Impact of Generalised System of Preferences (GSP) by Developed Countries on Less Developed Countries: The Case of Lao PDR-EU Exports

Generalised System of Preferences (GSP) is a non-reciprocal preferential trade agreement where developed countries grant concessions or elimination of their tariffs on imports from developing and less developed countries (LDCs). The primary objective of GSP is to help increase the beneficiaries’ export revenues. Lao People’s Democratic Republic (Lao PDR) acceded as a new member of the Association of Southeast Asian Nations (ASEAN) in 1997 and became a member of the World Trade Organization (WTO) in 2013. The country is also a beneficiary of the European Union (EU)’s GSP since the 1990s and thus benefits from concessions or elimination of two-third of their tariffs on Lao PDR exports to the EU. In addition, as a LDC, Lao PDR currently enjoys duty-free, quota free market access to the EU via a special arrangement known as Everything but Arms (EBA) that the EU has offered to all LDCs since 2001. This study empirically analyses the impact of EBA on the export volumes of Lao PDR to the EU using an export demand model with quarterly time series data over the period 1996-2015. Following (Cuyvers & Soeng, 2013), the impact of EBA has been quantified taking into account changes under the EU GSP, which potentially affect the effectiveness of EBA scheme, such as the complete removal in 2009 of duties and quota on remaining agricultural products (banana, rice, and sugar) and the application of more favourable Rules of Origin (RoO) in 2011. The results of this study show that none of the mentioned changes in the scheme has affected the effectiveness of the EBA on Lao exports to the EU. Instead, it is observed that production supply constraints and declining comparative advantage of Lao PDR’s key export products to the EU are the two important factors affecting the export volumes from Lao PDR to the EU. Thus, in order to increase Lao exports to the EU, it is necessary to address these two crucial constraints in order to take advantage of the EBA GSP