by Anwarul Hoda and shravani Prakash
ICRIER Policy Series No.6, November 2011
A review of the implementation of the European Union scheme of preferential tariffs for developing countries under the Generalised System of Preferences during the past forty years shows that the scheme has made at best a modest contribution towards increasing the export earnings of India and other beneficiary countries covered by the standard GSP. The benefits for these countries have been constrained by the shallow cuts in tariffs for important products and the practice of product/sector graduation. The policy of differentiation among beneficiaries, which is a central pillar of the EU scheme, has resulted in deeper and wider preferences for GSP + countries and LDCs and limited the benefits for other developing countries.
The reduction of MFN tariffs after successive rounds of multilateral trade negotiations has diminished the value of the GSP concessions. If there is accord in the current trade talks in the WTO, the general level of MFN tariffs will be in the range of 3-4 per cent, rendering preferential tariffs even less consequential. It is unfortunate that at present, the prospect for conclusion of the Doha Round appears to be dim. In light of this, perhaps a better bet is forging ahead with the bilateral trade and investment agreement that India and the EU have been negotiating since 2007. A deal on this front might bring home advantage on the tariff front vis-à-vis the EU that is bigger than what the Doha Round can offer.