Reform of the Generalised System of Preferences: A reader

15 July 2011

1.     Background

The EU grants trade benefits through the Generalised System of Preferences (GSP) to developing countries in the form of reduced or zero customs tariffs on imports. On 10 May 2011, the European Commission (EC) put forward its proposal for a new European Union (EU) regulation applying a scheme of generalised tariff preferences. While this proposal builds on the current system, it nevertheless marks a significant change in EU's development policy through trade by proposing to focus trade preferences on developing countries "most in need" and therefore reducing the number of more competitive beneficiary countries.

In 2009, the GSP was worth €60 billion of trade: €48 billion (80 percent) were traded through the standard GSP, €5 billion (10 percent) through GSP Plus and €6 billion (10 percent) under the Everything But Arms (EBA) scheme [1]. Though a key instrument, aimed at fostering development in poorer countries, the GSP only represented 4 percent of EU's total imports, i.e less than 1.5 percent of EU's market.

2.     What does the GSP Cover?

2.1              Three schemes (expiring on 31 December 2011)

(i)     The Standard GSP, available to all (176) developing countries;

(ii)    The GSP Plus scheme, available to "vulnerable" countries that have implemented 27 conventions relating to good governance and sustainable development; and

(iii)   The EBA Initiative, available to Least Developed Countries (LDCs).

2.2              Tariff preferences

The GSP and GSP Plus schemes give preferences to developing countries for 66 percent of all tariff lines, in addition to the 25 percent tariff lines already duty-free under MFN. EBA provides duty-free quota-free market access to LDCs.

3.   What will change?

3.1              Eligibility

In principle, all developing countries remain eligible. However, if countries are classified by the World Bank as high-income or upper middle-income countries and/ or have concluded a free trade agreement (FTA) or benefit from an autonomous preference in the EU, they would no longer benefit from the scheme. Table 1 shows the new configuration of beneficiary countries. The decision to remove a country from this category will apply two years after the FTA comes into force.

3.2              Tariff Preferences

There will be no change in the breadth and depth of tariff preferences for all 3 schemes.

3.3              Duration

There will be no expiry date. This will ensure legal certainty, predictability and stability. The scheme will however be reviewed five years after its entry into force.

3.4              Other Changes

(i) GSP Plus: The EU will expand support to those that embrace the core values of sustainable development. In principle, all non-LDC GSP beneficiaries could apply at any time, provided they meet the "vulnerability criteria", i.e. an import threshold and a diversification criteria. While the diversification criterion remains stable (75 percent of imports for largest product sections), the import threshold criterion will be relaxed from one to two percent.

The monitoring process of the implementation of the Conventions will be reinforced, and the "burden of proof" will be reversed. The "potential offenders" will have to prove that they meet the requirements and are implementing the conventions.

(ii) Graduation criteria, based on sections or sub-sections of the Common Customs Tariff, has improved, from 15 to 17.5 percent of the average value of EU imports for all products, except textiles. The textiles threshold has improved from 12.5 to 14.5 percent.  No graduation will apply for EBA and GSP Plus countries.

(iii) A Specific safeguard clause for agriculture, fisheries and textiles was introduced for GSP and GSP Plus countries. It may trigger when exports of such products to the EU increase by at least 15 percent in quantity (by volume) compared to the previous year. This would not apply to EBA countries, nor to countries with a share not exceeding 8 percent of EU imports of products listed in Annex V or IX.

3.5 The legislative process

Following entry into force of the Lisbon Treaty, the new GSP regulation will have to be adopted by the European Parliament and the Council acting jointly under the ordinary legislative procedure. The duration of the legislative process cannot be foreseen with certainty but for predictability purposes, an extension has been granted until 31 December 2013 or until the new regulation comes into force.

Author: See next article

1 Source: European Commission

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