EU Council Adopts New GSP Plus Scheduled to Take Effect July 1, 2005 (Other New GSP Schemes Scheduled to Take Effect Jan. 1, 2006)
According to European Union (EU) sources, on June 27, 2005, the European Council (Council) adopted, with certain changes, a new Generalized System of Preferences (GSP). An EU press release explains that on June 23, 2005, a qualified majority of EU member states backed a compromise which amended certain aspects of the new EU GSP as it had been proposed. The adoption of this compromise ends a three month deadlock in the Council that had delayed the adoption of the new EU GSP.
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The EU states that the new "GSP Plus" incentive system will be fast tracked to apply from July 1, 2005. With the exception of this fast tracked program, the new EU GSP as a whole will apply from January 1, 2006 through December 31, 2008.
(In February 2005, the European Communities (EC) proposed to accelerate to April 1, 2005 (from July 1, 2005) the new EU GSP's entry into force in response to the December 2004 tsunami disaster. However, the Council explains that it proved impossible to achieve a qualified majority on the proposal by that date.)
New EU GSP Contains Three Schemes Instead of Current Five
According to the Council, the new EU GSP was designed to be transparent, stable, and simple. The new EU GSP system is composed of the following three schemes instead of the five that are currently in place:
General Scheme. Product coverage will increase from about 6,900 to about 7,200 and will incorporate an additional 300 products mostly in the agriculture and fishery sectors, of interest for developing countries. Under the new General Scheme, duties on non-sensitive products would be entirely suspended (except for agricultural components). With respect to sensitive products, the new scheme outlines methods for calculating duty reductions based on the type of duty at issue (e.g. ad valorem, specific, etc.)
GSP Plus. A new GSP Plus scheme will be created for especially vulnerable countries with special development needs. GSP Plus will cover approximately 7,200 products which can enter the EU duty-free; however, beneficiaries must meet a number of criteria including ratification and effective application of 27 key international conventions.
An EU press release explains that the eligibility of countries placed in the GSP Plus scheme will be confirmed by an assessment of their effective implementation of core human and labor rights, good governance and environmental conventions before the beginning of 2006.
(According to EU sources, loosely speaking, three of the current GSP schemes would be collapsed into the proposed GSP Plus scheme. However, for countries currently receiving GSP benefits under these three schemes, the proposed GSP Plus benefits will not be conferred automatically. EU sources explain that certain conditions that must be met are unique to the proposed new GSP Plus scheme.)
"Everything but arms." The EU's "Everything but arms" scheme will remain unchanged and entails giving duty-free and quota-free access for all products (including textiles and apparel) from the world's 50 poorest countries, with the exception of arms and munitions, and with delayed benefits for sugar, rice, and bananas. (See ITT's Online Archives or 03/05/01 news, 01030260, for BP summary of the EU's elimination of duties for the countries listed under the Everything but Arms scheme.)
(See ITT's Online Archives or 03/22/05 news, 05032210, for previous BP summary of these three schemes, which includes a list of those countries eligible for the "Everything but arms" scheme.)
New GSP Compromise Regarding Textiles and Clothing, Etc.
According to the Council, the new EU GSP reflects certain compromises regarding textiles and clothing, etc., as follows (partial list):
12.5% "graduation threshold" for textiles and clothing. The compromise includes a 12.5 graduation threshold for both textiles and clothing. An EU press release states that groups of products from GSP beneficiary countries which in a given sector account for more than 15% of EU imports from GSP countries are "graduated" and cease to benefit from preferential access. However, in the case of textiles and clothing this "graduation threshold" will be set at 12.5%.
Clothing safeguard. The Council notes that the compromise contains a specific safeguard clause for clothing. According to the Council regulation applying the new EU GSP scheme, this safeguard clause would be triggered when imports of clothing originating in a beneficiary country increase by at least 20% (by volume) as compared to the previous calendar year. The safeguard could result in the removal of certain preferences under the General Scheme and the GSP Plus Scheme; however, there are exceptions for least developed countries and countries with market shares below certain levels.
Ratification of conventions for GSP Plus preferences. The compromise also provides that non-ratification of a maximum of two conventions on account of constitutional incompatibility will not preclude the provisional granting of GSP Plus preferences, subject to a formal commitment, given not later than October 31, 2005, by a country's authorities to sign, ratify, and implement those conventions not later than December 31, 2006.
80% of China Exports Will be Graduated, India Textiles Not Eligible for GSP, Etc.
An EU press release explains that while China will remain in the GSP, the new EU GSP Scheme will result in 80% of its exports being "graduated." When products from a certain country are "graduated" they cease to benefit from preferential access under the GSP.
In addition, the EU states that, as with the current EU GSP, textiles from India will not benefit from GSP preferential access although that country's clothing exports will continue to do so.
The EU press release also states that as part of a wider review of its Rules of Origin, the EU is in the process of reforming the Rules of Origin that govern GSP eligibility. The objective is to simplify and, where appropriate, relax these rules to provide further access for developing countries.
EU sources had previously stated that without a new EU GSP, the current EU GSP would be in effect through December 31, 2005.
EU Press Release (IP/05/772, dated 06/23/05) available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/772&format=HTML&aged=0&language=EN&guiLanguage=en
Council Regulation (CNS 2004/0242, dated 06/23/05) available via email by emailing documents@brokerpower.com
Council Note explaining changes under compromise proposal (CNS2004/0242, dated 06/24/05) available via email by emailing documents@brokerpower.com