Explanatory Memorandum to COM(2001)293 - Application of a scheme of generalised tariff preferences for the period 1 January 2002 to 31 December 2004 - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2001)293 - Application of a scheme of generalised tariff preferences for the period 1 January 2002 to 31 December 2004. |
|---|---|
| source | COM(2001)293  |
| date | 12-06-2001 |
2. The guidelines of 1994 brought about a number of important changes. Since 1995, GSP schemes of the European Union replaced the traditional approach of granting duty free market access for restricted quantities, by the concept of modulation, which provides limited preferences for unlimited quantities. At the same time, new rules were introduced on graduation, allowing for the exclusion of specific sectors of exports from individual beneficiary countries. Subsequently, additional preferences were offered in the framework of special incentive arrangements, meant to promote the objectives of sustainable development, in particular the protection of labour rights and of the environment.
3. As most of those features were genuine innovations, it was difficult to anticipate their effects. Fortunately, many fears that had been raised prior to their adoption turned out to be unfounded. Thus, the decision to abandon quotas and ceilings did not give rise to a major surge of preferential imports. To the extent that some of the provisions of the present regulation are obviously too cautious and complicated, they should be streamlined.
4. On the other hand, some of the expectations, on which the present rules were shaped, did not materialise. Potential beneficiaries of the special incentive arrangements were reluctant to take up the opportunities they are offered. It would therefore seem necessary to adjust the measures, which are meant to put them into practice.
5. The present GSP regulation is the first one to combine all different arrangements and sectors, which used to be governed by different regulations. It falls short, however, of fully harmonising and unifying all rules and procedures. The 1994 guidelines clearly state a need for simplification. The better part of the proposed amendments pursues this objective, and does not imply changes in terms of substance.
Contents
6. The approach advocated by the 1994 guidelines to replace quotas and ceilings by a modulation mechanism that differentiates preferences according to the sensitivity of products turned out to be the right one. More sensitive products usually enjoy higher tariff protection, but benefit from smaller preferences, while less sensitive products, on which duties are normally lower, enjoy bigger preferences. In other words, higher tariff rates typically combine with smaller preferences, while lower tariff rates do so with bigger preferences. Thus, as long as the differences between the average duty rates in the four product categories are proportional to the differences between the four preferential rates, the modulation mechanism produces similar benefits for each of those categories.
7. In practice, however, as a result of progressive tariff dismantling, this is not the case anymore. The differences between preferences for each product category are now considerably higher than those between the average duty rates. The tariff reductions that the present modulation mechanism grants to each of those four categories are therefore increasingly unequal. As far as non-sensitive and semi-sensitive products are concerned, their comparatively high preferences result, in spite of relatively low tariffs, in average reductions of 4 percentage points. In contrast, although tariffs for sensitive and very sensitive products are higher, the rather slim preferences for these product categories produce reductions in the range of only 2 percentage points, and often less.
8. It is therefore not surprising that the utilisation rate for the two less sensitive product categories is significantly higher than for the other two. While the rate for non-sensitive and semi-sensitive products is now around 45 %, it is only 37 % for sensitive and 32 % for very sensitive products. It therefore seems necessary to improve the preferential treatment for more sensitive products.
9. The 1994 guidelines envisaged a modulation mechanism with only two categories, sensitive and non-sensitive products, which seems indeed more appropriate than the four categories established by the present regulation. The number of categories should therefore be reduced to two, sensitive and non-sensitive products. The classification of non-sensitive products should be maintained, while all other products classified under the present regulation as semi-sensitive, sensitive and very sensitive products should be regrouped in a second new category of sensitive products.
10. Like under the present regulation, non-sensitive products should continue to enjoy duty free access, while the future category of sensitive products should enjoy a tariff reduction, which ought to be the same for all products of that category. The amount of that reduction should not only be sufficiently attractive, but also in line with the principle of neutrality, enshrined in the 1994 guidelines.
11. According to this principle, the Community scheme of generalised tariff preferences must continue to aim at a level of liberalisation at which the impact of the preferential margin on the potential volume of preferential trade is neutral overall compared with the previous schemes. As a result of progressive trade liberalisation, the potential volume of preferential trade decreased significantly. And so did preferential margins.
