EC Proposes Rules that May Eliminate GSP for Half of Eligible Nations
On May 10, 2011, the European Commission issued a proposal that would drastically revise the European Union’s Generalized System of Preferences (GSP) eligibility criteria, which may cause the number of countries receiving its GSP benefits to drop by half, from 176 countries and territories to 80. The EC is also proposing other modifications to the GSP+ program, graduation, procedures, etc.
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The EC stated that it is proposing these changes in order to concentrate its benefits on those countries most in need and take into account the emergence of more advanced developing countries. If approved by the European Council and Parliament, the proposal would take effect in 2014.
Upper Middle Income Countries, Those with FTAS and EPAs Would Be Excluded
Under the EC’s proposal, preferences would be concentrated on fewer countries. The main country categories which would no longer benefit from the GSP scheme include:
- Countries classified by the World Bank as high or upper middle income economies for the past three years, based on Gross National Income (GNI) per capita.
- Countries which enjoy another trade arrangement with the EU which provides substantially equivalent coverage as compared to GSP. This includes countries with a Free Trade Agreement or with autonomous arrangements (such as the Market Access Regulation for countries with an Economic Partnership Agreement (EPA) or the special regime for Balkan countries).
- Overseas Countries and Territories (OCTs), ranging from the Antarctica to American Samoa, which have an alternative market access arrangement for developed markets.
Could regain benefits if status changes. Countries in the first and second category would remain "eligible", but would no longer be "beneficiaries" of the GSP scheme. This means that in case their situation changes (if they are no longer classified as high or middle upper income countries by the World Bank or if their trade arrangement expires) they could become beneficiaries of the scheme again.
Final list would depend on data at time of decision. The final list of "eligible" and "beneficiary" countries would only be established at the end of EU decision-making, based on data of the last three years. It is therefore not yet certain which countries would lose their preferences under the proposal.
If Finalized Today, 96 Countries Would Lose Benefits, Including China, India, Brazil
The EC states that if the list were composed based on data available today, the number of beneficiaries would drop from 176 to around 80. Among the 96 countries that would lose their preferences are Kuwait, Saudi Arabia, Russia and Qatar.
According to EC sources, China, India, and Brazil would also be very likely to lose their GSP eligibility under the proposal.
The EC adds that almost 40% of the EU’s current GSP preferences benefit highly competitive countries - Russia, Brazil, China, India, and Thailand -- which no longer need preferences to maintain and build upon their success.
Would Change Graduation Principles, GSP+ Eligibility, Renewal & Procedures
The proposal would also make the following revisions to the GSP program:
Revised “graduation principles.” The graduation principles would be revised to ensure better targeting and more uniform treatment of products. The product sections used for graduation would be expanded from 21 to 32. This would ensure that graduation is more objective, as the products in the categories are more homogenous. The graduation thresholds would also move from 15% to 17.5 % (and from 12.5% to 14.5% for textiles).
Changes to GSP+. The proposal would slightly amend the vulnerability criteria used (among other factors) to determine GSP+ eligibility in order to allow more countries to benefit. In addition, the EC would add ratification of the United Nations Framework Convention on Climate Change to the 26 existing conventions that applicants have to ratify to qualify and drop ratification of the apartheid convention. It would also move the burden of proof for the implementation of international conventions to the countries concerned. In addition, the EU would establish swifter exclusion and temporary suspension procedures if the binding commitments are not met and increase monitoring of beneficiary compliance.
No more 3 year reviews, clearer procedures. The system would become open-ended based as it would be based on eligibility criteria, not reviews that take place every three years.1 The EC states that this would make it easier and more attractive for EU importers to purchase from GSP beneficiary countries. In addition, procedures would become more transparent, with better defined legal principles and objective criteria.
After Debate, EC Hopes to Have Reformed GSP by Jan 2014
The proposal will now be debated in the European Council and European Parliament with a view to having a reformed GSP scheme in place on January 1, 2014 at the latest.
1The GSP scheme is currently implemented over cycles of ten years through successive regulations applying for 3 years. The current GSP scheme entered into force on January 1, 2009 and will expire on December 31, 2011. In 2010 the Commission adopted a roll-over proposal of the existing GSP regulation to ensure continuity after 2011. It is expected that the current system will be extended until the end of 2013.
(See ITT’s Online Archives or 04/05/10 news, 10040530, for BP summary of the EC’s 2010 request for comments on possible changes to the GSP program.)
EC Trade Commissioner De Gucht’s remarks, dated 05/10/11, available here.