the european union’s generalised system of preferences...

The European Union’s Generalised System of PreferencesGSP

European Commission | Directorate-General for Trade

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Contents

What is GSP?

Chronology

Structure of the EU's 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 least developed countries

> The special arrangements to combat drug production and trafficking

Rules of origin

Cumulation of origin

How does an importer get the GSP benefit?

How the GSP is managed

Further information

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What is GSP?

T rade 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 |

| THE EUROPEAN UNION’S GENERALISED SYSTEM OF PREFERENCES | GSP | 3

1968 The United Nations Conference onTrade and Development (UNCTAD)recommended the creation of a‘Generalised System of Preferences’under which industrialised countrieswould grant trade preferences to alldeveloping countries.

1971 Contracting parties to the GeneralAgreement on Tariffs and Trade(GATT) approved a waiver to themost-favoured-nation clause of theAgreement and in 1979 adopted theso-called ‘enabling clause’, creatingthe legal framework for theGeneralised System of Preferences,and authorising developed countriesto establish individual GSP schemes.

1971 The European Community implemented its first GSP scheme.GSP was applied in the framework of 10-year programmes, through differentregulations for industrialised products,textile products, agricultural productsand those covered by the European Coaland Steel Community (ECSC) Treaty,adopted on a yearly basis.

1995 The present 10-year cycle beganin 1995 and will expire in 2005.A single ‘multiannual’ regulationnow covers all products.

2002A new GSP regulation, the third of the 10-year cycle, (Council Regulation (EC)No 2501/2001 as last amended by CouncilRegulation No 2211/2003) implements thecurrent scheme from 1 January 2002 to 31 December 2005. New guidelines for thenext 10-year cycle 2006-2015 are currentlybeing prepared.

Chronology

Structure of the EU's GSP

The availability of tariff preferences as well as their scope depend on thearrangement enjoyed by the beneficiary country of the exporter in which theproducts originate.

ArrangementsFive 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 arelisted in Annex IV of the Regulation. Different arrangements may grant differenttariff preferences for the same products. The availability of tariff preferences aswell as their extent therefore depend on the arrangement enjoyed by thebeneficiary country.

Beneficiary CountriesBeneficiary countries are developing countries, i.e. those which are membersof 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, aswell as dependent territories with a level of development similar to that ofdeveloping countries. The scheme includes 142 beneficiary countries and36 territories. Certain beneficiary countries of the GSP, for example the ACPcountries, enjoy at the same time other preferential arrangements. It may beassumed that traders use the most favourable treatment.

Originating productsTo be eligible for preferential tariff treatment under the EU's GSP scheme,products have to originate in a GSP beneficiary country. Preferential rules of originfor the GSP determine whether or not goods produced in the beneficiarycountries are eligible. The country also has to benefit from GSP arrangementswhich include those products. The GSP covers only products which are‘dutiable 1’. It is, of course, not possible to grant tariff preferences for imports ofproducts for which the Most Favourite Nation (MFN) duty 2 is already zero.Furthermore, the GSP does not include import of products of Chapter 93 (armsand ammunition) of the EU's Common Customs Tariff.


(1) Products whichoutside apreferencescheme wouldface a tariff rategreater than zero.

(2) Duty applied bythe EU on theimports fromthird countries(WTO members),according to theCommonCustoms Tariff.

> The general arrangements

PurposeThe General Arrangements offer the basic preferential treatment to beneficiarycountries.

Products coveredThe general arrangements cover roughly 7000 products, of which 3250 areclassified as non-sensitive and 3750 are classified as sensitive products. Thesensitivity of products is determined by the situation of the sector manufacturingthe same products in the Union. Sensitive products still require a higher borderprotection, while non-sensitive products can compete with duty-free importsfrom developing countries.

BenefitsThe tariff preferences offered by the general arrangements differ according to thesensitivity of the products concerned: non-sensitive products enjoy duty freeaccess 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 dutiesby a flat rate of 3,5 percentage points. An important exception to this rule of aflat rate reduction is the textiles and clothing sectors which enjoy a percentagereduction 3 of 20%. For specific duties, a percentage reduction of 30% is thegeneral rule. Where duties include ad valorem and specific duties, only the advalorem duties are reduced.

