The European Union s Generalised System of Preferences GSP

The European Union s Generalised System of Preferences GSP European Commission Directorate-General for Trade

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Contents 2 What is GSP? 3 Chronology 4 Structure of the EU's GSP 5 6 7 8 9 > The general arrangements > The special incentive arrangements for the protection of labour rights > The special incentive arrangements for the protection of the environment > The special arrangements for least developed countries > The special arrangements to combat drug production and trafficking 10 11 Rules of origin Cumulation of origin 12 How does an importer get the GSP benefit? 15 How the GSP is managed 17 Further information

What is GSP? Trade policy plays a key role in the European Union (EU)'s relations with the rest of the world and the EU is one of the most important actors in international trade, accounting for a fifth of all world trade. The EU strives to include developing countries more fully into the world trade system so that all countries may share its potential benefits. The EU's common commercial policy must be consistent with and consolidate the objectives of development policy, in particular the eradication of poverty and the promotion of sustainable development in the developing countries. Trade has proved to be one of the most effective tools to foster development. Increased trade with developing countries will enhance their export earnings, promote their industrialisation, encourage the diversification of their economies and accelerate their economic growth. The classical instrument for achieving these objectives is tariff preferences, which provide an incentive to traders to import products from developing countries and thus help them to compete on international markets. Such tariff preferences should be sufficiently attractive in order to motivate traders to use the opportunities offered by the scheme. In 1968, UNCTAD recommended the creation of a Generalised System of Preferences under which industrialised countries would grant autonomous trade preferences to all developing countries. The EU's generalised scheme of tariff preferences (GSP) offers lower tariffs or completely duty-free access for imports from 178 developing countries and territories into the EU market. The EU's scheme grants special benefits for the 49 least developed countries and to countries implementing certain labour or environmental standards. The EU grants the preferences without asking for concessions from the beneficiary countries. In 2002, EU imports benefiting from GSP preferences amounted to EUR 53 billion. 2 EUROPEAN UNION GSP

Chronology 2002 A new GSP regulation, the third of the 10-year cycle, (Council Regulation (EC) No 2501/2001 as last amended by Council Regulation No 2211/2003) implements the current scheme from 1 January 2002 to 31 December 2005. New guidelines for the next 10-year cycle 2006-2015 are currently being prepared. 1995 The present 10-year cycle began in 1995 and will expire in 2005. A single multiannual regulation now covers all products. 1971 Contracting parties to the General Agreement on Tariffs and Trade (GATT) approved a waiver to the most-favoured-nation clause of the Agreement and in 1979 adopted the so-called enabling clause, creating the legal framework for the Generalised System of Preferences, and authorising developed countries to establish individual GSP schemes. 1971 The European Community implemented its first GSP scheme. GSP was applied in the framework of 10-year programmes, through different regulations for industrialised products, textile products, agricultural products and those covered by the European Coal and Steel Community (ECSC) Treaty, adopted on a yearly basis. 1968 The United Nations Conference on Trade and Development (UNCTAD) recommended the creation of a Generalised System of Preferences under which industrialised countries would grant trade preferences to all developing countries. THE EUROPEAN UNION S GENERALISED SYSTEM OF PREFERENCES GSP 3

Structure of the EU's GSP The availability of tariff preferences as well as their scope depend on the arrangement enjoyed by the beneficiary country of the exporter in which the products originate. Arrangements Five arrangements are available for beneficiary countries under the GSP: > The general arrangements > The special incentive arrangements for the protection of labour rights > The special incentive arrangements for the protection of the environment > The special arrangements for the least developed countries > The special arrangements to combat drug production and trafficking Each of the different GSP arrangements includes different products, which are listed in Annex IV of the Regulation. Different arrangements may grant different tariff preferences for the same products. The availability of tariff preferences as well as their extent therefore depend on the arrangement enjoyed by the beneficiary country. Beneficiary Countries Beneficiary countries are developing countries, i.e. those which are members of the Group of 77. Beneficiary countries also include China, the so-called economies in transition that appeared after the break-up of the Soviet Union, as well as dependent territories with a level of development similar to that of developing countries. The scheme includes 142 beneficiary countries and 36 territories. Certain beneficiary countries of the GSP, for example the ACP countries, enjoy at the same time other preferential arrangements. It may be assumed that traders use the most favourable treatment. Originating products To be eligible for preferential tariff treatment under the EU's GSP scheme, products have to originate in a GSP beneficiary country. Preferential rules of origin for the GSP determine whether or not goods produced in the beneficiary countries are eligible. The country also has to benefit from GSP arrangements which include those products. The GSP covers only products which are dutiable 1. It is, of course, not possible to grant tariff preferences for imports of products for which the Most Favourite Nation (MFN) duty 2 is already zero. Furthermore, the GSP does not include import of products of Chapter 93 (arms and ammunition) of the EU's Common Customs Tariff. (1) Products which outside a preference scheme would face a tariff rate greater than zero. (2) Duty applied by the EU on the imports from third countries (WTO members), according to the Common Customs Tariff. 4 EUROPEAN UNION GSP

