The European Union's whittling down its list of 176 such countries currently enjoying specific tariff preferences to 80 will probably impact Indian exports to the EU.
The EU's popular scheme called the Generalised System of Preferences (GSP) in vogue since 1971 allowing developing countries to pay lower import tariffs on some or all of their exports to the EU has been reshaped to render its applications need-based, a terse communiqué from Brussels said on Thursday.
Quantifying the GSP, the EU said in 2009, imports that obtained GSP preferences were worth €60 billion, representing 4 per cent of total EU imports and 9.3 per cent of the total EU imports from developing countries.
The tariff preferences include GSP, GSP plus and Everything But Arms (EBA) arrangement under which all products from the least developed countries do not face import duties in the EU.
Under the revised scheme, imports that would receive GSP preferences are estimated at €37.7 billion, a substantial decline of 37 per cent.
In 2009, India was the main beneficiary of the GSP as New Delhi benefitted to the tune of €13.1 billion out of the €48 billion EU imports that qualified under the GSP scheme.
Preferential access
Trade policy analysts here said that as one of the key elements of the restructured GSP include countries that have preferential access to the EU which is as good as under GSP, for instance, under the Free Trade Agreement, would no longer be eligible.
Thus, the imminent forging of an FTA by India with the EU might risk India being out of the beneficiary ambit of the GSP.
The need-based criterion and India's status as an emerging economy coupled with the drastic reduction in the overall quantum of GSP benefits and the number of beneficiary countries would only reinforce that the benefits from GSP for India would be nugatory in the short to medium-term, they say.
The rejigged GSP takes into account the emergence of more advanced developing countries which are now globally competitive while seeking to spur more countries to respect core global conventions on human rights, labour standards, environment and good governance in the GSP-plus scheme which confers additional trade concessions for trade-vulnerable countries. Pakistan was the beneficiary under GSP-plus because of its fight against drug trafficking.
‘Significant competition'
Pointing out that the most advanced emerging economies remain the biggest beneficiaries of GSP preferences accounting for around 40 per cent of preferential imports under GSP, the EU contended that there is ‘significant competition' between GSP beneficiaries.
Hence, the need to focus preferences on those that most need them, that is, low and lower middle-income countries.
An interesting proposal in the revised GSP scheme relates to balanced improvements to the conditions for withdrawal from the whole GSP scheme — notably in making explicit that unfair trading practices include those affecting the supply on raw materials and in emphasising that preferences might be temporarily withdrawn if beneficiaries fail to comply with global conventions on anti-terrorism.
China, a major beneficiary like India, recently slapped restrictions on the export of rare earth and such practices could cause withdrawal of GSP benefits.
The extant GSP scheme will end in December but the European Commission has put forward a ‘roll-over' regulation, extending the scheme until the end of 2013 to avoid GSP lapsing while the institutions discuss the GSP proposal.
The new regulation will apply as of January 1, 2014, after it is approved by the European Council and the European Parliament.