Bridges Weekly Trade News Digest • Volume 9 • Number 5 • 16th February 2005

EU To Implement New GSP Three Months Early

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The EU has announced that its new system of trade preferences for poor countries will enter into effect three months early. On 10 February, the European Commission (EC), the EU’s executive body, announced that its expanded ‘Generalised System of Preferences’ (GSP) would enter into force on 1 April instead of 1 July as originally planned. The acceleration is aimed at providing immediate benefits to the countries worst affected by the 26 December 2004 Indian Ocean tsunami, in particular the Maldives, Sri Lanka, Thailand, and Indonesia. The increased market access for Indonesian exports had been announced earlier by French government officials (see BRIDGES Weekly, 9 February 2005).

Close to 180 countries benefit from the preferential access to the EU market provided by the GSP. The changes to the preference scheme will add 300 products to the 7,200-odd products that it had previously covered. Countries with a market share of greater than 15 percent of EU imports in a particular sector (12.5 percent of textiles and clothing) will continue to be excluded from preferential tariffs for that sector. The GSP also provides for additional tariff reductions for countries that fulfil standards for good governance and implement conventions on human rights, labour rights, and environmental protection. In 2003, EU imports under the GSP amounted to over 52 billion euros.

The new GSP reduces tariffs for all fishery products. Tariffs for Thai shrimp are to fall from the Most-Favoured Nation (MFN) level of 12 percent to 4.2 percent; those for Indian textiles and clothing from the MFN 12 percent to 9.5 percent; those for shoes from Indonesia and Thailand from 17 percent to 13.5 percent. The EU claims that under the new regime, 90 percent of Sri Lankan exports will be eligible for duty-free access to the EU. The EU also promised to review the scheme’s controversial ‘rules of origin’ that have been criticised for posing insurmountable barriers to trade.

EU importer representatives have criticised the decision cut tariffs earlier than originally planned, saying that the move does not leave companies with enough time to adjust to the new import regulations.

International charity group Oxfam said that the new EU measures will help reduce poverty, but warned that the gains will be limited unless the rules of origin are modified. Oxfam officials noted that duty-free market access for shirts made in countries like Bangladesh and Cambodia was often a mirage, since they would face heavy tariffs if they happened to be made from Chinese fabric. Oxfam also criticised the scheme for discriminating against larger-but-still-poor developing countries like India.

"Preferential trade measures to benefit tsunami-hit," EUROPEAN UNION PRESS RELEASE, 11 February 2005; "EU Hastens Import Tariff Cuts to Help Tsunami-Hurt Economies," BLOOMBERG, 9 February 2005; "EU speeds up trade help for tsunami countries," EUOBSERVER.com, 10 February 2005; " EU brings forward preferential trade scheme for developing countries," EUBUSINESS.com, 10 February 2005; "EU trade measures will bring some relief to poor countries but not enough," OXFAM INTERNATIONAL PRESS RELEASE, 10 February 2005.