European Commission publishes a proposal for a generalized scheme of preferences for the EU | Hogan Lovells
What is SPG?
The GSP is a trade and development policy instrument that has been in place in the EU since 1971. It eliminates or reduces import tariffs to allow easier access to the EU market for goods exported from developing countries. eligible development. These tariff preferences are conditional on respect for human rights, labor rights, environmental protection and good governance.
The EU has three GSP agreements covering a total of 67 countries:
- Everything except arms (“EBA”) for the least developed countries (“LDCs”), according to the United Nations classification, which enjoy duty-free and quota-free access to the EU market for all products except arms and ammunition;
- The standard GSP for low- and lower-middle-income countries, as classified by the World Bank, which benefit from partial or total tariff elimination on two-thirds of tariff lines; and
- The Special Incentive Agreement for Sustainable Development and Good Governance (âGSP +â) grants extended tariff preferences to countries that agree to additional sustainability requirements.
The three-tier structure helps meet the diverse trade and development needs of different groups of developing countries.
Key aspects of the proposal
The current structure of the SPG remains largely unchanged
The overall three-tier structure of the SPG framework remains unchanged, except for some minor tweaks from the SPG + agreement.
- Access to the GSP + agreement is facilitated for LDCs exiting the EBA agreement by modifying the economic vulnerability criteria in order to mitigate the significant negative consequences of the loss of EBA preferences.
- Tariff preferences under the GSP + agreement will require the ratification and implementation of six additional conventions on the environment and good governance. These conventions put more emphasis on the EU’s commitment to protect human and labor rights and support the EU’s broader environmental and climate goals in accordance with the Green Deal of the United Nations. ‘EU. Countries already benefiting from GSP + status will have to submit an action plan to effectively implement these conventions within two years of the entry into force of the new regime.
The GSP proposal also establishes a list of developing countries eligible in Annex I and a separate list of countries for which preferences have been withdrawn (Belarus and Cambodia) in Annex II. Russia, China, Hong Kong and Macao are no longer GSP eligible countries to ensure that GSP benefits are limited to developing countries with similar trade, finance and development needs.
Lower thresholds for product graduation and safeguard measures
Some low income per capita developing countries with specific high performing export sectors (eg textiles, chemicals, leather products) do not need preferences to enter world markets. In this regard, the current GSP framework withdraws preferences from these sectors on the basis of a so-called âgradationâ mechanism. âGraduationâ means that imports of particular product groups originating in a GSP beneficiary country lose GSP preferences because these products have become competitive in the EU market while imports of other product groups in from this country retain preferential treatment.
The GSP proposal maintains the overall gradation mechanism, but adjusts the product gradation thresholds downward from 57% to 47% (and for textiles from 47.2% to 37%) and changes the basis on which these thresholds are determined from the volume of imports to the value of imports. When the average value of imports of a product originating in a GSP beneficiary country exceeds the graduation threshold over three consecutive years, the product is considered “competitive” and will lose preferences. By lowering the threshold, competing products will be graduated earlier, leaving more room for less competitive products. This should create more opportunities for other GSP beneficiaries, especially LDCs.
In addition, the GSP proposal reduces by 10% the trigger threshold for an automatic safeguard in the textiles, agriculture and fisheries sector. When the value of all imports of a specific agricultural or fishery product from GSP and GSP + beneficiary countries exceeds 47% (and 37.5% for textiles) in a calendar year, the preferences will automatically be lifted.
More possibilities to withdraw tariff preferences
Under the current GSP, preferences can be withdrawn for various reasons such as fraud, money laundering, increasing competitiveness, unfair trade practices, violation of objectives related to the management of fishery resources, economic development or the conclusion of a trade agreement.
The GSP proposal expands the grounds for withdrawing preferences to include serious and systemic violations of key principles enshrined in the fundamental United Nations conventions relating to human and labor rights, the environment and good governance , including the effective non-application of these conventions. Withdrawal will also be possible in the event of serious breaches of the obligation to readmit the beneficiary country’s own nationals illegally staying in the EU.
Where there is sufficient evidence to justify the temporary withdrawal of preferences and the exceptional gravity of the violation calls for a swift response, the preferences can be withdrawn within 7 months (instead of the current 18 month long procedure) .
Next steps and impact
Over the next year, the SPG proposal will be considered by the European Parliament and the Council of the EU. The European Parliament should push for a greater emphasis on sustainability and the protection of human rights, labor rights and the environment. This is in line with recent EU legislative initiatives and proposals, such as the EU Green Deal and the forthcoming proposal on sustainable corporate governance.
The new GSP regulation is expected to enter into force on January 1, 2024.
Any changes to the current GSP framework will have an impact on the supply chains of EU importers and distributors of products originating in GSP beneficiary countries. Companies sourcing from GSP beneficiary countries must:
- Check supplier sustainability compliance in GSP beneficiary countries to ensure long-term efficiency of supply chains. The GSP proposal puts more emphasis on the protection of the environment and human rights, and in particular on the EU’s zero tolerance for forced labor and child labor practices.
- Monitor the interaction between, on the one hand, the enhanced obligations to protect human rights and the environment under the GSP and, on the other hand, the obligations imposed on EU importers in the framework of other EU instruments, such as the proposal for sustainable corporate governance and the possible ban on imports of goods produced with forced labor, as announced by the President of the European Commission Ursula von der Leyen in his 2021 State of the Union address.