New GSP scheme to take effect from January 1

The objective of focusing GSP on those countries most in need is managed by “graduating” the most competitive groups of products from certain beneficiaries. EU said graduation only takes place if a country achieves sustained competitiveness across a relatively wide range of products.

G. Srinivasan

New Delhi, June 15 The Department of Commerce has invited inputs from the stakeholders and beneficiaries of the Generalised System of Preferences (GSP) of the European Union (EU), following the recent adoption of the European Council’s amended regulation which would contain the new GSP.

The GSP is an autonomous trade arrangement through which the EU extends preferential access to its market to products originating in 179 developing countries and territories. Under the general arrangement which covers some 6,400 products out of roughly 10,000 tariff lines, non-sensitive products (just over 3,200 and representing slightly more than half of the products covered) enjoy duty-free access.

Other products are deemed not to be ‘sensitive products’ (just under 3,200 tariff lines, a mixture of agricultural, textile, clothing, apparel, carpets and footwear items) and benefit from a tariff reduction of 3.5 percentage points on ad valorem duties compared to the standard MFN tariff or a 30 per cent reduction in those duties computed on a specific basis. For textiles and clothing, the reduction, however, is 20 per cent of the ad valorem MFN duty rate.

New scheme

As the general arrangement (standard GSP) includes the majority of emerging economies including India as beneficiaries, the new GSP scheme to take effect from January 1, 2009 to run till the end of 2011 postulates that these countries do not face the same level of difficulty in accessing the EU market. Accordingly, the objective of focusing GSP on those countries most in need is managed by “graduating” the most competitive groups of products from certain beneficiaries.

EU said “graduation is applied to groups of products (harmonised system sections under Customs) from countries that are competitive on the Community market and so no longer need the GSP to boost their exports to the EU. Graduation only takes place if a country achieves sustained competitiveness across a relatively wide range of products. Countries are not graduated from GSP across the board, but only for specific HS sections.”

This reassurance from the EU has come in the wake of widespread report that both India and China would get axed from the GSP scheme. However, the fact remains that under the new GSP regime, China would be graduated for 80 per cent of its exports even as it remains in the GSP.

For India, as in the previous regime (running from January 1, 2006 till December 31, 2008), Indian textiles would not benefit from the GSP preferential access although its clothing exports would continue to do so.

Rule reforms

As part of a wider review of its rules of origin, the EU has adopted new changes reforming the rules of origin that govern GSP eligibility with the objective to simplify and where needed relax these rules to provide further access for developing countries.

Accordingly, there should be a single, across-the-board criterion for determining the origin of goods which are not wholly obtained in a beneficiary country.

This should be based on the value added in the beneficiary country concerned, with originating status being acquired if the value added there exceeds a certain threshold signifying sufficient working or processing.

But for certain specific products such as agricultural products or fisheries products, additional or different conditions are needed in order to bolster development through encouraging the continued use of materials which are wholly obtained in the beneficiary country concerned. In order to encourage the industrial development of least developed countries, a sufficient processing threshold of 30 per cent for most products should result in enhanced exports from LDCs.

Finally, EU said access to the scheme is to be conditional upon beneficiary countries putting into place and maintaining administrative structures, permitting the efficient management of the scheme and assuring to provide all necessary support in the event of a request from the Commission for monitoring of the proper management of GSP scheme.

(This article was published in the Business Line print edition dated June 16, 2008)
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