Preferential agreement

A preferential agreement consists of a mutual tariff reduction pact between two or more countries. That is, a country reduces one or more tariffs to another country, which in turn also reduces one or more tariffs.

Preferential agreements do not have to affect all products. The objective of this type of agreement is to promote bilateral trade between those who sign the treaty.

They are not considered regional integration agreements because they do not involve the elimination of all trade barriers. Nor because they entail the adoption of a single trade policy. The problem with these agreements is that they are directly opposed to the most-favored-nation principle of the GATT / WTO, since they materialize in privileges that cannot be extended to third countries.

The exception is in the preferences granted to developing countries, since they would be covered by the enabling clause.

The Generalized System of Preferences

The Generalized System of Preferences was included in 1968 in Resolution 21 II), approved at the United Nations Conference on Trade and Development (UNCTAD).

In this it is proclaimed: "The objectives of the generalized system of preferences without reciprocity or discrimination in favor of developing countries, including special measures for the benefit of the least developed among them, should be: to increase the export earnings of these countries; promote its industrialization; and accelerate its rate of economic growth”.

Thus, certain developing countries will benefit from lower tariff rates. In some cases, these can even be null.

Preferential agreements in the European Union

The European Union was one of the pioneers in establishing these preferential agreements in 1971. Up to 178 countries have been incorporated into the Generalized System of Preferences of the European Union.

In this sense, the European Union is in charge of preparing programs with a periodicity of 10 years that will affect those products that are subject to the payment of tariffs.

The Generalized System of Preferences of the European Union is characterized by the following aspects:

• New products that were not covered previously are included and the number of products entering the European market with a 0 tariff (known as "non-sensitive products") is increased, and preferential margins are improved.
• Special attention to the least developed countries: The treatment differs depending on the income level of the beneficiary countries, being more advantageous for the poorest.
• The system has been simplified, currently only three regimes operate: the general, the special one for less developed states and the special regime to promote development and governance.
• Increased transparency and improvement of the rules of origin: It affects the graduation of the most competitive products and establishes a single and simple criterion for graduation, which simplifies the treatment of the System of Generalized Preferences. Rules of origin are acted upon on three fronts: formal, substantive and procedural, making their treatment more flexible and achieving greater regional cooperation among beneficiary countries.