Review of generalised scheme of tariff preferences (GSP)
Published by AGRINFO on ; Revised
Commission proposes to extend existing GSP until 2027
Proposal for a Regulation of the European Parliament and of the Council on applying a generalised scheme of tariff preferences and repealing Regulation (EU) No 978/2012 of the European Parliament and of the Council
On 28 June 2023 the European Parliament paused negotiations on the Regulation that will establish a new generalised scheme of tariff preferences (GSP) (European Parliament 2023). The current GSP – the rules determining which countries have preferential access to the EU market, and the conditions they have to fulfil – is due to end on 31 December 2023. As negotiations may not be completed before that date, the European Commission now proposes to extend the operation of existing rules until 31 December 2027.
Discussions between the Council of the EU and the European Parliament have been difficult (European Parliament 2023). A particular point of disagreement is that the Council wants to link developing countries’ access to the EU market to those countries’ willingness to re-admit their nationals who have migrated to the EU. The Parliament is strongly opposed to this proposal. Another significant issue in negotiations is how the EU can protect European rice production against rice imports from EBA (“Everything But Arms”) countries (European Parliament 2023). The Parliament’s position is set out in a 2022 report.
In December 2022, the Council agreed its negotiating position. This included giving greater powers to the Commission to withdraw preferential tariffs and reinstate full Common Customs Tariff (CCT) duties. This proposed amendment to the Commission’s proposal has important implications for Standard GSP, GSP+ and EBA beneficiaries.
What is changing?
Simpler withdrawal of GSP/EBA tariff preferences
The current GSP scheme allows the Commission to reinstate full Common Customs Tariffs (CCT) when imports from the beneficiary country “cause, or threaten to cause, serious difficulties to Union producers” (Regulation 978/2012, Art. 22(1)). The Commission must determine, following an investigation, whether imports are having this effect. The investigation, generally concluded within 12 months, follows strict procedures set out in Commission Delegated Regulation (EU) No 1083/2013. An additional safeguard specific to textiles, agriculture and fisheries allows the Commission to reinstate full tariffs for products that “cause, or threaten to cause, serious disturbance” to EU markets (Art. 30). There is also a “special surveillance mechanism” in the current legislation that allows closer and quicker scrutiny of imports with a view to identifying “disturbances to Union markets” (Art. 32). The Commission did not include significant changes to the safeguard mechanisms and the special surveillance mechanism in its original proposal, which was then submitted to the Council and European Parliament.
Ongoing institutional discussions:
The Council has proposed a “stronger special surveillance mechanism” (Council of the EU 2022). This mechanism is stronger in the sense that it changes the conditions in which the EU may reinstate tariffs. This may currently only occur where imports “cause, or threaten to cause, serious disturbance” to EU markets. The Council has proposed that tariffs may be reinstated where the Commission establishes “disturbance” to the market (see “Implications”). That disturbance does not have to be caused by the imports. This would make it simpler for the European Commission to immediately reinstate full CCT. The European Parliament proposes amendments specifically to protect the European rice sector.
The Everything But Arms (EBA) arrangement is generally viewed to be working effectively. The new proposal does not introduce significant changes for EBA countries.
The GSP arrangement is also considered to be working effectively, but a number of changes are proposed.
Rules on cumulation
EU rules of origin require products to “originate in the beneficiary country” in order to benefit from lower import tariffs. These rules can limit the market access gains that GSP countries can make, in particular where supply chains cross borders. The new proposal opens the door to less strict EU rules of origin by allowing beneficiary countries to submit requests to the European Commission for “regional cumulation” (allowing beneficiary countries to treat materials originating in the region as if they originated in their own country) and “extended cumulation” (allowing beneficiary countries to treat materials originating in countries with which the EU has a free trade agreement as if they originated in their own country). Such cumulation will be granted where:
- the beneficiary country provides evidence that such cumulation is necessary in view of specific trade, development and financing needs
- cumulation does not create undue trade difficulties for other eligible countries
- the beneficiary country provides evidence that it cannot comply with the rules of origin applicable to the goods in question without such cumulation being granted (Proposal, Art. 33).
