At the end of October 2012, the European Commission issued a regulation that applied from 20 November 2012 and which will alter substantially the European Generalised System of Preferences (GSP) from 1 January 2014. (1, 2) The new regulation is broadly in line with the Commission’s 2011 GSP proposals (see Agritrade article ‘ Commission unveils proposal for new GSP’, 10 June 2011).
The regulation reduces the number of beneficiary countries of the EU’s GSP scheme and alters the details of ‘product graduation’ (whereby countries have GSP benefits removed for exports of products that exceed a certain level), but now also modestly extends the breadth of the scheme (i.e. the number of goods on which preferences are given), by including two agricultural products (fresh cut carnations and sun-cured oriental tobacco), and the depth (i.e. the extent of the preferential tariff cut) of the GSP preferences offered.
The EU’s GSP scheme is currently applied to 176 states, among the broadest coverage of any such scheme. The initial EC proposal set out the criteria that would reduce the number by about one half. The new regulation creates just 89 beneficiaries, but with scope to increase this number if the circumstances of the newly excluded states change. Countries have been excluded on three grounds which will be applied on a continuing basis by the Commission using delegated powers (under Article 3.2 of the Regulation). Hence the number of ACP states that benefit from the GSP from 2014 onwards may change over time.
- The first criterion is an uncontroversial tidying-up exercise that excludes EU overseas countries or territories that have preferential access to the EU market under other policies.
- The second is a potentially controversial tidying-up exercise that excludes countries that have equivalent or superior access to the European market under a trade agreement (e.g. all CARIFORUM countries and any other ACP states that have agreed EPAs by the time the GSP comes into force).
- The controversial removal from the GSP of countries that have been classified as upper middle income (UMIC) by the World Bank for 3 years, which could affect ACP members such as Namibia, Gabon and Botswana).
This means that from 2014, the EU’s GSP scheme will cover only lower middle income, low income and least developed states (LDCs – which benefit from the EBA initiative, which is formally part of the EU’s GSP overall regime).
Another important feature of the Regulation is the EC proposal on safeguards, under which the EC may withdraw benefits temporarily for a range of reasons, including ‘serious and systematic unfair trading practices including those affecting the supply of raw materials..,’ (Article 19, 1(d)) and ‘serious and systematic infringement of the objectives adopted by Regional Fisheries Organisations or any international arrangements to which the Union is a party’ on fisheries conservation and management (Article 19(e)). These provisions apply to all GSP beneficiaries, including LDCs, which benefit from the EBA initiative.
The changes to the GSP affect all ACP states, either directly or indirectly. A small number of states are affected directly, because the GSP is the only preferential safety net that is available for their exports to the EU if their ongoing EPA negotiations fail to reach an acceptable conclusion by the date for the lapsing of MAR 1528/2007. The current GSP regime does not offer equivalent preferences on key exports to those that they receive at present, and the modest extensions to the new GSP do not alter this picture. Another very small group is affected because they will be excluded as GSP beneficiaries by virtue of being UMIC.
Kenya and Swaziland are the main examples of the first group, and Gabon is identified by the EU as belonging to the second group. The position of Botswana and Namibia is uncertain. How they will be treated if they decide not to join an EPA will be determined by whether or not they have been listed as a UMIC by the World Bank for 3 consecutive years. Other ACP UMICs have already signed EPAs.
All ACP states will be affected indirectly in their agricultural and non-agricultural trade, because changes to the GSP alter the competitive advantage that they enjoy over other suppliers to the EU market.
The Commission has expressed the view that the removal of UMICs. The Regulation aims to focus on the poorer states so that they can compete better on the European market. This would be the opposite of ‘preference erosion’: preferences would become deeper because competitors would face higher tariffs. However, analysis by ODI suggests that few ACP states export any of the agricultural or fisheries products that will be affected by the new graduation regime.
At present, it is unclear how the provisions related to temporary withdrawal of benefits from countries involved in ‘serious and systematic unfair trading practices’ will be applied. What is clear is that these provisions apply equally to both non-LDCs and LDCs, since the EBA arrangement forms part of the EU’s GSP scheme.