The European Commission has announced that it wants to reshape the current General System of Preference (GSP) regime that allows imports from developing countries to benefit from lower or zero rates of customs duty.
The proposed reform, due to come in for 1 January 2014, seeks to reduce the number of countries benefiting from GSP and allow those that continue to qualify greater potential reductions. These changes are likely to have a significant impact on importing companies’ customs costs.
The current GSP arrangements allow preferential duty rates on imports from 176 developing countries. The proposals seek to cut the list of GSP beneficiaries by 96 leaving a core of 80 qualifying countries. Countries that have achieved a high upper or middle income per capita will be excluded. This will include countries such as Russia, Kuwait, Saudi Arabia, Qatar, Argentina and Brazil). The final list of countries being axed from GSP will only be identified at the end of December.
Other countries will be excluded from GSP because they benefit under other trade agreements although the qualifying criteria may not be the same.
Increasing Preferential Benefits
The current GSP arrangements cover approximately 90% of tariff lines. The proposed new system aims to leave product coverage unchanged although there will be some changed to the graduation mechanism (the limit on volume of trade in a given sector before goods from that country are excluded from preference).
The current GSP arrangements provide for different tiers of tariff reduction depending upon the sensitivity of the imports against EU producers. However, the least developed countries enjoy duty free treatment across all imports. A limited number of other countries imports attract a zero rate of duty because they are taking steps to improve human and labour rights, environmental and good governance standards (GSP+ beneficiaries). The proposals will open up the opportunity of beneficiaries joining the GSP+ list by removing the need to show an economy is vulnerable and allow application to be made at any time rather than every 1.5 years. Therefore, in theory the remaining GSP countries should enjoy a greater tariff advantage but meeting the new standards may come at a price.
Increasing Predictability & Transparency
The current GSP arrangements are subject to review every three years. The proposed new system will be open-ended and in theory making it easier and more attractive for importers to source from GSP beneficiary countries. Many companies have been put off from taking advantage of GSP in the past because of uncertainty over the legal conditions and criteria. Others take advantage of GSP but make a provision in their accounts on the assumption that the benefit may be challenged with retrospective effect. The new scheme intends to address these concerns with cleared legal principles and more objective qualifying criteria. This will be a difficult task given the greater importance put on vague conditions such as labour and environmental rights.
We appreciate that strategic sourcing decisions often look 2 years or more in the future and are based on various criteria including availability of skills, speed of supply chin and the need to diversify your supplier base to mitigate against disasters (one need look no further than Japan). However, the loss of GSP can have a significant impact on your landed costs and so businesses need to follow these developments closely. Many of you will still be coming to terms with the significant changes to product coverage and origin rules from the last GSP round.
We will continue to provide more information as it breaks on this area. If you provide us with a specific list of what you are importing under GSP (a spreadsheet of commodity codes by country) we will be able to provide you with more specific information. If you want to take advantage of this free service then e-mail the data to firstname.lastname@example.org.