(3) In a flat rate reduction, the percentage points are deducted directly from the normal MFN duty rate while in a percentage reduction the reduction is first calculated from the MFN duty rate using the percentage and then deducted. > The general arrangements Purpose The General Arrangements offer the basic preferential treatment to beneficiary countries. Products covered The general arrangements cover roughly 7000 products, of which 3250 are classified as non-sensitive and 3750 are classified as sensitive products. The sensitivity of products is determined by the situation of the sector manufacturing the same products in the Union. Sensitive products still require a higher border protection, while non-sensitive products can compete with duty-free imports from developing countries. Benefits The tariff preferences offered by the general arrangements differ according to the sensitivity of the products concerned: non-sensitive products enjoy duty free access to the EU market, while sensitive products benefit from a tariff reduction. These arrangements provide, as a rule, for a reduction of MFN ad valorem duties by a flat rate of 3,5 percentage points. An important exception to this rule of a flat rate reduction is the textiles and clothing sectors which enjoy a percentage reduction 3 of 20%. For specific duties, a percentage reduction of 30% is the general rule. Where duties include ad valorem and specific duties, only the ad valorem duties are reduced. In order to avoid any increase of preferential duties as compared to the previous scheme, the new regulation provides for a stand-still clause according to which ad valorem preferential duty rates applicable on 31 December 2001 will continue to apply as long as they are more favourable than the ones that result from the provisions of the new Regulation. Beneficiaries The 178 countries and dependent territories listed in Annex I of the regulation benefit from GSP. THE EUROPEAN UNION S GENERALISED SYSTEM OF PREFERENCES GSP 5

> The special incentive arrangements for the protection of labour rights Purpose Promoting the respect of international labour standards through additional tariff preferences. Products covered These arrangements cover all sensitive products included in the general arrangements (as non-sensitive products are exempted from duties under the general arrangements, they cannot qualify for additional preferences). Benefits For ad valorem duties of products covered by the arrangements, a reduction of 5 percentage points in addition to the basic reduction of 3,5 percentage points is provided (thus raising the total reduction to 8,5 percentage points). The additional reduction is 20% for textiles and clothing and 30% for specific duties. Where duties include ad valorem and specific duties, only the ad valorem duties are reduced. This arrangement also applies to products of sectors which have been graduated (i.e. excluded from the GSP for a beneficiary country). Products of these graduated sectors then enjoy a treatment which is equivalent to the one offered by the general arrangements. Beneficiaries These special arrangements are available for countries complying with the socalled core labour standards. These are the standards laid down in the eight International Labour Organisation (ILO) Conventions concerning the four areas to which the 1998 ILO Declaration on Fundamental Rights and Principles at Work refers: the elimination of all forms of forced or compulsory labour, freedom of association and the effective recognition of the right to collective bargaining, elimination of discrimination in respect of employment and occupation, and the abolition of child labour. The arrangements are available upon request of any GSP beneficiary countries (not on request of individual companies). The requesting country has to commit itself to monitor the application of the special incentive arrangements and to provide the necessary administrative co-operation. The European Commission examines the requests. The authorities of the requesting country are involved at all stages and this process should be completed within a year. 6 EUROPEAN UNION GSP

