A Working Document issued on 28 September 2011 by the European Parliament's Committee on International Trade provides insight on proposed amendments to the EU's Generalised System of Preferences (the GSP scheme). The Working Document sheds light on which issues are most likely to cause controversy in a legislative proposal that would altogether exclude several developing countries' exports from the preferential trade tariffs.
It will be recalled that the GSP scheme has been running since 1971 and has allowed exporters from developing countries to bear a lighter burden from import tariffs on some (or even, in some cases, all) of their exports to the EU, in comparison to developed country exporters. The current GSP scheme, established by Council Regulation 732/2008, entered into force on 1 January 2009. While it was intended to expire on 31 December 2011, it has been extended until 31 December 2013 (or until such time as the next Regulation becomes applicable, whichever comes first).
However, on 10 May 2011, the European Commission announced its plans to substantially amend the existing GSP scheme. Perhaps the main proposal of interest sees the number of developing country beneficiaries cut by more than half. The group of to-be-excluded countries includes China, India, Brazil, South Africa, Indonesia, Malaysia and Russia. The move is primarily aimed at concentrating import preferences on those developing countries the Commission deems "most in need".
Under EU rules, the Commission's legislative proposal is subject to co-decision between the Council and the European Parliament. Its path to adoption is likely to be a difficult one, with fierce criticism having already been voiced by a number of Euro-parliamentarians wishing to promote developmental aid, as well as Member States that wish to maintain privileged trade arrangements with former colonies or other countries with which they maintain close relations. EU Trade Commissioner Karel de Gucht has nonetheless vouched to see the controversial amendments through, and hopes to have the reforms in place by 1 January 2014.
The recent Working Document from the Committee on International Trade casts a critical eye on a number of proposed changes. As expected, the report singles out changes in country coverage as possibly controversial. Under the reformed GSP system, the exclusion of beneficiaries would primarily be based on a country's World Bank classification as either high-income or upper-middle-income during three consecutive years immediately preceding the update of the list of beneficiary countries. This criterion would exclude a substantial number of beneficiaries. The Committee, however, seems somewhat dubious regarding its use.
The Committee points out that while the World Bank index is already employed by the current Regulation, the exclusion of beneficiaries on that basis has been almost non-existent so far. The Committee rapporteur specifies that "it is essential to be able to rely on objective, stable and internationally recognised criteria, which could also stand a challenge at the WTO". He further notes that there have been proposals to combine the World Bank index with other criteria, but "to find a solution which is both simple, credible and predictable, without adverse effects, is not very easy". Nonetheless, the use of proposed transitional periods is presented as a possible solution to facilitate omission from the scheme.
The Committee also takes note of the Commission's proposal to explicitly add raw material restrictions by an exporter country as unfair trade practices justifying a temporary withdrawal of preferential treatment. According to the Commission, this should not be seen as a new interpretation, but rather as a clarification. However, the addition inevitably brings to mind the ongoing dispute concerning Chinese raw material export restrictions, which the EU, along with a number of other WTO Members, has challenged at the WTO. A WTO Panel report dated 5 July 2011, unfavourable to China, is currently under appeal.
In addition, the Committee on International Trade questions the Commission's proposal to leave the next GSP Regulation open-ended (without an end-date), with a revision nonetheless foreseen after five years. The Committee puts forth the option of limiting the Regulation to ten years, which would present a marked improvement from the current three-year lifecycle, while still providing stability and predictability for economic operators.
