What is the GSP?
The GSP is a trade and development policy instrument which 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 eligible developing countries. These tariff preferences are conditional on the respect for human rights, labour rights, environmental protection and good governance.
The EU has three GSP arrangements covering a total of 67 countries:
- Everything But Arms (“EBA”) for least developed countries (“LDC”), as classified by the United Nations, which benefit from duty-free 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 are granted a partial or full removal of customs duties on two-thirds of tariff lines; and
- The Special Incentive Arrangement for Sustainable Development and Good Governance (“GSP+”) grants extended tariff preferences for those countries that accept additional sustainability requirements.
The three-tier structure allows addressing the diverse trade and development needs of different groups of developing countries.
Key aspects of the proposal
Existing GSP structure remains largely unchanged
The overall three-tier structure of the GSP framework remains unchanged except for a few minor tweaks in relation to the GSP+ arrangement.
- Access to the GSP+ arrangement is facilitated to LDCs graduating from the EBA arrangement by modifying the economic vulnerability criteria in order to mitigate the significant negative consequences of losing EBA preferences.
- Tariff preferences under the GSP+ arrangement will require ratification and implementation of an additional six environmental and good governance conventions. These conventions place more emphasis on the EU commitment to the protection of human and labour rights and support the EU wider environmental and climate objectives in line with the EU Green Deal. Countries already benefiting from GSP+ status will have to submit a plan of action to implement these conventions effectively within a two-year period after the entry into force of the new regime.
The GSP Proposal also establishes a list of eligible developing countries in Annex I and a separate list of countries for which preferences have been withdrawn (Belarus and Cambodia) in Annex II.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 Macau are no longer GSP eligible countries to ensure that the benefits of the GSP are limited to developing countries with similar trade, financing and development needs.
Lower thresholds for product graduation and safeguard measures
Certain developing countries with low per capita income with very successful specific export sectors (for example, textiles, chemicals, leather products) do not need preferences to penetrate global markets. In this regard, the current GSP framework withdraws preferences to such sectors on the basis of a so-called “graduation” mechanism. “Graduation” means that imports of particular groups of products originating in a GSP beneficiary country lose GSP preferences because these products have become competitive on the EU market while imports of other groups of products from that country retain the preferential treatment.
The GSP Proposal maintains the overall graduation mechanism, but adjusts the product graduation thresholds downwards from 57% to 47% (and for textiles from 47.2% to 37%) and modifies the basis on which these thresholds are determined from import volume to import value. When the average import value 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, competitive products will graduate earlier, which leaves more room for less competitive products. This should create more opportunities for other GSP beneficiaries, in particular LDCs.
In addition, the GSP Proposal reduces the threshold for triggering an automatic safeguard in the textile, agriculture and fisheries sector by 10%. When the value of all imports of a specific agriculture or fisheries product from both GSP and GSP+ beneficiary countries exceeds 47% (and 37.5% for textile) during a calendar year, the preferences will be automatically lifted.
More possibilities for withdrawal of tariff preferences
Under the current GSP framework, preferences can be withdrawn on different grounds such as fraud, money-laundering, increased competitiveness, unfair trade practices, infringement of objectives linked to management of fishery resources, economic development or the conclusion of a trade agreement.
The GSP Proposal expands the grounds for withdrawal of preferences to include serious and systemic violations of key principles enshrined in fundamental United Nations human rights and labour rights, environmental and good governance conventions, including failure to effectively implement these conventions. Withdrawal will also be possible in the case of serious shortcomings related to the obligation to readmit the beneficiary country’s own nationals illegally present in the EU.
Where there is sufficient evidence to justify temporary withdrawal of preferences and the exceptional gravity of the violation calls for a rapid response, preferences can be withdrawn within 7 months (instead of the current 18 months long procedure).
Next steps and impact
During the next year, the GSP Proposal will be reviewed by the European Parliament and the Council of the EU. The European Parliament is expected to push for a greater emphasis on sustainability and the protection for human rights, labour rights and the environment. This is in line with recent EU initiatives and legislative proposals, such as the EU Green Deal and the forthcoming proposal on sustainable corporate governance.
The new GSP Regulation should enter into force by 1 January 2024.
Any changes to the current GSP framework will have an impact on supply chains of EU importers and distributors of products originating in GSP beneficiary countries. Companies sourcing from GSP beneficiary countries should:
- Check sustainability compliance of suppliers in GSP beneficiary countries in order to ensure long-term efficiency of supply chains. The GSP Proposal places greater emphasis on the protection of the environment and human rights, and in particular the EU zero tolerance for forced labour and child labour practices.
- Monitor the interaction between, on the one hand, the enhanced obligations with regard to the protection of human rights and the environment under the GSP framework and, on the other hand, obligations imposed on EU importers in the context of other EU instruments, such as the sustainable corporate governance proposal and the potential import ban on goods produced with forced labour, as announced by the European Commission President Ursula von der Leyen in her 2021 State of the Union address.
Should you have any questions on how the GSP Proposal may affect your company’s supply chains, please do not hesitate to reach out to the Hogan Lovells team. We would be happy to provide any assistance in reviewing the potential impact of the GSP Proposal on your supply chains.
Authored by Lourdes Catrain, Stephanie Seeuws, and Eleni Theodoropoulou.