In order to avoid any increase of preferential duties as compared to the previousscheme, the new regulation provides for a stand-still clause according towhich ad valorem preferential duty rates applicable on 31 December 2001 willcontinue to apply as long as they are more favourable than the ones that resultfrom the provisions of the new Regulation.

BeneficiariesThe 178 countries and dependent territories listed in Annex I of the regulationbenefit from GSP.


(3) In a flat rate

reduction, thepercentage

points arededucted directly

from the normalMFN duty rate

while in apercentage

reduction thereduction is firstcalculated from

the MFN dutyrate using the

percentage andthen deducted.

> The special incentive arrangements for the protection of labour rights

PurposePromoting the respect of international labour standards through additional tariffpreferences.

Products coveredThese arrangements cover all sensitive products included in the generalarrangements (as non-sensitive products are exempted from duties under thegeneral arrangements, they cannot qualify for additional preferences).

BenefitsFor ad valorem duties of products covered by the arrangements, a reduction of5 percentage points in addition to the basic reduction of 3,5 percentage pointsis provided (thus raising the total reduction to 8,5 percentage points). Theadditional reduction is 20% for textiles and clothing and 30% for specific duties.Where duties include ad valorem and specific duties, only the ad valorem dutiesare reduced. This arrangement also applies to products of sectors which havebeen graduated (i.e. excluded from the GSP for a beneficiary country). Productsof these graduated sectors then enjoy a treatment which is equivalent to the oneoffered by the general arrangements.

BeneficiariesThese special arrangements are available for countries complying with the so-called ‘core labour standards’. These are the standards laid down in the eightInternational Labour Organisation (ILO) Conventions concerning the four areas towhich the 1998 ILO Declaration on Fundamental Rights and Principles at Workrefers: the elimination of all forms of forced or compulsory labour, freedom ofassociation and the effective recognition of the right to collective bargaining,elimination of discrimination in respect of employment and occupation, and theabolition 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 commititself to monitor the application of the special incentive arrangements and toprovide the necessary administrative co-operation.

The European Commission examines the requests. The authorities of therequesting country are involved at all stages and this process should becompleted within a year.


> The special incentive arrangements for the protection of the environment

PurposePromoting the respect of international environmental standards through addi-tional tariff preferences.

Products coveredThese arrangements cover about 50 tariff lines concerning tropical forestproducts.

BenefitsFor ad valorem duties of products covered by the arrangements, a reduction of5 percentage points in addition to the basic reduction of 3,5 percentage pointsis provided (thus raising the total reduction to 8,5 percentage points). Theadditional reduction is 30% for specific duties. Where duties include ad valoremand specific duties, only the ad valorem duties are reduced. This arrangementalso applies to products of sectors which have been graduated. Products ofthese graduated sectors then enjoy a treatment which is equivalent to the oneoffered by the general arrangements.

BeneficiariesThese special arrangements are available on request of a GSP beneficiarycountry (not on request of individual companies) complying with internationalstandards concerning sustainable forest management. Requests have to includethe laws of the requesting country incorporating the substance of theinternational standards concerned as well as the measures taken in order toimplement them. The requesting country has to commit itself to maintain theselaws, monitor the application of the special incentive arrangements and providethe necessary administrative co-operation.

The European Commission examines the requests. The authorities of therequesting country are involved at all stages and this process should becompleted within a year.


> The special arrangements for least developed countries

PurposeMany developing countries are facing particular problems, which impair theirefforts to develop. Such a group are the 49 countries that have been identifiedby 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. Pervasivepoverty within LDCs has effects at the national level that cause poverty to persistand even to increase. Rapid reduction in extreme poverty in the LDCs can beachieved through sustained economic growth. These special arrangements (alsoknown as ‘EBA’ – the Everything But Arms initiative) were established to addressthe special needs of this group of countries.

