An assessment of United Kingdom's trade with developing countries under the generalised system of preferences

• Published date: 01 February 2022
• Author: Babatunde Akinmade,Sangeeta Khorana,Festus Fatai Adedoyin
• Date: 01 February 2022
• DOI: http://doi.org/10.1002/pa.2308

ACADEMIC PAPER

An assessment of United Kingdom's trade with developing

countries under the generalised system of preferences

Babatunde Akinmade | Sangeeta Khorana | Festus Fatai Adedoyin

Department of Accounting, Finance and

Economics, Bournemouth University,

Poole, UK

Correspondence

Festus Fatai Adedoyin, Department of

Accounting, Finance and Economics,

Bournemouth University, Poole, UK.

Email: fadedoyin@bournemouth.ac.uk

The European Union (EU) generalised system of preferences (GSP Scheme) grants

preferential treatment to 88 eligible countries. There are, however, concerns that the

restrictive features (such as rules of origin, low preference margin and low coverage)

of the existing scheme indicate gravitation towards commercial trade agenda to

which efficiency imperatives appear subordinated. Whether these concerns are gen-

uine is an empirical question whose answer largely determines whether, after Brexit,

the United Kingdom continues with the existing specifics of the EU scheme or

develops a more inclusive United Kingdom-specific GSP framework. This study quan-

titatively examines the efficiency of the EU GSP as it relates to United Kingdom ben-

eficiaries from 2014 to 2017. We draw on the descriptive efficiency estimation (the

utilisation rate, potential coverage rate and the utility rate) using import data across

88 beneficiary countries and agricultural products of the Harmonised System Code

Chapter 1 to 24. Asides the Rules of Origin that, generally, harm the uptake of GSP,

low preference margin is found to cause low utilisation rates in a non-linear manner.

Essentially, a more robust option (such that allows “global Cumulation”or broader

product coverage) could, substantially, lower the existing barriers to trade and

upsurge the efficiency of the GSP scheme.

1|INTRODUCTION

Membership of the European Union (EU) Customs union allows the

United Kingdom to apply the EU tariff schedule to its imports

(Holmes, Rollo, Dawar, & Mathis, 2016). This includes the application

of preferential terms to exports of developing countries within the

special and differential treatment (SDT) framework (Mendez-Parra, te

Velde, & Kennan, 2016). Such “special and differential treatment,”

offered based on “non-reciprocity,”specifically models the assertion

that “treating unequals equally simply exacerbated inequalities”

(UNCTAD, 2015). This was not the intention of the Generalised Sys-

tem of Preferences (GSP hereafter), which was an essential aspect of

the SDT framework, and designed to integrate developing countries

into the world trading system (Brenton, 2003). Brexit has meant that

the United Kingdom designed its GSP scheme and given the paucity

of time it is agreed that the existing EU GSP scheme will be rolled

over to ensure continuity in the trading arrangement with developing

and least developed countries.

There appears to be a consensus that unless GSP arrange-

ments are put in place, the trade regime of the EU will no longer

apply to imports into the United Kingdom immediately after Brexit

(Jones, 2016; Stevens & Kennan, 2016). The easiest way to over-

come the resultant market access challenge involves replicating

the EU's GSP scheme in the short term (Hoekman, Rollo, Wilkin-

son, & Winters, 2016; Jones, 2016; Marx, 2018; Molinuevo,

2017). Such a route would allow the United Kingdom to stabilise

its trade relationships with developing countries and situate effec-

tive transitional market access arrangements in the immediate

post-Brexit period (Herman, 2016; Mendez-Parra et al., 2016;

Ungphakorn, 2016).

Received: 9 June 2020 Revised: 30 June 2020 Accepted: 16 July 2020

DOI: 10.1002/pa.2308

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reprodu ction in any medium,

provided the original work is properly cited.

© 2020 The Authors. Journal of Public Affairs published by John Wiley & Sons Ltd.

J Public Affairs. 2022;22:e2308. wileyonlinelibrary.com/journal/pa 1of17

https://doi.org/10.1002/pa.2308

However, the 2014 EU's revision to the GSP scheme indicates an

inclination towards commercial intents to which efficiency impera-

tives appear subordinated (Siles-Brügge, 2014). The reform made all

high-income and upper-middle-income countries ineligible for GSP

treatment while also made it easier for a beneficiary's competitive

product sections to be graduated (De Ville and Orbie 2014; Siles-

Brügge, 2014). The basis for reducing GSP beneficiaries from 176 to

88 and for introducing the so-called “graduation”mechanism is to

keep with the EU's claim of being “the world's major development

actor”. Rather than representing a move towards improving the value

of trade preferences for the “economies most in need,”there are how-

ever reasons to argue that the revision theoretically provides the EU

with more leverage to pursue its commercial interests (Damro, 2015;

De Bièvre & Poletti, 2013; De Gucht & Barnier, 2012; De Ville, Orbie,

& Relations, 2014; Langan & Price, 2016; Larik, 2015). Whether these

concerns are genuine is an empirical question whose answer largely

determines whether, after Brexit, the United Kingdom continues with

the existing specifics of the EU scheme or develops a more inclusive

United Kingdom-specific GSP framework.

