9/7/2004
Developing countries: Commission unveils system of trade preferences

This week the European Commission has adopted a Communication setting out the principles that will guide the EU system of trade preferences for developing countries (Generalised System of Preferences - GSP) for the next ten years. The GSP is a key instrument to help developing countries reduce poverty by generating revenue through international trade.

The Commission proposes to improve the current system in a number of areas: simplification (cutting back the five separate arrangements which exist at present); focusing the benefits on those developing countries most in need, fostering regional cooperation and strengthening the focus for additional GSP benefits on sustainable development.

EU Trade Commissioner Pascal Lamy said:”The EU is already the world largest provider of trade preferences in favour of developing countries, representing more than all other developed countries taken together. But we want to do even better, by focusing on the poorest and most vulnerable developing countries who most need trade preferences to access the EU market.”

In its Communication today the Commission proposes the guidelines for the GSP for the period 2006-2015, based on the experience gained from past schemes. The Communication proposes:

Target the GSP on the countries that most need it: Least Developed Countries (LDCs) and the most vulnerable developing countries (small economies, land-locked, small islands and low income countries)

A simple GSP system: the Commission proposes to reduce the current five GSP arrangements to three: a general arrangement, the “Everything but Arms”, giving duty-free and quota free access to the EU market to the world 50 poorest countries; and a new GSP+ giving tariff preferences to countries with special development needs.

A transparent GSP: focus graduation – ie withdrawal of GSP - only on the most competitive products from those beneficiaries that are highly competitive on the Community market and no longer need the GSP to boost their exports to the EU. In addition, small beneficiaries would not face graduation, and in addition special consideration will be given to the countries most in need in designing the graduation mechanism. It should also be remembered that graduation is not a penalty but a sign that the GSP has successfully performed its function.

A new incentive to encourage sustainable development and good governance is proposed to replace the former drugs, social and environment schemes by a new category – the GSP+-- providing special incentives for countries that accept the main international conventions on social rights, environmental protection and governance, including the fight against drugs production and trafficking.

Improving rules of origin: adapt rules of origin to enhance regional cooperation

The Communication will now be discussed with the Member States, the Parliament and the Economic and Social Committee. By October the Commission will then bring forward a regulation implementing the GSP for the next three years starting on 1 January 2006.

In 1968, the United Nations Conference on Trade and Development (UNCTAD) recommended the creation of a "Generalised System of Tariff Preferences" under which industrialised countries would grant trade preferences to all developing countries. This authorises developed countries to establish individual GSP schemes.

The EU was the first to implement a GSP scheme in 1971. The EU's GSP grants products imported from the 178 GSP beneficiary countries either duty-free access or a tariff reduction depending on which of the GSP arrangements the country enjoys. The EU's GSP is implemented following cycles of ten years for which general guidelines are drawn up. The present cycle began in 1995 and will expire on 31 December 2005. In practise, the GSP is implemented through Council regulations during the ten-year cycle.

There currently five GSP schemes:

the general scheme,

the special scheme for the protection of labour rights,

the special scheme for the protection of the environment,

the special scheme to combat drug production and trafficking,

the special scheme for LDC's – “Everything but Arms”, for the world 50 poorest countries

The EU absorbs one fifth of developing country exports. 40% of EU imports originate in developing countries. The EU is also the world largest importer of agricultural products from developing countries, absorbing more than the US, Canada and Japan taken together.

From the preferential imports under this regime in 2002, half were duty free and half at a reduced duty. In 2002 EU imports under GSP amounted to € 53,2 billion (by comparison the US € 16 billion). Total imports from developing countries amounted to € 360 billion (to be noted that energy imports are already subject to a MFN import duty is 0%).

Least Developed Countries: thanks to the “Everything But Arms initiative” the world’s 50 poorest countries – out of which 34 are Sub-Saharan – export to the EU duty-fee and quota-free. In addition, the EU also has a preferential system for imports from Africa, Caribbean and Pacific countries (ACPS) under the Cotonou Convention. In 2002 EU preferential imports from these LDCs countries (EBA and Cotonou) amounted to € 12,6 billion, by far bigger than the US AGOA regime (out of which oil represents almost 80% of the flows).

Among the GSP beneficiaries are: China (33,1 % of the total volume of EU GSP imports), India (11,5 %) and Indonesia (4,8 %) were the main exporters to the EU in 2002, with Bangladesh (3,6 %) ranking 8th as the first representative of the beneficiaries of the EBA initiative. In the case of the ACP countries, the main exporters were Nigeria (16 % of total EU ACP imports), followed by Ivory Coast (9 %) and Angola (7 %).

Agricultural products account for around 10% of both the EU GSP and EBA imports while their share in EU imports from ACP countries was around 30% in 2002. In the case of textile products there is a significant difference between EU GSP and EBA imports: while they only constitute 18% of the total EU GSP imports, with a share of 80 % they form the dominant part of EBA imports.

For more information
http://europa.eu.int/comm/trade/issues/global/gsp/index_en.htm