The EU's General System of Preferences - (to be) continued

4 September 2008

On July 22 the new regulation applying the Generalised System of Preferences (GSP) for the period from January 1 2009 until the end of 2011 was officially adopted by the EU member states.2 This decision allows the EU to continue granting preferential market access to 176 developing countries for another three years.3  The EU's GSP is the most generous of all GSPs, but to stimulate exports from developing countries further, the rules of origin need to be improved.

The GSP is an important instrument in the EU's development policy. It aims to contribute to poverty reduction and the promotion of sustainable development and good governance by facilitating the integration of developing countries in the world market through granting tariff preferences.4 With €57 billion worth of trade under the scheme in 2007, it is the most widely applied preferential system in the world.5

GSP reforms: the story so far

In 2004, the European Commission took the step of reforming its GSP, setting guidelines for the years 2006-2015 aimed at better serving the system's objectives. In 2005, the first GSP scheme was introduced under these guidelines, encompassing three separate preferential regimes: a) the general arrangement, which provides preferential access for all 176 beneficiary countries and territories; b) the GSP+, which provides duty-free access for countries that implement 27 international conventions in human and labour rights, environmental protection and good governance; and c) ‘Everything But Arms' (EBA), which offers least developed countries (LDCs) ‘duty-free and quota-free' access to the EU's market for all products except arms. A large number of tariff lines were also added to the scheme, including sensitive items such as fishery products. Since the reforms, imports from developing countries under the scheme have increased by 12%.6

GSP regulation 2009 - 2012: a mini reform

The new regulation largely maintains the current structure, thereby ensuring the stability and predictability of the GSP scheme, but also boasts some technical innovations. It follows the Netherlands' initiative by introducing an additional opportunity to apply for GSP+ in mid-2010. This will increase the incentive under the arrangement, especially given the fact that from 2009, applicants are required to have fully ratified and implemented the 27 conventions and are no longer permitted a transitional period as under the current GSP regulation. What is more, sectoral competition from beneficiary countries has led to some changes in the
application of preferences: footwear from Vietnam is no longer eligible for preferences, for example, as the sector has grown strong enough to compete on the European market. Preferences have been reintroduced for products from Algeria, India, Russia, Indonesia, South Africa and Thailand.7 And in order to ensure coherence with the outcome of recent Economic Partnership Agreement negotiations with ACP countries, full liberalisation of sugar imports from LDCs will now take place from October 1 2009 instead of July 1 2009.

Rules of origin: room for improvement

Countries' use of the EU's GSP has risen steadily over the years (imports under the scheme totalled €57 billion in 2007, an increase of 12% over 2006), but has not yet reached full capacity. One important factor is supply-side capacity, but so too are rules of origin (RoO), which under the EU's GSP are widely held to be relatively stringent.8

Reforms to the preferential RoO finally began last year, when the Commission presented its first proposal to simplify the rules in order to make them more transparent and user friendly. Discussions are under way to determine sufficient working or processing levels (such as value added to third country material, change of tariff heading or product specific requirements), as these must be low enough to trigger further exports from developing countries and high enough to prevent circumvention. But the discussion really needs to centre on the key purpose of the reforms: development impact. The Netherlands, along with other like-minded EU member states, advocates both the simplification and relaxation of the RoO to maximise the GSP's development potential. The reforms can be considered successful if the use of GSP genuinely increases and improvements are made across the board, especially in the sectors that are most important for developing countries. The relaxed RoO (notably in textiles and fisheries) under the Economic Partnership Agreements (interim or otherwise) demonstrate that it can be done.

The EU's GSP is the most generous of all comparable systems, and the new regulation does not alter that fact. It has the broadest product coverage, offers preferences to the largest number of developing countries and has a higher volume of imports from developing countries to the EU than the volume of imports under the US, Canadian and Japanese GSP systems combined.9 An improved scheme for rules of origin would further add to the system's credentials.

 

1 Ingrid Kersjes works for the Sustainable Economic Development Department of the Dutch Ministry of Foreign Affairs; Yee Man Yu works for the Trade Policy Department of the Dutch Ministry of Economic Affairs.

2 Council Regulation (EC) No 732/2008 of 22 July 2008 applying a scheme of generalised tariff preferences for the period from 1 January 2009 to 31 December 2011 and amending Regulations (EC) No 552/97, (EC) No 1933/2006 and Commission Regulations (EC) No 1100/2006 and (EC) No 964/2007, was published in the Official Journal of the European Union on  August 6 2008 (OJ L211, 6.8.2008, p. 1).

3 The number of beneficiaries was 178 until preferences were withdrawn for Belarus and Myanmar on the basis of Council Regulations (EC) No 552/97 and No 1933/2006 respectively.

4 European Commission trade document 139988 on GSP, July 2008; http://trade.ec.europa.eu/doclib/docs/2008/july/tradoc_139988.pdf

5 European Commission trade document  139872 on GSP,  July 2008; http://trade.ec.europa.eu/doclib/docs/2008/july/tradoc_139872.pdf

6 Commission report pursuant to Article 28 (3) of Council Regulation (EC) No 980/2005 of 27 June 2005 applying a scheme of generalised tariff preferences (OJ C66, 11.3.2008, p. 1).

7 Mineral products from Algeria, jewellery from India, chemical products, wood pulp or paper products and base materials from Russia, wooden articles from Indonesia, and transport equipment from South Africa and Thailand. This followed a comparison of the current GSP regulation (no 980/2005) with the new GSP regulation (no. 732/2008) for the period 2009-2012.

8 See also Paul Collier's ‘Preferential Trade for Africa, making preferences work', January 2007.

9 Based on statistics from 2005, see press release of the European Commission of December 21 2005 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/05/1678&format=PDF&aged=1&language=EN&guiLanguage=en

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