EU member states agreed on 23 June to a new system of trade preferences for poor countries, which places particular emphasis on poorly diversified economies that are dependent on a handful of export products. It expands the number of products that can receive preferential market access and establishes clear thresholds beyond which countries will ‘graduate’ from eligibility for enhanced access. The EU’s new Generalised System of Preferences (GSP) will come into force on 1 January 2006, although a system of additional preferences for countries that adopt certain international agreements on labour, environment, human rights, and governance will applyfrom 1 July 2005. According to a press release from the EU’s executive European Commission, it is "both simpler and fairer" than its predecessor.
The decision to adopt EU Trade Commissioner Peter Mandelson’s proposed reform of the GSP comes after a three-month delay that had seen the EU’s attention focused elsewhere, notably on textile and clothing imports from China (see BRIDGES Weekly, 16 February 2005). The Commission had first set out guidelines for a wide-scale revamping of the programme in July 2004, in part motivated by the then-looming removal of quotas for international textile trade at the end of 2004 as well as an October 2003 WTO ruling against the legality of a component of the EU GSP that offered countries additional market access in return for combating the production and trafficking of illicit drugs (see BRIDGES Weekly, 27 October 2004). The broad aim of the reforms was to reorient trade preferences away from fast-growing economies such as China and India and towards more vulnerable developing countries.
Describing the GSP as the EU’s "single most important trade tool for development," Mandelson said that a recent deal with China on textile trade (see BRIDGES Weekly, 15 June 2005) had paved the way for members to agree on the reform package.
New GSP to include ‘GSP Plus’ for vulnerable economies
The reformed GSP will consist of three arrangements for enhanced market access. The general scheme will offer all developing countries reduced tariffs for some 7200 products, including 300 new ones in the agriculture and fisheries sector. A ‘GSP Plus’ component will provide poorly diversified (and therefore vulnerable) economies duty-free access for 7200 products, so long as they ratify and apply 27 international conventions on human rights, labour standards, environmental protection, and governance principles. For a country to be eligible for the latter, its five largest GSP-covered export products to the EU must account for over 75 percent of its total GSP-covered exports. Such exports must also account for less than 1 percent of EU imports under the GSP. The third component is the ‘Everything But Arms’(EBA) initiative, adopted in 2001, which grants duty-free market access to all exports from least-developed countries (LDCs) except for arms and ammunition. Critics charge, however, that the EBA is subject to onerous rules of origin that often render this access meaningless. For instance, a shirt made in the Maldives would receive duty-free entry into the EU only if the fabric and cloth are made in Maldives — an impossible requirement for a tiny atoll consisting largely of sandy beaches. Clothing made there from Chinese fabric would face high tariffs.
The existing GSP, in force since 1995, has five components, including special schemes to reward countries for fighting drug production, as well as for enforcing labour and environmental standards. The Everything But Arms scheme will remain unchanged within the reformed GSP.
‘Graduation’ thresholds established
According to the new scheme, GSP export products will cease to be eligible for preferential market access if their share of EU imports from GSP countries exceeds 15 percent. For textiles and clothing, the threshold is lower, at 12.5 percent each.
As a result of the new thresholds, the Indian daily Business Standard reports, nearly 80 percent of China’s exports to the EU are likely to ‘graduate’ out of GSP eligibility. Indian clothing exports, which account for 8.6 percent of the EU’s market share, would remain eligible for preferential market access. Indian textile exports, however, would not.
Mandelson said that the new GSP would also help countries that were heavily affected by the Indian Ocean tsunami in December 2004. Sri Lanka may qualify for the GSP Plus scheme. The Bangkok Post reports that the EU may introduce a special measure to make reduced tariffs available to Thai shrimp exporters by 1 July, rather than six months later when the new GSP enters into force.
International charity group Oxfam welcomed the new scheme, but said that the benefits of the new GSP would be limited because of the EU’s failure to link them to reformed rules of origin. "The new scheme will be meaningless for the 50 poorest countries in the world if the rules of origin remain rigid," said Luis Morago, head of Oxfam’s Brussels office, in a press release, "this issue has dragged on for years because of the unwillingness of the [EU] Directorate-General Trade to make them simpler and better." Louis Belanger, a spokesperson at the same office, told BRIDGES that the European Commission was not listening to the calls from countries such as the UK and Sweden to simplify the rules of origin to grant the poorest countries duty-free market access for goods made with inputs imported from any country.
The EU reports that imports under the GSP in 2003 were worth EUR52 billion, and that between 1999 and 2003, developing countries’ share in total EU imports rose to 40 percent from 33 percent.
The EU memo on the new GSP is available at http://europa.eu.int/comm/trade/issues/global/gsp/memo230605_en.htm.
"GSP may come sooner," BANGKOK POST, 29 June 2005; "Lanka may qualify for EU’s GSP Plus," FINANCIAL EXPRESS, 26 June 2005, "Textiles ‘graduate’ fromGSP," BUSINESS STANDARD, 27 June 2005, "European Member States back new EU Generalised system of Preferences (GSP)," 23 June 2005.