EU’s Generalised Scheme of Preferences | 15 Jun 2021

Why in News

Recently, a resolution was adopted by the European Parliament, urging the European Union (EU) Commission to consider the temporary withdrawal of the Generalised Scheme of Preferences Plus (GSP+) status given to Sri Lanka.

  • Sri Lanka regained the GSP +, or the EU’s Generalised Scheme of Preferences in 2017.
  • The EU is Sri Lanka’s second-largest trading partner after China and its second main export destination.

Key Points

  • About:
    • The Generalised Scheme of Preferences (GSP) is a set of EU rules allowing exporters from developing countries to pay less or no duties on their exports to the European Union.
      • It helps developing countries to alleviate poverty and create jobs based on international values and principles, including labour and human rights.
    • The EU’s GSP is widely recognised as the most progressive in terms of coverage and benefits.
  • Types:
    • Standard GSP:
      • For low and lower-middle income countries. This means a partial or full removal of customs duties on two thirds of tariff lines.
      • Developing countries are automatically granted GSP if they are classified as having an income level below "upper middle income" by the World Bank and do not benefit from another arrangement (like a Free Trade Agreement) granting them preferential access to the EU market.
      • Beneficiaries: Bangladesh, Cambodia and Myanmar.
    • GSP+:
      • The special incentive arrangement for sustainable development and good governance.
      • It slashes these same tariffs (that under standard GSP) to 0% for vulnerable low and lower-middle income countries that implement international conventions related to human rights, labour rights, protection of the environment and good governance.
      • Beneficiaries: Armenia, Bolivia, Cabo Verde, Kyrgyzstan, Mongolia, Pakistan, The Philippines and Sri Lanka.
    • EBA (Everything But Arms):
      • The special arrangement for least developed countries, providing them with duty-free, quota-free access for all products except arms and ammunition.
  • Monitoring Beneficiaries:
    • The EU continuously monitors and reviews GSP+ beneficiary countries’ effective implementation of the international conventions on human rights, labour rights, environmental protection, and good governance.
    • This monitoring includes exchanges of information, dialogue and visits and involves various stakeholders, including civil society.

Generalised System of Preferences

  • About:
    • Generalized System of Preferences is an umbrella that comprises the bulk of preferential schemes granted by industrialized nations to developing countries.
    • It involves reduced Most Favored Nations (MFN) Tariffs or duty-free entry of eligible products exported by beneficiary countries to the markets of donor countries.
    • The idea of granting developing countries preferential tariff rates in the markets of industrialized countries was originally presented at the first United Nations Conference on Trade and Development (UNCTAD) conference in 1964.
    • The GSP was adopted at UNCTAD in New Delhi in 1968 and was instituted in 1971.
      • There are currently 13 national GSP schemes notified to the UNCTAD secretariat.
  • Countries which Grant Generalized System of Preferences:
    • Australia, Belarus, Canada, EU, Iceland, Japan, Kazakhstan, New Zealand, Norway, Russian Federation, Switzerland, Turkey and the United States of America.
      • In 2019, US terminated India’s designation as a beneficiary developing nation under its GSP trade programme. This was done after determining that India has not assured the US that it will provide “equitable and reasonable access” to its markets.
  • Benefits:
    • Improves Growth:
      • Improves Economic growth and development in the developing world by helping beneficiary countries to increase and diversify their trade with the developed nations.
    • Provides Employment:
      • Moving GSP imports from the docks to consumers, farmers, and manufacturers supports tens of thousands of jobs in the developed nation.
    • Boosts Company Competitiveness:
      • It is boosted by the GSP as it reduces costs of imported inputs used by companies to manufacture goods.
    • Promotes Global Values:
      • It promotes Global values by supporting beneficiary countries in affording worker rights to their people, enforcing intellectual property rights, and supporting the rule of law.


Most Favored Nations (MFN)

  • As per the World Trade Organisation’s (WTO) General Agreement on Tariffs and Trade MFN principle, each of the WTO member countries should “treat all the other members equally as ‘most-favoured’ trading partners.”
  • According to the WTO, though the term ‘MFN’ “suggests special treatment, it actually means nondiscrimination.”

Source: TH