Introduction
GSP regime structure
Future winners and losers
Graduation mechanism
What next?


Introduction

On October 31 2012 the regulation governing the Generalised System of Preferences (GSP) of the European Union for the period from 2014 to 2023(1) was published. The GSP, which has been applied since 1971, provides duty-free or preferential market access to imports from most developing and least-developed countries into the European Union. In 2011, imports receiving GSP preferences amounted to €87 billion – a little over one-tenth of all imports from developing countries. The new regulation will significantly amend the existing scheme that has been in place since 2008. More products will be covered, but there will be fewer beneficiaries and a new 'graduation mechanism'.

GSP regime structure

The structure of the GSP regime, which has three levels, remains identical under the new regulation, but some modifications have been introduced to reinforce its goals and impact.

The overall GSP scheme applies to all eligible developing countries. Nine percent of tariff lines do not benefit from duty-free or preferential market access under the current GSP. Twenty-three new tariff lines, mostly covering raw materials, will be added to the new GSP.

The 'GSP+' scheme provides additional incentives to vulnerable developing countries that undertake to implement international conventions concerning human and labour rights, environmental rules and good governance. Countries are considered vulnerable under the new regulation if:

  • their GSP-covered imports account for less than 2% of all imports from GSP beneficiaries; and
  • their exports to the European Union are not sufficiently diversified.

A country's exports are not sufficiently diversified if the seven largest product sections account for more than 75% of exports to the European Union.

Finally, the 'Everything but Arms' (EBA) scheme applies to least-developed countries and provides the highest level of benefits. Under the EBA, all imports from least-developed countries, with the exception of arms, benefit from duty-free and quota-free access.

Future winners and losers

EU Trade Commissioner Karel De Gucht highlighted that the goal of the future GSP is to apply preferences to those which most need them. After noting that the advanced emerging economies are among the largest beneficiaries of the GSP, De Gucht explained that the new regime is intended to "tailor our pro-development trade scheme to give the countries still lagging behind some additional breathing space and support".

The current GSP regulation benefits 176 countries. Under the new regulation, that number will be reduced to 89 of which:

  • 40 low and lower-middle income countries will receive general preferences; and
  • 49 least-developed countries – 33 of which are in Africa – will be covered by the EBA scheme.

The list of GSP+ beneficiaries will be determined before the entry into force of the new GSP regime.

Current GSP beneficiaries that will no longer benefit from the new GSP regime as of January 1 2014 can be classified into three groups.

First, countries will not benefit if they are classified as high and upper-middle income countries by the World Bank. These include Argentina, Brazil, Russia, Saudi Arabia, the United Arab Emirates, Malaysia and Venezuela.

Second, a group of 34 countries that have concluded preferential trade agreements with the European Union will be excluded from the benefit of the GSP, as they are already entitled to preferential market access under these agreements. These include the 'Euromed' countries (eg, Algeria, Egypt, Jordan, Lebanon, Morocco and Tunisia), members of the Caribbean Forum, African, Caribbean and Pacific countries that have entered into economic partnership agreements with the European Union, as well as South Africa and Mexico.

Third, 33 countries and territories of the European Union, the United States, Australia and New Zealand are not seen as needing special preferences because they are already covered through their relationships with the European Union or these countries.

Graduation mechanism

Another key aspect of the new GSP regulation is the updated graduation mechanism. 'Graduation' refers to specific groups or 'sections' of products that originate in a GSP beneficiary, but that are sufficiently competitive and therefore lose GSP or GSP+ preferences. The 2008 graduation mechanism exempts GSP preferences for a section of a country's imports when imports from that country account for more than 15% (or 12.5% for textiles/clothing) of imports of that section from all GSP countries in a three-year period. Seeking to improve the competitiveness-based justification of graduation, the new graduation mechanism will follow these principles:

  • Product sections used for graduation are expanded from 21 to 32;
  • Graduation thresholds move from 15% to 17.5% (and from 12.5% to 14.5% for textiles); and
  • Graduation will not apply to GSP+ countries, as these are vulnerable countries with a non-diversified export base. Graduation has never applied to EBA beneficiaries.

What next?

During the course of 2013, before the new GSP regime's entry into force, the European Union will publish:

  • the list of GSP beneficiaries after issuance of the latest World Bank income classification;
  • GSP+ procedures and the list of GSP+ beneficiaries; and
  • the list of graduated sectors.

For further information on this topic please contact Charles Julien at King & Spalding LLP by telephone (+41 22 591 0804), fax (+41 22 591 0880) or email (cjulien@kslaw.com).

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Endnotes

(1) EU Regulation 978/2012 of the European Parliament and European Council of October 25 2012 applying a scheme of generalised tariff preferences and repealing EU Council Regulation 732/2008, OJ L 303/1 (October 31 2012).