How Effective is Trade Conditionality? Economic Coercion in the Generalized System of Preferences

Abstract: The Generalized System of Preferences (GSP) exemplifies the ways in which international economic linkages can become conduits of political influence. The program offers beneficiary developing countries the opportunity to export a wide variety of goods duty free to the United States, but eligibility is conditional on labor and intellectual property rights protections. How effective are programs like the GSP at causing states to change behavior by raising the risk that market access will be revoked? The challenge of detecting economic coercion in programs like the GSP is identifying the program’s influence in states where the conditionality is never enforced. The paper applies a new conceptual approach to show that GSP beneficiaries change policy to reduce the risk of being threatened with expulsion from the program. An implication of the findings is that the political consequences of economic linkages could be far more widespread than previously thought.