EU Quietly Considers Biggest Shakeup to Duty System in 40 Years

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Amid considerable criticism from some quarters, the US periodically brings anti-dumping cases against specific countries when it feels it has justifiable cause to protect a particular industry from unfair competition, but recent announcements have gained scant coverage in Europe regarding the European Commission’s (EU) much wider proposed review of the GSP system. The General System of Preferences (GSP) was introduced in 1971 to provide a reduced or in some cases zero level of import duty to goods from the poorest developing countries. Today the program covers 176 countries according to the Financial Times, but in the opinion of Karel De Gucht, the EU trade commissioner, it’s long overdue for review. The commissioner suggests the program may have been “too successful, leading to a steady growth in EU imports from developing economies, some of which can no longer be considered developing. According to the FT, the commissioner now wants to change the rules so that wealthier countries would be excluded. Under the new criteria he is suggesting, 80 of the 176 current GSP countries would no longer be eligible for the program. In addition to Russia and Brazil, other candidates suitable from removal would include Argentina, Qatar and Saudi Arabia. “You cannot pretend that some of these emerging countries are the same as they were 10 years ago, said one Commission official. “These are economic powerhouses, referring to current beneficiaries such as oil- and gas-rich Russia and Saudi Arabia (which has a GDP per capita twice that of the poorest EU states such as Bulgaria). Others identified for the chop are Brazil, Argentina, Venezuela, Qatar and South Africa, according to an Economist article.

The move risks being viewed in the current climate as protectionism, but the EU is at pains to say that countries excluded from 2014 when the proposed changes would take effect are free to negotiate bilateral trade deals potentially removing all trade barriers completely. The Euro-zone buzzword here is “reciprocity, for those countries now considered too highly developed for the GSP systems, equal rights of access for goods and services in a bilateral trade deal that cuts both ways is the fairest way to go witness the recent deal with South Korea last year and the imminent deal with Peru and Colombia.

Any Eurocrats setting their sights on China, however, may be disappointed if disqualifying the country in the future fails to have any impact on opening up the Chinese market to EU goods or services – less than 1 percent of its goods qualify for GSP duty reductions so the loss will hardly be noticed.

There is considerable internal resistance within the EU to the proposed changes, not least because the commission suggests the reduction in headline numbers from 176 to about 80 countries will be counterbalanced (in the spirit of the original concept) by increasing the number of countries in a special sub category called GSP+. GSP+ countries are the very poorest in the world and qualify for complete access to the EU’s half a billion consumers, 20 million companies and some of the richest state buyers in the world without any tariffs. Currently there are just 15 countries in this special category, but the commission is proposing increasing this to 49, providing they sign a raft of conventions such as human rights agreements. Countries that could benefit are Pakistan and the Philippines, but the proposal faces opposition from Portugal to Pakistani bed linen imports and from Italy to Filipino tuna imports, guaranteeing it will be far from fair sailing!

The Economist closes with a succinct comment that will probably be deliberately overlooked by most of those in the EU commission. If a revised GSP focuses on the world’s poorest countries, it should preserve its liberalizing spirit by widening the goods covered, notably to agriculture”where EU protectionism is at its most egregious. Like the US, farm policy is the most prevalent and for the world’s poorest countries, with little else to offer than food production, probably the most unfair form of protectionism in practice.

–Stuart Burns

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