New GSP proposals

The European Commission announced on 10 May a proposal that could lower by more than 50% the developing countries which are beneficiaries of the present Generalised System of Preferences (GSP), which offers preferential access to imports to the EU from developing countries. The proposals are also expected to expand the eligibility for the GSP+ system.

The proposals will be debated in the European Council and the European Parliament with a view to having the reformed GSP in place not later than 2 January 2014, thereby extending the present scheme by another two years till the new scheme is implemented.

A commission fact sheet explains that the recent past has witnessed the emergence of more advanced developing countries that are now globally competitive, but currently account about 40% of preferential imports under GSP. On the other hand, many poorer countries are lagging behind due to increased competition from these emerging countries.

Under the new proposals, the commission would remove from the GSP list countries classified by the World Bank as high or upper middle income economies for the past three years, countries that have preferential access to the EU under free trade agreements or economic partnership agreements which are as good as the GSP and overseas countries having alternative market access arrangement for developed countries.

Countries in the first and second categories can become beneficiaries of the scheme if they are no longer classified as high or upper middle income or the other trade arrangements expire. If based on today’s data, the number of beneficiaries is expected to drop from 176 to around 80.

The final revised list of beneficiaries will be established at the end of the EU decision making process based on the latest data available. However, Sri Lanka is expected to be continued in the list of beneficiaries.

The GSP+ scheme is also expected to be amended by expanding the number of eligible countries, shifting the burden of proof of implementation to beneficiary countries and establishing ‘more robust’ procedures for temporary suspensions from the programme.

Currently a country is eligible for GSP+ if its GSP covered exports represent less than 1% of the EU’s imports from all GSP beneficiaries. Under the proposal, this percentage will be increased to 2%. Also, the country’s five largest product sectors must cover at least 75% of its total exports to the EU. The proposal would increase the sectors from five to seven.

It is also proposed to drop one of the 27 conventions, on apartheid, and add the UN Framework Commission on Climate Change. No changes are proposed to the Everything but Arms arrangement.

The present graduation or removing preferences for particular groups of products is currently required when average imports of a section from a country exceed 15% (12.5% for textiles and apparel) of GSP imports from all GSP beneficiary countries during a three-year period. The proposal is to increase the graduation thresholds to 14.5% for textiles and apparel and 17.5% for all other goods and expand the product sectors used for graduation from 21 to 32.

The proposal includes other revisions to increase predictability, transparency and stability of the GSP scheme. They include eliminating the requirement for review every three years, amending the conditions for withdrawal from the scheme and improving the procedures that trigger safeguard clauses.

The GSP scheme is not without criticism. It is felt that it does not accurately reflect the varying and changing development needs of partner countries, the rules are often complicated and not business friendly – for example, the problems with Rules of Origin and suspension, five out of the 10 largest users are also negotiating FTAs with the EU suggesting that reciprocal FTAs contribute more than unilateral preferences, and the effectiveness of the scheme in encouraging domestic market liberalisation and diversification, business climate improvement and economic reform have been limited.

Many are of the view that the GSP scheme is more effective if the rules are simple, predictable, has significant product coverage and preferential Rules of Origin that work in practice and the new proposals should consolidate and further develop the improvements contained in the current scheme and provide additional meaningful liberalisation to the beneficiaries.

Under the current scheme, ‘sensitive’ products are subject to a fixed rate reduction from MFN rates and ‘non sensitive’ products are duty free. Some importers are of the view that there should be no such distinction and that sectoral or product specific exclusions should not be included.

Some view the current exception for textiles and clothing as a protectionist measure which must be removed. It is also felt that a country’s size, export volumes or its share in total GSP covered imports should not per se hinder its acceptance as GSP beneficiary as that is against the policy of encouraging development. It is felt that the application of development criteria such as the GDP per capita is a better alternative.

Another view expressed is that trade policy is not a panacea. Violation of principles laid down by ILO, UN core human rights conventions, etc., could be more appropriately handled by the relevant specific instruments and institutions and if and when non trade issues are introduced into trade policy, they must be based on objective, clear and internationally well-defined conventions, laws or regulations.

If the EU takes into consideration the constructive views expressed by the beneficiaries, be they importers or exporters, and the revised GSP to be implemented in 2014 incorporates such proposals, the scheme would become more meaningful.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)