The impact of the EU Generalized System of Preferences on exports and GSP utilization by Asian and Latin American countries

Purpose – The aim of this paper is to investigate the impact of changes in the Generalized System of Preferences of the European Union, on the EU GSP imports from beneficiary countries in ASEAN and China, and Latin America, respectively, and the utilization of GSP benefits by these countries for the period 1994‐2007. Design/methodology/approach – The econometric model specifications used is with unlagged and one year lagged reactions. GSP dummy variables are added in order to test whether the changes in the EU GSP has had impact on bilateral trade flows and the degree of utilization. Findings – The paper finds that EU GSP agricultural imports are negatively affected by the changes in the EU GSP system, but these of industrial products seem to have positively reacted to changes in the EU GSP. For imports of textile products, the results are not significant. It is also found that ASEAN plus China are significantly benefiting more from the EU GSP for industrial and textile products than the Latin American countries, but the changes in the GSP had no significant different effect on both groups of countries. The authors estimations also show that the graduation mechanism in the EU GSP, against beneficiary countries with higher EU market shares, seems to be effective for industrial products, but in contrast, is working in favour of such countries for textile products. By and large, the other graduation mechanism in the EU GSP linking GSP benefits and level of development of the beneficiary country has not been effective. Originality/value – The paper is the first to address the issue how the many changes in the EU GSP since 1994 have affected the exports and GSP utilization of beneficiary countries.