Accounting for underutilization of trade preference programs: The US generalized system of preferences

The US Generalized System of Preferences (GSP) provides duty-free market access to developing countries. Yet despite these preferences, about 40% of imports qualifying for GSP enter the US without claiming the benefits. This paper documents variations in GSP utilization rates and explains their determinants with a special emphasis on the production structure of beneficiary countries as captured by local content. The findings suggest that higher local content shares in output lead to higher utilization rates. In addition, the utilization rate rises with the preference margin, size of exports and regional cumulation, in general, and declines with degree of processing.