Products coveredAll ‘dutiable’ products (more or less 8200 tariff lines, without Chapter 93, armsand ammunition) are included in these special arrangements for LDC’s whichgrant duty free access to the EU market.

BenefitsThese arrangements provide duty-free access for all products covered andoriginating in the beneficiary country. Only imports of fresh bananas, rice andsugar are not fully liberalised immediately. Duties on those products will begradually reduced until duty-free access will be granted for bananas in January2006, 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 willincrease annually.

BeneficiariesThe beneficiary countries are the 49 least developed countries, as defined by theUnited Nations.


> The special arrangements to combat drug production and trafficking

PurposeThese arrangements are meant to assist the beneficiary countries in their struggleto combat illicit productions by providing them with export opportunities forsubstitution crops and by improving their economic and social development. Theobjective is not only to foster industrialisation and diversification, but also topromote sustainable development.

Products coveredThe special arrangements to combat drug production and trafficking cover allindustrial products (Chapters 25 to 97 of the Common Customs Tariff, exceptChapter 93) included in the general arrangements and classified as sensitive (onnon-sensitive products, no additional preferences can be applied). They alsocover some agricultural products (Chapters 1 to 24 of the Common CustomsTariff), which are included in the general arrangements and classified as sensitive,as well as to certain agricultural products which are not covered by the generalarrangements.

BenefitsThese arrangements provide duty-free access to the above products covered bythe scheme.

BeneficiariesThese arrangements were unilaterally granted by the EU to Andean Communitycountries in 1990, to imports of certain products originating in Bolivia, Colombia,Ecuador, Peru, and later in Venezuela. Subsequently, the special arrangementswere extended to the member states of the Central American Common Market(Costa Rica, Guatemala, Honduras, Nicaragua and El Salvador) as well as toPanama, and more recently to Pakistan.


Rules of origin

Preferences under the GSP apply toimports into the customs territory of theEuropean Union, of specific productsfrom individual countries. The productshave to originate in a beneficiary country,and that country has to benefit from GSParrangements which include those products.

For being considered as originating in theexporting country, products have to meet certainrequirements which are laid down in the rules of origin.The rules of origin are contained in Commission Regulation No 2454/93, asamended (see Guide on GSP rules of origin at the website indicated on the lastpage of this brochure). The rules of origin applying to imports under the GSP aremeant to ensure that the tariff preferences foster the development of beneficiarycountries.

While products wholly obtained in the exporting country are considered asoriginating there, products manufactured with inputs from other countries areconsidered so only if they have undergone sufficient working or processing.

The rules of origin also provide that products have to be accompanied by acertificate of origin Form A or an invoice declaration, and that they have to beshipped directly to the EU.


Cumulation of origin

The rules of origin applying to imports under the GSP allow, under certainconditions, for cumulation of origin. Where those conditions are met, inputs fromother countries are considered as originating in the exporting country. In order tofoster regional integration, the rules of origin provide for the possibility of regionalcumulation of origin between the members of regional groups. Where a producthas been manufactured in or with inputs from two or more countries belongingto a group enjoying regional cumulation, inputs from other countries of the samegroup 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, Singapore4, 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 beneficiarycountries, the rules of origin provide that all imports under the GSP are entitledto bilateral cumulation of origin, which is also known as ‘donor country content’.


(4) Singapore,

excluded fromGSP, continues toparticipate to the

cumulation of thisASEAN group.

How does an importer get the GSP benefit?

The importer has to provide a certificate of origin Form A to the customsauthorities in the EU in order to prove the origin of the imported products in thebeneficiary country. These certificates are issued by the competent governmentalauthorities of the exporting country (usually customs authorities) if they find thatthe exports meet the requirements of the rules of origin. This Form A is madeavailable to the exporter as soon as actual exportation has been effected orensured. When applying for tariff preferences, the importer has to join a certificateof origin to the customs declaration.

For smaller consignments, an invoice declaration may be submitted instead of aForm A as proof of preferential origin.


