General Equilibrium Effects of the U. S. Generalized System of Preferences

Abstract

This paper presents results from a general equilibrium computational model of the production, employment, trade, and price effects of the United States scheme of the Generalized System of Preferences (GSP). The U.S. GSP, introduced in 1976, provides for the suspension of import duties on U.S. imports of many industrial and semi-industrial products from selected less-developed trade partners. This program was developed under the auspices of the United Nations Conference on Trade and Development (UNCTAD), with the intention of stimulating industrialization and to encourage economic diversification of its beneficiaries through export growth. Previous studies of the GSP of the U.S. have employed the Vinerian customs union framework, focusing on trade creation and diversion. Baldwin and Murray [3], using ex ante partial equilibrium analysis, estimated that U.S. imports from beneficiary developing countries increased by $236.4 million based on trade in 1971. Of this, only 19.3% was the result of trade diversion. Sapir and Lundberg [19], employing an ex post gravity model, estimated trade creation to be $658.3 million and trade diversion to be $270.4 million, based on 1979 trade. Both studies conclude that trade creation exceeds trade diversion so that the