The conditions for regional and extended cumulation are set out in Arts. 55 and 56 of Commission Delegated Regulation (EU) 2015/2446.
In the GSP Regulation, multiple products (and chapters of the customs codes) are grouped into sections. Where sectors (at section level) have grown to become competitive on the EU market, they are considered to have graduated and no longer qualify for preferential treatment. The Commission proposes to change rules on sector graduation to offer more countries the opportunity to compete in a given market, and in response to concerns among EU stakeholders that the more competitive countries currently benefit from tariff preferences for too long. Today, where the average value of imports or a group of products (section) from a given partner country over a 3-year period exceeds 57% of the total value of EU imports of the same group of products from all Standard GSP countries, the tariff preferences that countries enjoy under the GSP scheme are suspended. For certain groups of products, including live trees/plants and animal/vegetable fats, that threshold is set at 17.5%. In the revised text, the Commission proposes that:
- the general percentage share at which tariffs are lowered drops from 57% to 47%
- for live trees and for animal/vegetable fats, the specific share established for these sectors remains 17.5%.
This type of sector graduation applies only to standard GSP beneficiary countries, not to GSP+ or EBA countries (Art. 8).
Ongoing institutional discussions:
The European Parliament proposes that GSP Standard beneficiaries, not just GSP+ beneficiaries, must ratify all human rights and the environmental conventions listed in Annex VI within 5 years to benefit from preferential tariffs.
The proposal’s most significant changes concern GSP+ countries.
New conditions to qualify for GSP+ treatment
The proposal establishes new conditions for securing GSP+ treatment. A country can benefit from tariff preferences under the GSP+ arrangement if it:
- is a vulnerable country due to lack of trade diversification (see below)
- has ratified relevant human rights/ environmental conventions (see below)
- has not formulated reservations to relevant conventions
- gives a binding undertaking to maintain ratification/ implement relevant conventions
- gives a binding undertaking to participate in EU reporting and monitoring procedures.
Additional criteria for vulnerable countries
A country is considered vulnerable where its exports to the EU of its seven largest export categories (based on GSP sections of products listed in Annex III of the proposed Regulation) represent >75% of its total exports, taking an average of the past 3 consecutive years.
The Commission’s proposal simplifies the existing conditions for countries graduating from EBA status. An additional “export competition” criterion (that countries whose exports represent >7.4% of exports from all EBA countries are excluded from GSP+ status) is removed.
New human rights commitments
Today, in order to benefit from GSP+ tariff preferences, a country must have ratified a list of 27 conventions. The new proposal adds the following conventions, bringing the total to 33:
- Optional Protocol to the Convention on the Rights of the Child on the Involvement of Children in Armed Conflict (2000)
- Convention on the Rights of Persons with Disabilities (2007)
- Convention on Tripartite Consultations No 144 (1976)
- Convention on Labour Inspection No 81 (1947)
- Paris Agreement on Climate Change (2015)
- United Nations Convention against Transnational Organised Crime (2000).
According to the new proposal, GSP+ beneficiary countries must also provide a plan of action for implementing the relevant conventions.
Ongoing institutional discussions:
The European Parliament proposes to add three conventions to the list proposed by the European Commission: the Rome Statute of the International Criminal Court; and the First and Second Optional Protocols to the International Covenant on Civil and Political Rights (introducing an individual complaint mechanism for breaches of rights under the Convention, and on the abolition of the death penalty, respectively). The Council proposes to establish “enhanced engagement” with GSP+ beneficiary countries to discuss and monitor effective implementation of the relevant conventions. It also proposes to hold regular dialogues with civil society to discuss implementation of relevant conventions and actions taken to improve compliance.
Maintaining current GSP+ status
Countries currently with GSP+ status (Bolivia, Cabo Verde, Kyrgyzstan, Mongolia, Pakistan, Philippines, Sri Lanka, Uzbekistan), provided they have that status on 31 January 2023, can apply until 31 December 2025 for GSP+ status under the new regulation. The current GSP+ status will be maintained while that request is being considered by EU institutions (Art. 10(8)).
