European Union Proposes Changes to GSP

The European Commission (EC) announced its plan to modify its Generalised System of Preferences (GSP), which would limit specific tariff preferences to the poorest of developing countries. The EC’s proposal would cut GSP benefits, currently provided to 176 countries and territories, to approximately 80 countries considered the most in need. Under GSP, eligible goods manufactured in a GSP country and imported into the European Union (EU) (and other developed countries) are given a reduced or duty-free rate of duty. Under the proposal, countries considered an advanced developing country, which are now competitive, would no longer be eligible for tariff preferences under GSP.

The EC will take into account a number of factors when determining which countries will lose its GSP eligibility. Specifically, countries falling into the following categories will no longer be eligible for GSP:

1. Countries classified by the World Bank that have a high or upper middle income per capita for the past three years. The EC has indicated that countries such as Kuwait, Russia, Saudi Arabia and Qatar fall into this category.

2. Countries that are members of a Free Trade Agreement with the EU, or have autonomous arrangements that provide equal or better tariff preferences than those provided under GSP. The Market Access Regulation for countries with an Economic Partnership Agreement or the special regime for Balkan countries are examples in this category.

3. Countries that enjoy an alternative market access arrangement for developed markets. The EC has indicated that countries such as Antarctica and American Samoa fall into this category.

The EC points to changes in the marketplace over the past twenty-five years to justify its proposed changes. Such changes include the emergence of more advanced developing countries that are globally competitive; the fact that the poorer countries are lagging behind the rest and the overall downturn in the global economy. The EC also acknowledged that the most advanced emerging economies accounted for approximately 40% of GSP imports into the EU, further hurting the lesser developed countries.

The EU has not yet completed its analysis of which countries will lose or keep GSP benefits. If the EC’s proposal is adopted by the EU, such changes to GSP will take effect by 2014. See http://trade.ec.europa.eu/doclib/docs/2011/may/tradoc_147893.pdf to read the official proposal.