New EU Generalised Scheme of Preferences Proposed, with Stricter Conditions for Market Access

On 22 September 2021, the European Commission announced that it has adopted a legislative proposal for the new EU Generalised Scheme of Preferences (GSP) for the period 2024-2034. The Commission is proposing to improve some of the key features of the scheme to better respond to the evolving needs and challenges of GSP countries as well as reinforce the scheme’s social, labour environmental and climate dimension. The news may be of interest to Hong Kong companies having export interests in some Asian or other countries that still benefit from preferences under the EU scheme. An initiative has also been launched whereby interested parties can provide feedback on the future of the preferential tariff scheme, by 19 November 2021.

As is generally known by those familiar with international trade, the GSP Regulation is a unilateral trade tool that removes or reduces import duties from products coming into the EU from vulnerable low-income countries. The intention is that poverty eradication must be supported, together with sustainable development, and increased participation by those countries in the global economy. The latest proposal aims to incentivise sustainable economic growth in low-income countries and offers new room for engagement on environmental and good governance issues. On the other hand, the modernised framework also expands the grounds for the withdrawal of EU GSP preferences in case of serious and systematic violations of the rules. Beyond the core human rights and labour conventions already covered under the previously adopted GSP, the new proposal incorporates environmental and good governance conventions.

It may be recalled that, under previous versions of the GSP, mainland China used to be a beneficiary country. The country was able to benefit from preferences for some tariff lines in the case of products imported into the EU. In late December 2013, however, it was announced that GSP benefits will be removed for mainland China (as well as Thailand, Ecuador and the Maldives). The actual removal of GSP benefits for these countries took effect on 1 January 2015. They lost their GSP benefits as a result of their World Bank classification in the preceding three years. Even before that, many products from mainland China were already excluded from GSP benefits under the ‘graduation’ mechanism.

Hong Kong sellers may like to examine the list of beneficiaries (drawn up as of 1 January 2019), which includes Indonesia, Vietnam and Cambodia.

The EU offers three GSP arrangements:

• EBA (Everything But Arms) for least developed countries which benefit from duty-free, quota-free access to the EU market for all products except arms and ammunition;
• Standard GSP for low and lower-middle-income countries which are granted a partial or full removal of customs duties on two-thirds of tariff lines;
• GSP+, the special incentive arrangement for sustainable development and good governance which slashes tariffs to 0% for the same tariff lines as in the case of Standard GSP. The vulnerable low and lower-middle-income countries that implement 27 international conventions (32 in the new proposal), related to human rights, labour rights, protection of the environment and climate and good governance, benefit from this arrangement.

The main changes under the new Commission proposal are said to be the following:

• All countries set to graduate from Least Developed Country (LDC) status in the next decade will be able to apply for the special incentive arrangement for sustainable development and good governance (GSP+), but only if they commit to strong sustainability standards.
• The new scheme will lower product graduation thresholds (that is, the temporary suspension of tariff preferences for highly competitive products) by ten percentage points.
• It will also expand the list of international conventions that need to be complied with by adding two additional human rights instruments on the rights of people with disabilities and the rights of the child; two labour rights conventions on labour inspections and tripartite dialogue; and one governance convention on transnational organised crime.
• The proposal also introduces the possibility to withdraw GSP benefits for serious and systematic violations of the principles of the conventions on climate change and environmental protection. It furthermore extends the list of international conventions that GSP+ countries must ratify beyond the current seven environmental and climate instruments, now including the Paris Agreement.

The European Parliament and the Council will henceforth discuss the Commission’s proposal. The currently operational GSP Regulation will expire on 31 December 2023. Therefore, once adopted, the new GSP Regulation will apply from 1 January 2024.

On 23 September the European Commission launched an initiative for feedback with a view to adoption of the new GSP Regulation. Hong Kong sellers or any economic operators in their supply chain may wish to submit feedback, which can be done via the above hyperlink, by 19 November 2021.