The idea for the Generalized System of Preferences (GSP) was mooted in the first United Nations Conference on Trade and Development (UNCTAD) in 1964 but it was not until 1972 that the first GSP scheme under the European Community (EC) was implemented. The GSP is to give exports from developing countries (beneficiary) reduced or duty-free tariff rates in the markets of developed countries (preference-giving or donor countries). The difficult birth of the GSP reflects the controversy behind the effectiveness of such a scheme to attain the objective of accelerating industrial development among developing countries.

Such GSP schemes violate the principles of free trade under the General Agreement on Tariffs and Trade (GATT) based on the most-favoured-nation (MFN) treatment and reciprocity. Since the exports of non-beneficiary countries would continue to attract MFN duties, the benefits of the GSP are twofold. First, it enables developing countries to compete on more equal terms with the domestic producers of preference-giving countries. Second, it gives producers from developing countries a price advantage over exporters from non-beneficiary countries. The objectives of the GSP, namely, to increase the export earnings of developing countries, promote their industrialization, and accelerate their rates of economic growth, were accepted at UNCTAD II in 1968. But it was very difficult to have one unified system under which identical concessions can be applied across the board. This is because donor countries have their own divergent interests. The issue was settled on the principle of equal burdensharing, with each donor country assuming obligations in keeping with their relative strengths. Thus, the GSP came to be understood as a system composed of individual national schemes each based on common goals and principles to provide developing countries with broadly equivalent opportunities for export expansion.

In June 1971, the contracting parties of GATT approved a waiver on MFN treatment. This enabled the EC, followed by other members of the Organization of Economic Co-operation and Development (OECD), and the United States, to complete the GSP system. However, right from the beginning the GSP represented a delicate balance between contracting parties.