May 13, 2011

EU slims down number of beneficiaries under new trade scheme

Posted: 11:59 AM UTC

by Isabelle Ramdoo on May 13, 2011

On 10 May, the European Commission (EC) put forward its proposal for a new European Union (EU) regulation applying a scheme of generalised tariff preferences (GSP) and will hold a public consultation on this and Economic Partnership Agreements next week. In this proposal, the EU grants trade benefits through the GSP to developing countries in the form of reduced or zero customs tariffs on imports of goods. The EC proposes that the new system concentrate its import preferences on those developing countries “most in need”. ECDPM is preparing a full analysis of the proposal, but in this blog entry offers initial comments on the proposal. It builds on an ECDPM Briefing Note from April, which provides elements of reflection regarding the fundamental principles and objectives of the EU’s GSP reform, including the coherence between the GSP and the overall trade and development objectives of the EU. ECDPM will continue to work on this issue up to its adoption by the EU by 2014, including featuring it in the July/August issue of ECDPM-ICTSD’s Trade Negotiations Insights newsletter. We would, therefore, welcome your comments.

The main changes are:

1. Duration

Compared to previous schemes, there is no expiry date, but the Scheme will be reviewed 5 years after its entry into force. This is meant to ensure legal certainly, predictability on stability.

2. Eligibility

The most important change is here. The previous GSP was available to 176 countries, including 35 non-independent overseas countries and territories. The new GSP will be available to developing countries, except:

(i) Countries classified by the World Bank as high-income or upper middle income countries. This, therefore, excludes most Latin American countries; countries like Russia, Malaysia or Algeria. In Africa, countries falling in this category are South Africa, Gabon, Namibia, Botswana, Mauritius, Seychelles; most Caribbean islands; and Fiji in the Pacific. South Africa has a trade agreement with the EU and most of the upper-middle income ACP countries have initialed or signed an interim Economic Partnership Agreement (IEPA) or a full EPA and will, therefore, trade under their respective trade agreements, with the exception of Gabon.  While Namibia has initialed an IEPA within the SADC configuration, it has NOT signed the IEPA. Therefore, if the Commission would decide to end EU Regulation 1528, which provisionally applies the EPAs, then Namibia will fall under Most Favoured Nation (MFN) treatment. Gabon, not having  initialed an IEPA yet, will therefore fall under MFN. This would be contrary to the spirit of the Cotonou Agreement, which states that countries not in a position to sign an EPA would not be made worse off. Although the Communication has a merit to target those “most in need”, it seems however unfair to base the eligibility criteria solely on the basis of the World Bank classification, often calculated on the basis of GDP per capita, thereby penalizing small countries. With this criteria, emerging economies like India, China, Indonesia and competitive countries such as Thailand continue to be eligible for the Scheme, while poorer, and smaller countries fall out of the net.
The decision to remove a country from this category will apply one year after the coming into force of the decision.

(ii) Countries having signed an FTA with the EU (this includes all IEPA/ Comprehensive EPA countries). The decision to remove a country from this category will apply as from 2 years after the FTA comes into force.

(iii) Overseas territories of the EU and overseas countries and territories of countries not included in annex 1 of the Regulation

3. Tariff Preferences

Normal GSP: (no change in depth of tariff cuts)

Tariffs for non-sensitive products (except for agriculture) shall be suspended:

For sensitive products: Ad Valorem Duty would be reduced by a flat 3.5% from MFN. For textile products, it should be reduced by 20%.

Specific duties would be reduced by 30%. If a sensitive product has an ad valorem and a specific duty, then the specific duty shall not be removed. The depth of tariff cut has not changed for normal GSP.

GSP Plus: Ad valorem duties on a list of selected products (Annex IX of the proposal) which originate in a GSP+ beneficiary country shall be suspended. Specific duties on products in Annex IX shall be suspended entirely, except for products for which include ad valorem duties. In this case, the specific duty shall be limited to 16 % of the customs value.

EBA: Duty Free Quota Free (no change)

4. GSP Plus

The EU will expand support to those that embrace the core values of sustainable development. However, the monitoring process of the implementation of the Conventions will be reinforced, and the “burden of proof” will be reversed, so that the “potential offenders” will themselves have to prove that they meet the requirements and that they are applying the conventions. In theory, all low-income developing countries (i.e non-LDCs GSP beneficiaries) can now apply for the GSP but will have to prove to the Commission that they meet the requirements and apply all the Conventions. It is likely to be quite tough for countries that do not have the capacity to do so.

5. Graduation

Graduation will be based in respect of sections or sub-sections of the Common Customs Tariff, when the section meets the criteria for graduation (average value of EU imports for all products of 17.5%, except for textiles where the threshold is 14.5%) over three consecutive years. This is an improvement compared to the previous, where the thresholds were 15% and 12.5% respectively. No graduation for EBA and GSP Plus countries.

6. Temporary withdrawal from the Scheme

This applies to ALL 3 schemes (including EBA). Conditions for temporary withdrawal have been undated to include:

(i) serious and systematic violations of principles laid down in international conventions, concerning labour rights; core human rights and the fight against terrorism:

(ii) serious and systematic unfair trading practices, including the supply of raw materials which has an adverse impact on EU industries. This is a new introduction, which is in line with EU Raw Materials Initiative, which clearly mentioned that the EU would address the issue of unfair trade practices (including export taxes) including through autonomous preferences. In this case, countries, including EBA countries could be suspended from benefits. It is interesting to note that there is no such flexibility as to the possibility of keeping such measures for development purposes/ infant industry/ revenue purposes.

(iii) Serious and systematic infringement of the objectives adopted by regional fisheries organisation.

(iv) Serious shortcomings in customs control on the exports of drugs and illicit substances

7. Specific Safeguard clauses

A Specific safeguard clause for agriculture, fisheries and textiles has been introduced applicable when exports of such products to the EU increase by at least 15% in quantity (by volume) compared to the previous year. This shall not apply to EBA beneficiary countries, nor shall it apply to countries with a share not exceeding 8 % of European Union imports of products listed in Annex V or IX.


Isabelle Ramdoo is Policy Officer Economic and Trade Cooperation at ECDPM.


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