The Hindu Business Line : EC adopts new proposal for trade preferences

THE European Commission has adopted a proposal setting out the details of the EU system of trade preferences (Generalised System of Preferences - GSP) for the period 2006-08, building on the guidelines issued by the Commission in July 2003 as part of its programme to offer preferential duty entry of products from the developing world into the 25-member EU countries.

The GSP is a key instrument to help developing countries reduce poverty by stimulating their exports to the EU. The Commission proposes to improve the current system in a number of areas: simplification (cutting back from five to three separate arrangements); expanding the product coverage; focusing the benefits on those developing countries most in need; and setting up an additional GSP benefits (`GSP+') to encourage sustainable development.

The text will now be sent to the EU Member States, European Parliament and Economic and Social Committee so that it can be adopted in time for entry into force on July 1, 2005.

India remains a major GSP beneficiary. Its share of total GSP imports into EU was 11.8 per cent in 2002 and its main products qualifying for GSP benefits include textiles and clothing. India might also qualify for the new GSP plus.

A simpler GSP: The current five GSP arrangements are reduced to three: a general arrangement (reduction of 3.5 per cent over the normal customs duty for sensitive products, reduction of duties to zero for non-sensitive products); "Everything but Arms", giving duty-free and quota-free access for all products for the world's 50 poorest countries; a new "GSP+" giving tariff preferences to vulnerable countries which meet the new objective criteria for sustainable development and good governance (reduction to zero duty for a total of 7200 products) ;

Countries with preferential access to the EU market under a bilateral agreement (e.g., a free trade area) will be removed from the list of GSP beneficiaries since they already enjoy better access to the EU market.

A new GSP incentive to encourage sustainable development and good governance: it is proposed to replace the three former incentive schemes (drugs; social; and environment arrangements) by a new single scheme - the "GSP+" - providing special benefits for vulnerable countries (representing less than 1 per cent of EU imports under GSP) that accept the main international conventions on social, human rights, environmental protection and governance, including fight against drugs.

Stabilise the GSP: The GSP will apply during three years without any changes, including graduation; under the previous GSP system, graduation took place every year, creating difficulties for both developing countries and EU importers.

Larger product coverage: The new basic GSP incorporates nearly 300 additional products.

A clearer, simpler, fairer graduation process: GSP will only be withdrawn for certain product groups for one or several countries - when these products are competitive on the Community market and no longer need the GSP. Graduation will be based on simple criteria. When a group of products ("section" of the custom code) from a particular country exceed 15 per cent of total EU imports of the same products under GSP over the last three consecutive years. For textiles, the threshold would be 12.5 per cent. Graduation is not a penalty but a sign that the GSP has successfully performed its function of triggering exports flows; and thus, the GSP will benefit the weakest and the most vulnerable countries.

Greater flexibility on rules of origin: Regional cumulation should be enhanced to allow members of a regional group (i.e. ASEAN, SAARC... ) to make better use of the preferences, thus promoting regional co-operation. In particular, regional cumulation should be relaxed through the elimination of the value-added rule criterion. In addition, cumulation across regions will be introduced if interested countries request it (so countries from SAARC could cumulate origin from ASEAN, for example).

The proposed GSP+ system based on clear, transparent and non-discriminatory criteria fully complies with the WTO Appellate Body ruling in the case brought forward by India against the EU's GSP drugs regime.

The WTO had requested that the EU brought its GSP drug system in compliance with WTO rules no later than July 1, 2005.