Ref. :  000014800
Date :  2004-10-20
Language :  English
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Developing countries: facts and figures on the new EU scheme of trade preferences for 2006-2008

The EU Generalised System of Trade Preferences

Author :  Union européenne

In 1968, the United Nations Conference on Trade and Development (UNCTAD) recommended the creation of a "Generalised System of Tariff Preferences" (GSP) 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 July the Commission adopted the guidelines for the period 2006-2015 (see IP/04/860 of 7 July 2004). In practice, the GSP is implemented through Council regulations during the ten-year cycle.

Current EU GSP systems

The GSP covers only products which are "dutiable". For roughly 2100 products (out of a total number of around 11 000 tariff lines of the EU Common Custom Tariff) the EU Most Favoured Nation (MFN) duty rate is zero. It is, of course, not possible to grant tariff preferences for imports of these products. On the other hand, the GSP does not include imports of products of chapter 93 (arms and ammunition).

To the benefit of around 180 developing countries and territories. High income countries as defined according to the World Bank criteria are excluded from GSP Singapore, Korea ...)

There are currently five types of GSP schemes:

General scheme: It includes roughly 7000 products, of which 3300 are classified as non-sensitive and 3700 are classified as sensitive products. Non-sensitive products enjoy duty free access, while sensitive products benefit from a tariff reduction of 3.5 percentage points on the MFN tariff (MFN minus 20% for textiles/clothing)
Special scheme for the protection of labour rights, for those countries that have engaged themselves in the respect of core ILO conventions. There currently two beneficiary countries, Moldova and Sri Lanka. Sensitive product receive a tariff reduction of 8.5 percentage points on the MFN tariff (MFN minus 40% for textiles/clothing)
Special scheme for the protection of the environment, same as above but no beneficiaries so far
Special scheme to combat drug production and trafficking: benefits all Central American countries, countries belonging to the Andean Community as well as Pakistan. The number of products covered is higher (around 7200) and they access to EU market duty-free.
Special scheme for Least Developed Countries (LDCs) – “Everything but Arms”, for the world 50 poorest countries. All products – except arms and ammunitions – are covered and they can access the EU market duty-free and quota-free.
Future EU GSP system

GSP systems are reduced to three schemes

General scheme: product coverage increases to around 7200 from the previous 6900, to incorporate 300 additional products mostly in the agriculture and fishery sectors, of interest for developing countries
Special scheme for Least Developed Countries (LDCs) – “Everything but Arms”, same as before
New special GSP+: for vulnerable countries with special development needs (vulnerable countries). It covers around 7200 products which can enter the EU duty free. The beneficiaries must meet a number of criteria including ratification and effective application of 27 key international conventions on sustainable development and good governance, in addition, they need to demonstrate that they are small beneficiaries under the GSP and that their economies are poorly diversified (and are therefore vulnerable):
little diversification: five largest sections of its GSP-covered imports to the Community must represent more than 75% of its total GSP-covered imports,
GSP-covered imports from that country represent less than 1% of total EU imports under GSP.
Additional preferences are immediately granted to developing countries that have ratified and effectively implemented the 16 core conventions on human and labour rights and 7 (out of 11) of the conventions related to good governance and the protection of the environment. At the same time beneficiary countries must commit themselves to ratifying and effectively implementing the international conventions which they have not yet ratified. In any case, the 27 conventions have to be ratified by the beneficiary countries by 31 December 2008.
A simpler mechanism for graduation

Graduation is applied to groups of products from countries that are competitive on the Community market and no longer need the GSP to boost their exports. Graduation is not a penalty, it is a sign that the GSP has successfully performed its function, at least in relation to the countries and products in question. The GSP thus focuses on the countries most in need and helps them play a greater role in international trade. For the other beneficiary countries, graduation brings about greater share of the benefits of GSP.

Changes have been made to the graduation mechanism to make it simpler. The current criteria (share of preferential imports, development index and export-specialisation index) have been replaced with a single straightforward criterion: share of the Community market expressed as a share of preferential imports. Vulnerable countries, ie those representing less than 1% of total EU GSP imports of those for which a group of products represents more than 50% of its total exports to the EU under GSP will not be graduated.

Groups of products are defined by reference to the “sections” in the EU Customs Code. Graduation should also play an important role in regulating trade flows for textile products and clothing, following the abolition of MFA quotas on 31 December 2004.

Under the current proposal, graduation takes place when a group of products from a particular country exceeds 15% of total EU imports of the same products under GSP over the last three consecutive years. For textiles/clothing, the threshold would be 12.5%.

Figures on EU GSP imports

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 2003, half were duty free and half at a reduced duty. In 2003 EU imports under GSP amounted to € 52 billion (by comparison the US € 16 billion). Total imports from developing countries amounted to € 368 billion (to be noted that energy imports are already subject to a MFN import duty is 0%).

Thanks to the “Everything But Arms initiative” the worlds 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, The People’s Republic of China (35,8 % of the total volume of EU GSP imports), India (11,8 %) and Indonesia (5 %) were the main exporters to the EU in 2002, with Bangladesh (3,9 %) ranking 7th 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.

Annex: List of Conventions to qualify for GSP

Core human and labour rights UN/ILO Conventions

- International Covenant on Civil and Political Rights
- International Covenant on Economic Social and Cultural Rights
- International Convention on the Elimination of All Forms of Racial Discrimination
- Convention on the Elimination of All Forms of Discrimination Against Women
- Convention Against Torture and other Cruel, Inhuman or Degrading Treatment or Punishment,
- Convention on the Rights of the Child
- Convention on the Prevention and Punishment of the Crime of Genocide
- Minimum Age for Admission to Employment (N° 138)
- Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour (N° 182)
- Abolition of Forced Labour Convention (N° 105)
- Forced Compulsory Labour Convention (N° 29)
- Equal Remuneration of Men and Women Workers for Work of Equal Value Convention (N° 100)
- Discrimination in Respect of Employment and Occupation Convention (N° 111)
- Freedom of Association and Protection of the Right to Organise Convention (N° 87)
- Application of the Principles of the Right to Organise and to Bargain Collectively Convention (N°98).
- International Convention on the Suppression and Punishment of the Crime of Apartheid.

Conventions related to environment and governance principles

- Montreal Protocol on Substances that deplete the Ozone Layer
- Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal
- Stockholm Convention on persistent Organic Pollutants
- Convention on International Trade in Endangered Species
- Convention on Biological Diversity
- Cartagena Protocol on Biosafety
- Kyoto Protocol to the UN Framework Convention on Climate Change
- UN Single Convention on Narcotic Drugs (1961)
- UN Convention on Psychotropic Substances (1971)
- UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988)
- Mexico UN Convention against

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