Monitoring GSP+ country compliance
By 1 January 2027, and then every 3 years, the Commission will report to the European Parliament and the Council on the status of ratification and implementation of the listed conventions, and compliance with reporting obligations (Art. 14).
Implications of failing to maintain sustainable development and good governance
As under the existing GSP scheme, where the Commission has evidence that a GSP+ beneficiary country is not meeting its convention-related obligations, it may initiate a procedure to temporarily withdraw tariff preferences specific to the GSP+ arrangement (Art. 15 (3)). Under the new scheme, when making such a decision the Commission may consider any socio-economic effect that temporary withdrawal would have on the beneficiary country.
The current GSP scheme allows the Commission to temporarily withdraw tariff preferences under any of the arrangements in certain circumstances. These include where countries have committed serious and systematic violation of principles laid down in international conventions, exported goods made from prohibited child labour, or committed serious systematic unfair trade practices (Art. 19).
The proposed regulation:
- extends the number of areas in which systematic violation could be identified
- adds to the grounds for withdrawal a failure by beneficiary countries to meet obligations to readmit their own nationals (Art. 19 (1)(c))
- introduces greater flexibility for the Commission to introduce a temporary withdrawal “in exceptional circumstances, such as a global health or sanitary emergency, natural disaster or other unforeseen events” (Art. 19(14))
- allows the Commission to take quicker decisions in cases of “exceptional gravity” by reducing the normal monitoring and evaluation period from 6 to 2 months (Art. 19(16)).
Ongoing institutional discussions:
The European Parliament rejects the Commission's proposal (which is supported by the Council) to link trade preferences to migration and the re-admission of rejected asylum seekers. This proposal is not seen favourably by NGOs (Francavilla 2023).
The standard GSP/GSP+ arrangements are due to expire on 31 December 2023. In order to continue to provide preferential access to more than just least developed countries (there is no time limit on the EBA arrangement), the GSP scheme must be reviewed. The review process has provided an opportunity for the EU to analyse and revise the existing schemes.
Negotiations between the European Parliament, Council and Commission started in early 2023. A pause in negotiations was announced in June 2023. In light of disagreement between the Parliament and Council, the Commission now proposes to extend the existing GSP until the end of 2027, or at least until new rules are agreed. This legislation also requires the agreement of the Parliament and Council.
What are the major implications for exporting countries?
Under the Commission’s Proposal, the existing GSP system, which is generally considered to be beneficial to developing countries and sustainable development goals, will remain largely intact, with only some minor changes to existing rules. EBA countries do not face any changes to market access. However, proposals under the Council’s negotiating position may undermine GSP beneficiary partners’ confidence in long-term preferential market access.
EBA countries on the verge of graduating out of EBA status would find it easier to meet GSP+ criteria under the Commission’s proposal, due to the removal of the current (“export competition”) criterion that excludes EBA countries from graduating to GSP+ where they are too competitive compared to other EBA countries.
GSP Standard countries competing in a sector dominated by one GSP beneficiary may see new openings to the EU market, as tariff preferences for that dominant country will be removed more rapidly than currently (at a 10% lower percentage share of the market). This will not apply to GSP+ or EBA countries.
The proposal creates new opportunities for GSP beneficiaries to negotiate additional flexibility on rules of origin by requesting extended or regional cumulation. But there is a risk that the evidence needed to secure regional/ extended cumulation will be complicated to meet.
The Parliament’s proposal for a specific safeguard on rice could severely limit the capacity of EBA countries to export rice to the EU.
The Council’s proposal for a “stronger special surveillance mechanism” potentially provides a significantly less secure legal basis for long-term preferential access to the EU market.
- It establishes a lower threshold for Commission action: preferential tariffs can be withdrawn on the basis of “disturbance” to the market rather than the demonstration of “imports [that] cause, or threaten to cause, serious disturbance” to the EU market (Regulation 978/2012, Art. 30).
