The Generalized System of Preferences or GSP in the USA allows duty free or preferential imports of more than 4650 products from 133 developing and least developed beneficiary countries (without also doing so for affluent nations), in order to promote economic growth in the developing world. The GSP program was instituted in the USA under the Trade Act of 1974 on 1st January 1976 initially for a 10 year period. Thereafter, the GSP instrument has been renewed from time to time. Under the last of such renewals in December 2006, President George Bush inked legislation that reauthorized the GSP program through the end of December 2008.
Most favored nation (MFN), in the US, is a privilege or special favor of trade advantages from a country to any of its trading partner, such as, low tariffs or reduced customs duty rate for its products. However, since under the World Trade Organization (WTO) Rules countries cannot normally discriminate among their trading partners, the grantor country must extend the same concessions to all other members of the World Trade Organization.
The significance of MFN is that every time a country opens up a market or reduces a trade barrier, it has to do so for the same goods or services for all trading partners.
However, exceptions to the MFN principle accommodate preferential treatment of developing countries through GSP programs that are non reciprocal with respect to the beneficiary countries and non discriminatory in relation to other nations.
The GSP programs have come under a lot of criticism since they do not cover most of the products in which the developing countries have competitive advantage like textiles, agricultural goods including processed agricultural products, leather goods, ceramics, glass and steel. Moreover, GSP has disproportionately benefited comparatively affluent developing countries like Malaysia, Brazil, Taiwan and India; while least developed countries like sub-Saharan African nations, Nepal or Haiti have been virtually untouched.
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