12. Preferences that are determined as a percentage of the MFN duty are bound to shrink where the MFN duty rate is lowered. In order to halt further erosion of GSP preferences, it would therefore seem preferable to determine preferences as a reduction of MFN duty rates by a flat rate, i.e. by a certain number of percentage points.
13. At the time the present GSP regulation was adopted, the trade-weighted average preferential margin offered by the GSP was 3,68 %. The present mean tariff reduction for non-sensitive and semi-sensitive products is of the same magnitude, which also seems to be sufficiently attractive. Thus, a flat reduction of the MFN duty rate by 3,5 percentage points would seem appropriate for all sensitive products.
14. For most of them, the preferential treatment resulting of a flat rate reduction of 3,5 percentage points would be the same or slightly better than the one they enjoy under the present regulation, while a limited number of products would enjoy a less favourable treatment.
15. However, the great variations between specific duty rates rule it out to reduce them by a flat rate. The present system of reducing them by a percentage should therefore remain in place. In order to simplify the scheme, a uniform reduction of 30 % should be applied to all products concerned.
16. The 'nuisance duties', concerning specific duties, providing total exemptions where preferences result in duties of less than EUR 0,5, should be raised to EUR 2.
17. The 1994 guidelines clearly state the requirement to target preferential treatment on those developing countries which need it most. The present regulation pursues this objective by a set of different rules allowing, on the one hand, for the exclusion of countries, and on the other, for the graduation of specific production sectors of individual beneficiary countries. Moreover, some sectors are not included only because they never were for the countries concerned. While those rules seem rather complex, they are all justified for different reasons. As a whole, they are part of a regime that strikes a balance between the scope of preferences and the list of countries for whom they are available.
18. As far as the exclusion of countries is concerned, one of the two criteria - per capita gross national product - needs update. In order to use a neutral criteria which is regularly revisited, reference should be made to the threshold according to which the World Bank classifies countries as high-income countries.
19. In order to enhance the objectivity of the regime, the list of beneficiary countries should be revised on a yearly basis.
20. This, however, could result in a lack of predictability. It would therefore be preferable to require that a country meet the criteria for exclusion during three consecutive years, before it should be eliminated from the list of beneficiary countries.
21. Finally, for the sake of providing a fair treatment to all countries, those which had been eliminated should be readmitted in case that they do not meet the criteria for exclusion during three consecutive years.
22. As far as graduation is concerned, both basic rules - the so-called lion's share clause and the graduation mechanism - should be maintained. In order to make graduation more neutral and automatic, it should also be applied on a more regular basis, i.e. once a year.
23. That amendment should be balanced by an additional requirement according to which graduation should only take place where beneficiary countries meet one of the criteria during three consecutive years. This condition should be considered to be fulfilled also where it is not the same criterion that is met during each of the three years.
24. This requirement would enhance predictability. Beneficiary countries should be notified of the results of calculations and should be provided an opportunity to comment. Where sectors have met the criteria for graduation during two years, chances are that this might also happen during the third year. Thus, countries - and traders - would benefit from some kind of early warning. This, in turn, would allow implementing graduation with a shorter delay - one year after the decision has been taken - and in one go.
25. Implementing graduation now, on the basis of the most recent statistics, would remove GSP coverage from more than half the trade volume that would be covered without graduation. The requirement to fulfil the criteria for graduation during three consecutive years before graduation can take place would reduce the number of sectors to be graduated by more than 20.
26. Neither the 1994 guidelines nor the present regulation foresee the possibility to reverse graduation in cases where the criteria are not met anymore. Such possibility should be provided, for the same reason as in the case of the exclusion of countries.
27. As soon as the new GSP Regulation is adopted by the Council, the Commission will prepare a revision of the sectors that will have to be graduated according to the new regime. The results of that revision will enter into force on 1 January 2003.
