Trading without special treatment: assessing the impact of the EU’s Generalized System of Preferences reform

ABSTRACT The Generalized System of Preferences (GSP) program allows developed nations to grant non reciprocal tari concessions to developing and least developed countries. In 2014, the European Union (EU) reformed its GSP program, withdrawing preferential tari concessions from several developing countries and small territories. In this paper, I analyze the impact of this GSP reform on the excluded countries’ exports to the EU. I use a triple difference specification with interactive fixed effects that control for preexisting trade patterns, allowing for causal inference. I find that there is a decline in exports of GSP eligible products from the excluded countries decrease to the EU as well as in the probability of exporting GSP eligible products. There is no evidence of product diversification or trade diversion to other countries to compensate for these losses. Overall, my findings suggest that unilateral tari concessions are necessary for all developing countries and losing them can cause exports to the donor countries to decline. The findings add crucial evidence on the importance of unilateral tari concessions for developing and least developed countries.