> The special incentive arrangements for the protection of the environment Purpose Promoting the respect of international environmental standards through additional tariff preferences. Products covered These arrangements cover about 50 tariff lines concerning tropical forest products. Benefits For ad valorem duties of products covered by the arrangements, a reduction of 5 percentage points in addition to the basic reduction of 3,5 percentage points is provided (thus raising the total reduction to 8,5 percentage points). The additional reduction is 30% for specific duties. Where duties include ad valorem and specific duties, only the ad valorem duties are reduced. This arrangement also applies to products of sectors which have been graduated. Products of these graduated sectors then enjoy a treatment which is equivalent to the one offered by the general arrangements. Beneficiaries These special arrangements are available on request of a GSP beneficiary country (not on request of individual companies) complying with international standards concerning sustainable forest management. Requests have to include the laws of the requesting country incorporating the substance of the international standards concerned as well as the measures taken in order to implement them. The requesting country has to commit itself to maintain these laws, monitor the application of the special incentive arrangements and provide the necessary administrative co-operation. The European Commission examines the requests. The authorities of the requesting country are involved at all stages and this process should be completed within a year. THE EUROPEAN UNION S GENERALISED SYSTEM OF PREFERENCES GSP 7

> The special arrangements for least developed countries Purpose Many developing countries are facing particular problems, which impair their efforts to develop. Such a group are the 49 countries that have been identified by the United Nations as least developed in terms of their low GDP per capita, their weak human assets and their high degree of economic vulnerability. Extreme poverty is pervasive and persistent in most Least developed countries (LDCs), many of them dependent on primary commodity exports. Pervasive poverty within LDCs has effects at the national level that cause poverty to persist and even to increase. Rapid reduction in extreme poverty in the LDCs can be achieved through sustained economic growth. These special arrangements (also known as EBA the Everything But Arms initiative) were established to address the special needs of this group of countries. Products covered All dutiable products (more or less 8200 tariff lines, without Chapter 93, arms and ammunition) are included in these special arrangements for LDC s which grant duty free access to the EU market. Benefits These arrangements provide duty-free access for all products covered and originating in the beneficiary country. Only imports of fresh bananas, rice and sugar are not fully liberalised immediately. Duties on those products will be gradually reduced until duty-free access will be granted for bananas in January 2006, for sugar in July 2009 and for rice in September 2009. In the meantime, duty-free tariff quotas for rice and sugar have been set up. These quotas will increase annually. Beneficiaries The beneficiary countries are the 49 least developed countries, as defined by the United Nations. 8 EUROPEAN UNION GSP

> The special arrangements to combat drug production and trafficking Purpose These arrangements are meant to assist the beneficiary countries in their struggle to combat illicit productions by providing them with export opportunities for substitution crops and by improving their economic and social development. The objective is not only to foster industrialisation and diversification, but also to promote sustainable development. Products covered The special arrangements to combat drug production and trafficking cover all industrial products (Chapters 25 to 97 of the Common Customs Tariff, except Chapter 93) included in the general arrangements and classified as sensitive (on non-sensitive products, no additional preferences can be applied). They also cover some agricultural products (Chapters 1 to 24 of the Common Customs Tariff), which are included in the general arrangements and classified as sensitive, as well as to certain agricultural products which are not covered by the general arrangements. Benefits These arrangements provide duty-free access to the above products covered by the scheme. Beneficiaries These arrangements were unilaterally granted by the EU to Andean Community countries in 1990, to imports of certain products originating in Bolivia, Colombia, Ecuador, Peru, and later in Venezuela. Subsequently, the special arrangements were extended to the member states of the Central American Common Market (Costa Rica, Guatemala, Honduras, Nicaragua and El Salvador) as well as to Panama, and more recently to Pakistan. THE EUROPEAN UNION S GENERALISED SYSTEM OF PREFERENCES GSP 9

Rules of origin Preferences under the GSP apply to imports into the customs territory of the European Union, of specific products from individual countries. The products have to originate in a beneficiary country, and that country has to benefit from GSP arrangements which include those products. For being considered as originating in the exporting country, products have to meet certain requirements which are laid down in the rules of origin. The rules of origin are contained in Commission Regulation No 2454/93, as amended (see Guide on GSP rules of origin at the website indicated on the last page of this brochure). The rules of origin applying to imports under the GSP are meant to ensure that the tariff preferences foster the development of beneficiary countries. While products wholly obtained in the exporting country are considered as originating there, products manufactured with inputs from other countries are considered so only if they have undergone sufficient working or processing. The rules of origin also provide that products have to be accompanied by a certificate of origin Form A or an invoice declaration, and that they have to be shipped directly to the EU. 10 EUROPEAN UNION GSP

