditions
for entering foreign markets. Therefore, donor countries will be sure
that the rules they set during the import process will always be
protected. Thereby limiting unwanted risks in trade exchange such
as goods of unknown origin, origin, poor quality, price pressure,
dumping, smuggling, etc.
Example:
The US is a country that attaches great importance to copyright, so
when applying GSP, the US encourages participating countries to
register copyrights for export products such as pharmaceuticals,
then participating countries will receive many incentives from GSP
provided by the US. Thus, through GSP, the US will ensure that their
imported goods do not violate the law of intellectual property rights

3. GSP is a permanent exemption to the MFN obligation

As we all know, MFN requires that a country act fairly with all WTO
member countries, as members of the WTO, all countries have the
responsibility to strictly implement the WTO's principles. But when
donor countries issue a GSP, they can decide on the preferential
levels they give to the beneficiary countries without interference by
the MFN because GSP is an exception to the MFN.
Example:
In the US, where the GSP regime is unilateral and not bound by
reciprocity, the import tax rate of goods from preferential countries
to the US often applies the conditional MFN and GSP regimes to
exert political pressure and economic pressure on customers. For
example, for China, from February 1980, the US granted the MFN
regime to restrain China from making concessions on human rights
issues in Tibet, the issue of Taiwan... Or in the Trade Law of 1974, there
is a provision that prohibits the President from allowing countries to
enjoy GSP regimes like communist countries (unless that country's
products are members of GATT/WTO and the IMF, or that country is
not controlled by international communism).

4. GSP can be expired before being reauthorized

Based on the economic situation of the two parties to the GSP and
the status of the beneficiary countries, the National Assembly of the
 donor countries may consider and make any decision on whether to
extend the authorization of the GSP for beneficiary countries.
Example:
In the US, GSP was first authorized for 10 years, until 1985. Since then,
it has been reauthorized 14 times, with authorizations generally
lasting 2 to 3 years. Congress last extended the program until
December 31, 2020, in Division M, Title V of the Consolidated
Appropriations Act, 2018

5. GSP status can be changed

The President of donor countries may terminate, suspend, or limit
GSP status at any time based on the eligibility criteria, provided that
Congress is notified 60 days prior to the action. The President of
donor countries may terminate, suspend, or limit GSP status at any
time, based on the eligibility criteria, provided that Congress is
notified 60 days prior to the action. BDCs are also mandatorily
“graduated” from the GSP if they are determined by the President to
be a “high-income country” as defined by official World Bank
statistics (i.e., gross national income per capita of greater than $12,695
in 2021-2022). The President may also graduate a BDC based on its
level of economic development (i.e., income per capita, living
standards of inhabitants, or other economic factors the President
deems appropriate).
Example:
In March 2019, President Trump informed Congress that he intended
to remove GSP benefits for India (failure to provide equitable and
reasonable market access) and Turkey (based on its level of
economic development). The President subsequently removed
Turkey’s GSP eligibility effective May 17, 2019, and India’s effective
June 5, 2019.

6. GSP increases the attraction of foreign capital inflows for donor

countries.
GSP supports jobs for donor countries and helps keep companies
competitive. GSP helps reduce input costs, helping small domestic
enterprises have cheap raw materials to maintain competitiveness.
Example:
Moving GSP imports from the docks to U.S. consumers, farmers, and
manufacturers supports tens of thousands of jobs in the United
States. GSP also boosts American competitiveness by reducing the
costs of imported inputs used by U.S. companies to manufacture
 goods in the United States. GSP is significant to U.S. small
businesses, many of which rely on the programs’ duty savings to stay
competitive.

7. Strengthening Multilateralism
By participating in the GSP, developed countries can demonstrate
their commitment to the multilateral trading system and support
the development of a fair and open global trading environment.
When developed countries participate in promulgating GSP for
developing countries and poor countries, they are jointly
contributing to promoting the global economy, and economic
justice, preventing wars and conflicts, strengthening peace, and
promoting cooperation for mutual benefits.
Example:
One of the specific examples of the benefits of strengthening the
multilateral relationship of the GSP is that by enjoying the benefits
that GSP brings to their countries, China and India have now become
major developing countries contributing to building the global
economy and that is also a great contribution from donor countries
like the EU. Helping the economic relationship between countries in
the world and the EU get better and better.

8. Domestic goods become more diversified, increasing choices for

consumers
GSP helps the issuing country import a variety of goods that the
issuing country cannot produce at a reasonable price, increasing the
number of imported goods, thereby helping the domestic source of
goods become more diverse, coming from more regions, so
consumers have more choices.
Example:

The data shows that the top 10 items imported under GSP to the US
are: travel and sports bags of man-made fibers, necklaces;... All are
industrial products, and handicrafts from other countries. This makes
the US commodity market more diversified. Besides, many U.S.
manufacturers and importers benefit from the lower cost of
consumer goods and raw materials imported under the GSP
program. This helps developed countries to own specific materials
from other countries with low import prices. Especially when U.S.
demand for certain individual products, including jewelry, leather,
and aluminum, is quite significant. The Coalition for GSP, a group of
U.S. companies and associations that benefit from, and advocate for,
the GSP program, estimates that U.S. importers have paid up to $1.47
 billion in tariffs on GSP-eligible imports between January 2021 and
April 2022.

9. Fully exploit the comparative advantages of countries

Comparative advantage states that each country benefits when
it specializes in the production and exports of goods that it can
produce at a relatively low cost (or relatively more efficiently
than other countries). Conversely, each country benefits if it
imports goods that it can produce at a relatively high cost (or
relatively inefficiently compared to other countries). From there,
we see that not only the countries that enjoy the GSP policy will
benefit, but even the host country will benefit from being able
to import cheaper raw materials and fuels from developing
countries to meet the needs of consumers. used in production,
creating comparative advantages with other countries.
Example:
When the European Union applied GSP to Vietnam, starting on
January 1, 2014, Vietnam was entitled to the GSP regime for all goods.
Under this mechanism, many export products, especially key export
products of Vietnam such as garments, footwear, seafood, etc., are
under GSP and enjoy preferential tax rates that are significantly
lower than those of GSP. MFN tax rate when importing into the
German market (in 2021, the EU average MFN tax rate is 4.71% and
the average GSP tax is 2.35%). So Germany imports textiles from
Vietnam at a cheaper price due to GSP. Vietnam is always one of the
10 largest textile and garment export markets to Germany.

2018 2019 2020

Value (Thou USD) 1.608.896 1.641.852 1.764.345

Share (%) 2,88 3,06 3,03

Germany Textiles and Clothing Imports by VietNam in USD Thousand from 2018 -
2020

10. They have more opportunities to perform good deeds and

promote necessary and beneficial imports for their country's
economy instead of ordinary aid.
Forms of financial aid, food, etc. usually only benefit the beneficiary
countries. However, with the GSP policy, the giver can also benefit by
boosting imports, diversifying domestic goods and materials while
helping developing and less developed countries.

Example:
When the US gives money, items, etc to a poor or developing
country, only that country will benefit from the money and wealth
that the US gives them. But when the US helps them with GSP
policies such as reducing taxes on goods imported from those
countries into the US, this both gives aid-receiving countries the
opportunity to develop and create a source of raw materials, rich
consumer goods for the US.