28. The special incentive arrangements did not encounter the success that was hoped for at the time they were adopted. This is certainly due to various reasons, one of which may be the relatively small margin of preferences available under those arrangements. Another one seems to be the extremely complicated calculation of the additional preferences that beneficiaries might get on top of the normal ones - which are already sufficiently difficult to calculate. Countries might refrain from requesting the benefit of those arrangements simply because they find it difficult to assess.
29. In order to give momentum to the present trend under which acceptance of the arrangements by potential beneficiary countries gains ground, it would seem imperative to make them more attractive. In line with the present scheme, but in order to simplify it, additional preferences should double the general preferences - i.e. they should provide an additional flat reduction by 3,5 percentage points on ad valorem MFN duties, and an additional reduction of specific duties by another 30 %. Such rule would also have the advantage of being easily understood.
30. The benefit of the special incentive arrangements is, at present, also available for sectors in which the country concerned is graduated, but only where graduation took place under the graduation mechanism (and not under the lion's share clause). In order to make the arrangements more attractive for more advanced developing countries (which are more likely to be graduated and to fulfil the requirements of the social clause), the benefit should also be given where graduation took place on grounds of the lion's share clause.
31. In its present shape, the social incentive arrangements establish a double conditionality, where a country has to qualify for being granted the status of a beneficiary country of the arrangements and where exports from that country have to be certified as being manufactured in accordance with the labour standards concerned. This includes all inputs, even imported ones. Such requirement is not viable, since a beneficiary country is not in a position to control compliance in that respect. Therefore, the requirement should be dropped.
32. The special incentive arrangements for the protection of labour rights initially referred to ILO Conventions No. 87, 98 and 138. According to the ILO Declaration on Fundamental Principles and Rights at Work, those principles and rights include the freedom of association and the effective recognition of the right to collective bargaining, the elimination of all forms of forced or compulsory labour, the effective abolition of child labour, and the elimination of discrimination in respect of employment and education. In order to bring the special incentive arrangements into line with the concept of 'core labour standards', beneficiary countries should also be asked to effectively comply with ILO Conventions No 29, No 100, No 105, No 111 and No 182.
33. As far as the special arrangements for the protection of the environment are concerned, internationally agreed standards and an internationally recognised system of certification are still not in place. Things are moving, however, and there are chances that the ITTO criteria are complemented in the near future. On the other hand, some national certification schemes have acquired a certain degree of international recognition. In order to take this into account, the wording of the draft proposal uses more general terms than the present regulation. In the framework of the revision of the GSP for the next decade, due consideration should be given to broaden both the scope of the special incentive arrangements for the protection of the environment and the requirements to be fulfilled.
34. The present draft proposal takes into account the new regulation granting duty free access for essentially all products from Least Developed Countries.
35. At the time the present GSP Regulation was under preparation, attempts were made in order to remove the inconsistency between the benefits of the drug regime, which are given without any prerequisite, and those of the special incentive arrangements, which are conditional. It is indeed necessary to establish some kind of assessment monitoring ensuring that the drug regime achieves the objectives for which it is granted. These objectives are to favour sustainable development, so as to improve the conditions under which the beneficiary countries are combating drug production and trafficking. Sustainable development requires, first, the creation of new jobs in all sectors of the economy, including industry, for which the GSP had been established initially. This implies improving the supply side and diversifying exports; secondly, solid development through the effective implementation of ILO core labour standards; and thirdly, the protection of the environment, including in particular the sustainable management of the tropical forest.
36. The Commission should have a clear picture of the extent to which these arrangements actually achieve their objectives. It should therefore monitor the application of the arrangements as well as their effects, taking into account the assessments conducted by independent international organisations and agencies, and it should have an exchange of views with the beneficiary countries on those assessments. While the evaluations should not lead to discontinue the arrangements before 2004, they should help to answer the question whether it is appropriate to maintain the arrangements beyond that date.
37. In general, the GSP should be used, to a larger extent, as a means for promoting the protection of core labour standards. It is therefore proposed to include serious and systematic violation of those standards as a reason for temporary withdrawal of GSP benefits. Similarly, it is proposed to include significant detrimental effects on the environment arising from the production of certain products also as such reason.