The Generalised System of Preferences

On the 23rd June 2005, the EU Member States approved EU`s Generalised System of Preferences (GSP). While the new GSP system as a whole will apply from 1 January 2006, application of the GSP Plus incentive system, which grants additional preferences to vulnerable developing countries that pursue good governance and sustainable development policies, is fast tracked to apply from 1 July 2005. The new GSP will follow the existing rules of origin for sometime. The Commission is considering some simplification and flexibility in the rules.

Trade has proved to be one the effective tools to foster development. Increased trade with developing countries will enhance their export earnings, promote their industrialisation and encourage the diversification of their economies. The classical instrument for achieving these objectives is tariff preferences, that is to say that the goods imported from developing countries are not submitted to the normal customs duties. Tariff preferences provide thus an incentive to traders to import from developing countries and thus help them to compete on international markets.

In 1968, the United Nations Conference on Trade and Development (UNCTAD) recommended the creation of a Generalised System of Tariff Preferences under which industrialised countries would grant trade preferences to all developing countries. The European community was first to implement a GSP scheme in 1971.

The new GSP includes:

A general arrangement (reduction of 3.5% over the normal customs duty for sensitive products, reduction of duties to zero for non-sensitive products), the reduction for textile products will be 20%.

“Everything but Arms”, giving duty-free and quota free access for all products for the Least Developed Countries (LDCs);

A new “GSP+” giving tariff preferences to vulnerable countries who meet the new objective criteria for sustainable development and good governance (reduction to zero duty for a total of 7200 products) ;

Countries with preferential access to the EU market under a bilateral agreement (e.g., a free trade area) will be removed from the list of GSP beneficiaries since they already better access to the EU market.

GSP will only be withdrawn for certain product groups for one or several countries – when these products are competitive on the Community market and no longer need the GSP. Graduation will be based on a simple criteria: when a group of products (“section” of the custom code) from a particular country exceed 15% of total EU imports of the same products under GSP over the last three consecutive years. For textiles, the threshold would be 12.5%. Graduation is not a penalty but a sign that the GSP has successfully performed its function of triggering exports flows; and thus the GSP will better benefit to the weakest and the most vulnerable countries.

Bangladesh continues to get duty and quota free access for all its products except for arms and ammunition (EBA) for indefinite period.