This article, therefore, evaluates the United Kingdom's trade

under the current EU GSP scheme to ascertain the utilisation of pref-

erences by beneficiary developing countries. Secondly, identifies the-

matic recommendations applicable to the United Kingdom GSP

stemming from the evaluation of the current system and relative effi-

ciency of the different regimes—GSP, GSP+ and Everything But Arms

(EBA). Broadly speaking, the recommendations are targeted at facili-

tating policy options towards designing a new United Kingdom GSP

regime that is better at supporting development than the status quo.

The efficiency evaluation of the existing GSP scheme is based on esti-

mations of the utilisation rates, utility rates and potential coverage.

The outlook of the efficiency indicators is matched to the four

core features of the existing GSP scheme—preference margins, rules

of origin, non-tariff barriers and product coverage. A dataset of

88 GSP beneficiary countries is used for the period 2014–2017 and

exporter-products estimation is carried out at 6-digit level across HS

Chapter 1 to 24.

The section that follows presents a review of the literature fea-

turing efficiency, utilisation of the GSP scheme, the rules of origin,

value of preference as well as preference utilisation. This is followed

by data and methods in Section 3, while Section 4 discusses the main

findings of the study. Section 5 makes valuable post-Brexit trade pol-

icy recommendations.

2|LITERATURE REVIEW

The current study reviewspast studies that assess the linkage between

existing EU GSP scheme and the strategies adopted by the United

Kingdom. This matters for the growth and strength of the economy,

alongside other studies that have either assessed macroeconomic pol-

icy, the role of energy in the growth-emissions nexus (Adedoyin,

Alola, & Bekun, 2020;Adedoyin & Zakari, 2020; Kirikkaleli, Adedoyin, &

Bekun, 2020) as well as the importance of trade and FDI in an

economy (Adedoyin, Bello, Isah, & Agabo, 2020; Udi, Adedoyin, &

Sarkodie, 2020; Udi,Bekun, & Adedoyin, 2020).

2.1 |The efficiency and the value of existing

EU GSP

Several studies highlight the development relevance of non-reciprocal

preferences for developing countries and express concerns about

preference erosion that could arise from the coexistence of “reciproc-

ity.”Theoretically, non-reciprocal trade preferences (such as the GSP

scheme) are a vital element of protection patterns across the globe

and play a crucial role in shaping trade opportunities for beneficiary

developing countries. This is particularly the case for the 88 beneficia-

ries of EU generalised system of preferences (GSP). It is not surprising

that the gravitation towards reciprocity raises concerns about the ero-

sion of preferences and betrayal of “trade-development”nexus of the

GSP scheme. Whether these concerns are genuine, and how they

might be addressed is largely dependent on the “interpretation of real-

ity”of these arrangements. Within this context, this study aims to

estimate how much the existing EU preferences are utilised by

exporters, how the utilisation rates diverge across eligible products

and countries and situating the resultant divergence within the exis-

ting features of the scheme.

So far, the majority of empirical studies have assessed the effi-

ciency of EU preferences based on the entire preferential regimes that

exporters are eligible for (DeMaria, Drogue, & Matthews, 2008; Keck

& Lendle, 2012; Wijayasiri, 2007). Keck and Lendle (2012) opine that

this is more realistic than estimating the efficiency of a specific regime

alone. However, this does not necessarily reflect the actual picture of

each regime especially with the likelihood of putting both reciprocal

and non-reciprocal arrangements in the same basket. This, indeed,

overstates the efficiency rates even in the face of eroded preference

margins or restrictive rules of origins (RoOs). The efficiency estimation

must, therefore, be adapted specifically to each regime, given that the

administrative requirements and the rules of origin vary from one

preference regime to the other.

This study follows Zhou and Cuyvers (2012) which specifically

examines the efficiency of the EU GSP scheme as it relates to ASEAN

beneficiary countries, for the period 1990–2007. However, the study

of Zhou and Cuyvers (2012) is dated especially that the 2011 Rules of

Origin revision and the 2014 GSP reform remain unaccounted for. By

adapting the efficiency estimation of United Kingdom GSP to this spe-

cific context and by covering all the beneficiary countries, this study

aims to derive more general conclusions about the efficiency esti-

mates and fill the gap in the literature.

2.2 |The utilisation of GSP scheme

A first approach to examining the economic value of a preferential

regime is to assess the degree of utilisation (Cirera, Foliano, &

Gasiorek, 2016). The GSP utilisation rate is the proportion of goods

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