- It also takes away the obligation to show that it is imports that “cause” the disturbance to the market. Instead, under the Council proposal, the Commission has to “take into consideration all relevant market developments, including the impact of the total imports”. In other words, imports would not have to be shown to be the cause of the disturbance.
- Tariffs could be reintroduced suddenly: the intention of the special surveillance mechanism is to allow the EU to “take immediate action” [Council negotiating position, (28b)].
- Unlike the case of general safeguards, there are no procedures foreseen that permit beneficiary countries to provide information or be heard by the Commission.
- In the absence of a definition of “disturbance” or established procedures, there are limited legal grounds for a partner beneficiary to challenge a Commission assessment that the reintroduction of tariffs is legitimate. This differs from safeguards, that have been successfully challenged in the past (e.g. Case T-246/19 initiated by Cambodia in response to a safeguard on rice).
Given the disruption to operators caused by sudden changes to tariffs, increasing uncertainty around long-term guarantees of preferences may discourage investment in, and orientation towards, the EU market.
- The increased number of relevant conventions could leave many beneficiary countries exposed. For example, many GSP beneficiaries have not yet ratified Convention on Labour Inspection No 81.
- Current GSP+ beneficiaries will have to reapply for access to the GSP+ arrangement and demonstrate their adherence to the additional obligations.
- The addition of commitments regarding readmission of nationals may be a challenge for certain GSP beneficiaries due to weak administrative capacities. Given the political sensitivities around migration and and its untypical inclusion in preferential trade arrangements, there may be concerns about this issue disrupting the future operation of the GSP scheme. (The European Parliament proposes to remove this obligation.)
Eligible beneficiary partner countries seeking to gain or retain GSP+ status should start preparing the process of ratification and implementation of human/labour rights conventions that have been added to the existing list under this proposal.
Eligible beneficiary partner countries currently benefiting from preferential market access should evaluate the potential implications on long-term trading strategies with the EU of the Council’s December 2022 proposal to make it easier for the EU to reinstate full tariffs.
GSP Standard beneficiary partners may also have to ratify all human/labour rights conventions within 5 years (a Parliament proposal still under discussion).
The generalised scheme of tariff preferences (GSP) scheme aims to assist lower-income countries to integrate into the world economy, reduce poverty, and support sustainable development by protecting core human rights and the environment.
The current GSP scheme has three trading arrangements:
- Standard GSP: for lower- and lower-middle-income countries, providing removal or reduction of import tariffs on approximately two-thirds of EU tariff lines.
- GSP+: establishes 0% import tariffs for broadly the same tariff lines as the Standard GSP. This improved preferential access is granted to vulnerable lower- and lower-middle-income countries that implement international conventions related to human rights/labour rights.
- Everything But Arms (EBA): special arrangement for least developed countries: 0% import tariffs and zero quotas for all products except arms and ammunition.
The eligible beneficiary countries are listed in Table 1.
Council of the EU (2022) Press release: Council approves reinforced rules on granting trade preferences to developing countries.
European Commission: Generalised scheme of preferences.
European Commission (2018) Impact Assessment Report (on GSP).
European Commission (2021) Study in support of an impact assessment to prepare the review of GSP Regulation No 978/2012: Final report.
European Parliament (2022) Report on the proposal for a regulation of the European Parliament and of the Council on applying a generalised scheme of tariff preferences and repealing Regulation (EU) No 978/2012 of the European Parliament and of the Council. Committee on International Trade.
European Parliament (2023) MEPs pause GSP negotiations as Council hijacks scheme for migration agenda. Press release.
Francavilla, C. (2023) Migration paranoia jeopardizes EU trade and development scheme. Human Rights Watch, 6 June.
Proposal for a Regulation on applying a generalised scheme of tariff preferences
Regulation on applying a generalised scheme of tariff preferences – Mandate for negotiations with the European Parliament
Report on the proposal for a regulation on applying a generalised scheme of tariff preferences
Tables & Figures
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