The new GSP provisions

The European Union on 31 October announced some significant changes to its Generalised System of Preferences (GSP) for developing countries. The new GSP provisions will be effective from January 2014 and be effective for 10 years instead of the current three years.

The GSP is a scheme whereby the EU allows certain products from developing and least developed countries to be imported at reduced or zero duty with the intention of helping their economies develop through exports and become globally competitive. The scheme has been in existence since 1971 and has helped Sri Lanka to penetrate and retain markets, particularly during the early stages when most other developing countries did not have sufficiently strong export bases.

The EU has stated that the objectives of the new GSP are “to focus on those truly in need; to strengthen GSP+ as an incentive to good governance and sustainable development; and to make the scheme more transparent, stable and predictable”.

The new GSP scheme has reduced the number of beneficiaries from 176 to 89 to ensure more impact on countries most in need. The reduction of countries has been mostly based on their market access to the EU through other arrangements.

Thirty-three countries, such as American Samoa, Cayman Islands, Gibraltar, and Guam, having their own market access regulation and not using the GSP to enter the EU market, will be eliminated from the new GSP scheme. Thirty-four countries such as Algeria, Egypt, Jordan, Lebanon, Morocco, Tunisia, Mauritius, Seychelles, Jamaica, Mexico, South Africa, and other countries, having other trade arrangements such as free trade agreements providing substantially equivalent coverage as GSP, are also eliminated.

Saudi Arabia, Kuwait, Bahrain, Qatar, UAE, Oman, Brunei Darussalam, and Macau, which have been listed by the World Bank as high income countries, and Argentina, Brazil, Cuba, Uruguay, Venezuela, Belarus, Russia, Kazakhstan, Gabon, Libya, Malaysia, and Palau, which are listed by the World Bank as upper middle income economies for the past three years, have also been removed from the new preference list. However, these 54 countries will remain eligible for the scheme and can become beneficiaries if the situation changes and they are no longer high or upper middle income economies or their trade arrangement with EU expires.

The process to graduate out of the GSP scheme has also been subject to change. In the current scheme, graduation is when average imports from a particular group of products exceed 12.5% (15% for apparel and textiles) of imports of that product from all GSP beneficiary countries during a three-year period. Under the new scheme, graduation thresholds for textiles and apparel will be increased to 14.5% and 17.5% for all other goods. The product groups will also be expanded from 21 to 32. Graduation will not be applicable to GSP + beneficiary countries.

The EU states the product coverage of the new scheme has been selected with a view to avoid negative impact on least developed countries already having duty free quota free access to the EU for all products. The new product coverage needs to be studied in detail to assess the impact on Sri Lanka.

The GSP+ scheme will also have certain changes from 2014. GSP+ grants additional, mostly duty free, preferences to support vulnerable developing countries, in implementing international conventions on human and labour rights, sustainable development and good economic governance.

At present, 15 countries are eligible for GSP+. Under the current scheme, a country is eligible only if GSP-covered exports are less than 1% of EU imports from all GSP countries. The new scheme will increase this percentage to2% and the EU has stated that Pakistan, Philippines, and Ukraine would thus become eligible.

Of the 27 international conventions that GSP+ countries must ratify and subscribe to, the EU has deleted the convention on apartheid and added the UN Framework Convention on Climate Change. Also, the burden of proving that the country is abiding by the commitments will be with the countries themselves, unlike in the current system where the EU has to prove violation.

The EU states that these changes are expected to give more predictability, transparency, and stability to the GSP scheme and will help EU importers to plan their purchases from GSP beneficiaries for 10 years, unlike the three years under the current scheme.

(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.)