(4) Singapore, excluded from GSP, continues to participate to the cumulation of this ASEAN group. Cumulation of origin The rules of origin applying to imports under the GSP allow, under certain conditions, for cumulation of origin. Where those conditions are met, inputs from other countries are considered as originating in the exporting country. In order to foster regional integration, the rules of origin provide for the possibility of regional cumulation of origin between the members of regional groups. Where a product has been manufactured in or with inputs from two or more countries belonging to a group enjoying regional cumulation, inputs from other countries of the same group are treated as if they originate in the exporting beneficiary country. At present, there are three groups benefiting from regional cumulation: > Group I Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore 4, Thailand, Vietnam. > Group II Costa Rica, Honduras, Guatemala, Nicaragua, El Salvador, Panama, Bolivia, Colombia, Ecuador, Peru, Venezuela. > Group III Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka. In order to foster economic co-operation between the Union and beneficiary countries, the rules of origin provide that all imports under the GSP are entitled to bilateral cumulation of origin, which is also known as donor country content. THE EUROPEAN UNION S GENERALISED SYSTEM OF PREFERENCES GSP 11

How does an importer get the GSP benefit? The importer has to provide a certificate of origin Form A to the customs authorities in the EU in order to prove the origin of the imported products in the beneficiary country. These certificates are issued by the competent governmental authorities of the exporting country (usually customs authorities) if they find that the exports meet the requirements of the rules of origin. This Form A is made available to the exporter as soon as actual exportation has been effected or ensured. When applying for tariff preferences, the importer has to join a certificate of origin to the customs declaration. For smaller consignments, an invoice declaration may be submitted instead of a Form A as proof of preferential origin. 12 EUROPEAN UNION GSP

> Checklist: how to benefit from the EU s GSP scheme Step 1 > Establish product classification and duty rate Establish the 8-digit product classification according to the EU s Combined Nomenclature and the product s preferential rate of duty using the EU s TARIC database at the website indicated on the last page of this brochure. The website shows the GSP preferential rate for a product and country. Any special arrangement enjoyed by the country is included in the rate. The normal third-country MFN duty rates are also shown. If a product does not show a preferential rate this may be because: the country is not covered by the GSP (beneficiary countries are listed in Annex I of Regulation 2501/2001); the product is not covered by the GSP (products covered are listed in Annex IV of the Regulation 2501/2001); the sector to which the product belongs is graduated (excluded from the GSP) for the country concerned (for graduated sectors, see current regulation implementing graduation on the GSP website). Step 2 > Check the origin criteria Ensure that the product complies with the origin criteria set by the EU. Step 3 > Check the consignment conditions Ensure that the modalities governing the transport of goods from the preferencereceiving country to the EU market fulfil the provisions laid down in the rules of origin. Step 4 > Prepare documentary evidence Fill in the certificate of origin Form A or the invoice declaration correctly; these are the official documents on which the EU customs authorities rely to grant GSP benefits to products. Step 5 > Ship product and submit documents to customs authorities in the EU For information on steps 2 to 4, see rules of origin guide at website address at the end of this brochure. THE EUROPEAN UNION S GENERALISED SYSTEM OF PREFERENCES GSP 13

Two examples of how the reduction is calculated under the general arrangements: > Without application of the stand-still clause: a product with the CN code 0703 90 00 (Leeks and other alliaceous vegetables, fresh or chilled) is a sensitive product covered by GSP. The normal third-country duty rate is 10,4%. The reduction of 3,5 percentage points is deducted from the third-country rate, giving the preferential rate of 6,9%. As the preferential rate under the previous GSP scheme (8,8%) was higher, the new rate under the current scheme is applied. > Applying the stand-still clause: a product with the CN code 3204 16 (Synthetic organic colouring matter) is a sensitive product covered by GSP. The normal thirdcountry duty rate is 6,5%. The reduction of 3,5 percentage points is deducted from the third-country rate, giving the preferential rate of 3%. As the preferential rate under the previous GSP scheme (2,2%) was lower, the latter rate is applied. 14 EUROPEAN UNION GSP