> 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 CombinedNomenclature and the product’s preferential rate of duty using the EU’s TARICdatabase at the website indicated on the last page of this brochure.

The website shows the GSP preferential rate for a product and country. Anyspecial arrangement enjoyed by the country is included in the rate. The normalthird-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 preference-receiving country to the EU market fulfil the provisions laid down in the rules oforigin.

Step 4 > Prepare documentary evidence

Fill in the certificate of origin Form A or the invoice declaration correctly; these arethe official documents on which the EU customs authorities rely to grant GSPbenefits 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 atthe end of this brochure.



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 third-

country 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.

How the GSP is managed

The EU’s GSP is managed by the European Commission. It is assisted by theGeneralised Preferences Committee, composed of representatives of EUMember States and chaired by the Commission.

Administrative co-operation

Administrative co-operation with the authorities of beneficiary countries is neces-sary in order to control compliance with the requirements for benefiting from thetariff preferences. In the framework of this co-operation, the Union customsauthorities may ask the beneficiary countries’ authorities issuing certificates oforigin 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, arran-gements may be temporarily withdrawn.

Exclusion of beneficiary countries

Some developing countries have reached a level of development similar to thatof developed countries. In that case, the rationale for granting trade preferencesdoes not exist anymore. Therefore, the GSP scheme provides the possibility ofexcluding countries which are sufficiently developed and which fulfil certain crite-ria during three consecutive years. Each year, the Commission determines whichcountries meet the criteria and notifies them. Once excluded, a country may beincluded 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 com-petitiveness which ensures further growth even without preferential access to theEU market. Sectors in the meaning of the GSP Regulation are divisions of acountry’s economy manufacturing related products. Such sectors will be gra-duated (excluded from the GSP) if they meet the criteria for graduation. Importsoriginating in a beneficiary country that have been graduated in the sector of theproducts concerned lose the benefit of GSP tariff preferences. Each year, theCommission determines the sectors which meet the criteria and notifies thecountries concerned. Once graduated, a sector may be included again if duringthree consecutive years, it does not meet the criteria.


Safeguard measures

Since preferential treatment under the GSP is granted without any quantitativelimitations, preferential imports may increase in a way which causes serious diffi-culties for Community producers of like or directly competing products. The GSPregulation provides for the possibility to apply safeguard measures, i.e. toreintroduce Common Customs Tariff duties where such difficulties arise.

Temporary withdrawal

Any arrangement may be temporarily withdrawn at any time, in respect of allproducts from a beneficiary country or only some of them. Reasons include,among others, practise of slavery or forced labour, violation of certain ILO corelabour standards concerning, for instance, freedom of association and the rightto collective bargaining, and failure to provide administrative co-operation.Temporary withdrawal of preferences is an exceptional measure applied only incases of clearly unacceptable practices.


Further information5

is available from the following:

For questions on the GSP, please contact European Commission, Directorate General for Trade:Mr Philippe CuissonE-mail: [email protected]: (32-2) 295.27.94Fax: (32-2) 296.92.90

or

Mr Benoit LefortE-mail: [email protected] Tel: (32-2) 299.86.90Fax: (32-2) 296.92.90

or

Mr. Hannu PitkänenE-mail: [email protected]: (32-2) 296.83.25Fax: (32-2) 296.92.90

For questions on the GSP rules of origin, please contact:Mr. Robert LightE-mail: [email protected]: (32-2) 295.07.89Fax: (32-2) 296.98.50European CommissionDirectorate-General for Taxation and the Customs Union

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.htmhttp://export-help.cec.eu.int E-mail: [email protected] 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

FE B R U A RY 2004


(5)This guide is

intended only as anintroduction.

The information is ofa general nature

only and does notnecessarily address

all specificcircumstances of the

legislation or reflectthe latest legislative

amendments. Thesole legal provisionsare those contained

in the regulationsduly adopted by the

Community. Readersshould consult therelevant part(s) of

the legislation for afuller explanation.

ht tp : / /europa.eu. in t /comm/t rade

Published by the European CommissionDirectorate-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

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