Explain how the GENERALIZED SYSTEMS of PREFERENCES attempts

Solution

Generalized Trade Preferences have the potential of helping developing countries to foster self-sustained economic development. They can substitute for, or also add to, economic transfers from developed to developing countries in the form of financial assistance. Trade preferences can have various trade benefits for the exporting countries concerned. Available estimates of preference margins show they can amount to significant shares of the value of exports from the developing countries. Welfare gains for the exporting countries are usually smaller than the preference margin.

Under the Generalized System of Preferences, developing countries would be charged no duty for their exports to developed countries, while each developed country would continue to levy MFN (Most Preferred Nation) tariff on products from industrialized nations. Thus the GSP would provide the developing countries with a margin of preference equal to the MFN tariff in the developed countries.

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