How the GSP is managed The EU s GSP is managed by the European Commission. It is assisted by the Generalised Preferences Committee, composed of representatives of EU Member States and chaired by the Commission. Administrative co-operation Administrative co-operation with the authorities of beneficiary countries is necessary in order to control compliance with the requirements for benefiting from the tariff preferences. In the framework of this co-operation, the Union customs authorities may ask the beneficiary countries authorities issuing certificates of origin Form A to confirm their authenticity and double-check their initial control. In the event of fraud or in case that those authorities refuse to co-operate, arrangements may be temporarily withdrawn. Exclusion of beneficiary countries Some developing countries have reached a level of development similar to that of developed countries. In that case, the rationale for granting trade preferences does not exist anymore. Therefore, the GSP scheme provides the possibility of excluding countries which are sufficiently developed and which fulfil certain criteria during three consecutive years. Each year, the Commission determines which countries meet the criteria and notifies them. Once excluded, a country may be included again if during three consecutive years, it does not meet those criteria. Graduation of sectors Some beneficiary countries may have reached, in certain sectors, a level of competitiveness which ensures further growth even without preferential access to the EU market. Sectors in the meaning of the GSP Regulation are divisions of a country s economy manufacturing related products. Such sectors will be graduated (excluded from the GSP) if they meet the criteria for graduation. Imports originating in a beneficiary country that have been graduated in the sector of the products concerned lose the benefit of GSP tariff preferences. Each year, the Commission determines the sectors which meet the criteria and notifies the countries concerned. Once graduated, a sector may be included again if during three consecutive years, it does not meet the criteria. THE EUROPEAN UNION S GENERALISED SYSTEM OF PREFERENCES GSP 15

Safeguard measures Since preferential treatment under the GSP is granted without any quantitative limitations, preferential imports may increase in a way which causes serious difficulties for Community producers of like or directly competing products. The GSP regulation provides for the possibility to apply safeguard measures, i.e. to reintroduce Common Customs Tariff duties where such difficulties arise. Temporary withdrawal Any arrangement may be temporarily withdrawn at any time, in respect of all products from a beneficiary country or only some of them. Reasons include, among others, practise of slavery or forced labour, violation of certain ILO core labour standards concerning, for instance, freedom of association and the right to collective bargaining, and failure to provide administrative co-operation. Temporary withdrawal of preferences is an exceptional measure applied only in cases of clearly unacceptable practices. 16 EUROPEAN UNION GSP

Further information 5 is available from the following: For questions on the GSP, please contact European Commission, Directorate General for Trade: Mr Philippe Cuisson E-mail: philippe.cuisson@cec.eu.int Tel: (32-2) 295.27.94 Fax: (32-2) 296.92.90 or Mr Benoit Lefort E-mail: benoit.lefort@cec.eu.int Tel: (32-2) 299.86.90 Fax: (32-2) 296.92.90 or Mr. Hannu Pitkänen E-mail: hannu.pitkanen@cec.eu.int Tel: (32-2) 296.83.25 Fax: (32-2) 296.92.90 For questions on the GSP rules of origin, please contact: Mr. Robert Light E-mail: robert.light@cec.eu.int Tel: (32-2) 295.07.89 Fax: (32-2) 296.98.50 European Commission Directorate-General for Taxation and the Customs Union (5) This guide is intended only as an introduction. The information is of a general nature only and does not necessarily address all specific circumstances of the legislation or reflect the latest legislative amendments. The sole legal provisions are those contained in the regulations duly adopted by the Community. Readers should consult the relevant part(s) of the legislation for a fuller explanation. The GSP on the net: http://europa.eu.int/comm/trade/issues/global/gsp/index_en.htm Guide on GSP rules of origin: http://europa.eu.int/comm/taxation_customs/customs/origin/gsp/index_en.htm Expanding exports to the EU: Helpdesk for Developing Countries: http://europa.eu.int/comm/trade/issues/global/development/thd_en.htm http://export-help.cec.eu.int E-mail: export-help@cec.eu.int Fax: (32-2) 296.73.93 TARIC (Integrated Tariff of the Community) data base: http://europa.eu.int/comm/taxation_customs/dds/en/home.htm F EBRUARY 2004 THE EUROPEAN UNION S GENERALISED SYSTEM OF PREFERENCES GSP 17

http://europa.eu.int/comm/trade Published by the European Commission Directorate-General for Trade Information contained in this brochure does not necessarily reflect the European Union official positions. Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information. Use of part of, or all, the text is authorised provided the source is mentioned. European Communities, 2004 Production: Mostra! Communication Printed in Belgium, February 2004