IEEP's assessment of the EC's proposal for a revised Generalised Scheme of Preferences

The EU’s proposal for a revised GSP regulation aims to better address global challenges, but does it deliver for sustainable development and the environment?

The European Union Generalised Scheme of Preferences (GSP) is a unilateral preferential tariff scheme granted by the EU to developing countries as a means of supporting their economic and social development, as well as an avenue to promote human rights, labour, environmental and good governance conventions. The European Commission unveiled its proposal to reform the GSP Regulation on 22 September 2021 as the current legislation is set to expire on 31 December 2023.

The EC launched a public consultation in 2020 to prepare for this revision and IEEP submitted its feedback. We now consider whether the proposed revised regulation takes our remarks into account to transform the GSP into a scheme that could better support sustainable development and environmental protection in beneficiary countries.

Preserving the foundations

The Commission now proposes to keep the foundations of the three-tier GSP architecture – which is split into three preferential arrangements: standard GSP, GSP+, Everything But Arms (EBA) – and instead focus its efforts on improving the efficiency and efficacy of the current regulation. IEEP welcomes the preservation of the GSP architecture as it maintains a differentiated approach based on countries economic realities alongside several of the Commission’s policy options to foster sustainable development while ensuring environmental protection.

Although there is no harmonisation of the standard GSP and GSP+ regimes, the Commission proposes to amend the economic vulnerability criteria – i.e. the threshold a country must reach to be eligible – to facilitate accession to GSP+ for countries graduating from LDC status and therefore facing the negative consequences of losing EBA preferences. IEEP welcomes this incentive to graduate “directly” to GSP+ and therefore to ratify the required environmental and social conventions.

‘Renovations’ for sustainable development

The current GSP Regulation requires all beneficiaries to respect 15 core human and labour rights conventions while GSP+ beneficiaries must ratify these conventions along with 12 others related to environment and good governance practices.

The most significant aspect of the new regulation is the bolstered conditionalities to access the system and benefit from tariff preferences. The proposal updates the existing list of 27 core conventions with the inclusion (as addition or replacement) of six new international treaties to bring the total to 32 conventions to be respected or ratified by beneficiaries. The revision includes 4 additional human and labour rights conventions and 1 convention on good governance while replacing the 1997 Kyoto protocol with the Paris Agreement. This is a most welcomed step towards aligning the GSP Regulation with the EU Green Deal objectives and addressing global challenges.

Yet, most importantly, the proposed new regulation extends – currently applied solely to the core international human and labour rights conventions – to all 32 conventions. The negative conditionality implies that the preferential tariff arrangement can be (temporarily) withdrawn in the case of “serious or systematic violations” of core conventions. In addition to the above, the Commission seeks to improve the “withdrawal procedure” of preferential tariffs by introducing a rapid response mechanism that can be activated in cases of exceptionally grave violations. In August 2020, the Commission partially withdrew Cambodia’s preferential tariffs under the EBA scheme in response to repeated human and labour rights violations. In this case, the withdrawal procedure was launched by the Commission in February 2019 and was concluded after 18 months. The procedure length would be now significantly reduced from 18 months to 7 months.

The revised EU GSP system would therefore strongly reinforce the incentive for beneficiary countries to respect and ratify a wider range of human and labour rights, environmental and good governance conventions.

What is lacking?

IEEP welcomes the Commission’s plan to introduce systematic reviews of the implementation of the GSP (every three years), along with more transparency through better stakeholder engagement, though it is still unclear the extent to which these monitoring mechanisms will be improved.

On stakeholder engagement, IEEP identifies an underrepresentation of environmental stakeholders in the Commission’s Civil Society Dialogue mechanisms. We therefore recommend incentivising participation by establishing a feedback mechanism in which the Commission is required to respond to concerns raised within a specified timeframe. Timely engagement with civil society is an indispensable resource to feed into monitoring practices as they provide vital information on a beneficiary countries’ specific environmental or labour issue.

The proposal is also not foreseen to bring with it an overhaul of the types of goods traded under the GSP regime. For example, on the ‘graduation of products’ the Commission proposes no plan to change the current definition of goods to be covered – which could support trade in environmental goods – but instead plans to reduce the product graduation threshold by 10pp. Product graduation is a mechanism in which specific products lose their preferential tariff if that products’ exports to the EU exceeds a predetermined threshold for three consecutive years. This threshold reduction implies that additional products will be considered too competitive in the EU market, lose their preferential import tariff, and fall back on the – usually higher – Most Favoured Nation tariff level.

Beyond the adverse effect that this could have on specific value chains for developing countries, we regret the absence of options that would encourage trade in sustainable goods. The Commission argues that the extension of preferential tariffs to goods that promote “environment and climate protection goals” would be too complex due to a lack of clarity on what is considered a ‘green good’, administratively burdensome, and would have limited impact as these goods make up an insignificant market share in beneficiary countries. Furthermore, the Commission argues that the most advanced beneficiaries would benefit disproportionately from this expansion.

Scoring on policy coherence

Previously, IEEP recommended for greater policy coherence between the GSP Regulation and other EU policy areas such as the Circular Economy Action Plan, deforestation-free supply chains and due diligence initiatives as well as development cooperation schemes. The rationale being that, together, these initiatives will significantly impact what types of goods the EU will import in the future and from where, through the introduction of new sustainability criteria, definitions and standards applied to goods sold on the EU market.

Inclusion of these principles in the regulation would have paved the way for such policy coherence in the long run as environmental standards is a common nominator across all the above policy initiatives. While the adoption of such standards is foreseen to trigger further improvements in sustainability practices globally, there is also a potential for the EU standard-setting to act as a technical barrier to trade for developing countries that export to the EU, with a potential disproportionate impact on these countries than other trade partners. The omission of greater policy coherence between the GSP and the EU’s Green Deal policy initiatives on sustainable goods and new sustainability standards may prove to be detrimental in the long run for GSP beneficiary countries.

Overview

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