EU Member States have this afternoon backed EU Trade Commissioner Peter Mandelson’s reform of the EU’s Generalised System of Preferences (GSP). Agreement by Member States, led by the Luxembourg Presidency, breaks a three month deadlock in Council that has delayed the adoption of the new preferential access system. The reform of the GSP will make the EU’s system of preferential market access for developing countries both simpler and fairer. While the new GSP system as a whole will apply from 1 January 2006, application of the GSP Plus incentive system, which grants additional preferences to vulnerable developing countries that pursue good governance and sustainable development policies, will be fast tracked to apply from 1 July 2005.

Background

Through its Generalised System of Preferences the European Union extends preferential access to its markets to developing countries. The EU GSP is the most generous of all developed-country GSP systems. In 2003 EU imports under GSP totalled €52 billion. Under the EU GSP between 1999-2003 developing countries share in total EU imports grew from 33% to 40%.

The current GSP, in place since 1995, applies to imports from developing countries that pay duty on entering the EU market and that are not already duty-free under Most Favoured Nation agreements.

The reform proposed by Commissioner Mandelson simplifies the EU GSP scheme by reducing the number of GSP arrangements from five to three. The coverage of the general GSP scheme will be extended to 300 additional products mostly in the agriculture and fishery sectors. A new ‘GSP Plus’ incentive scheme will be targeted at especially vulnerable countries that have ratified and effectively implemented key international conventions on sustainable development, labour rights and good governance. It will cover around 7200 products which will enter the EU duty free. The GSP Plus incentive scheme will be fast-tracked to enter into force on a provisional basis on 1 July 2005.

The eligibility of countries placed in the GSP Plus incentive scheme will be confirmed by an assessment of their effective implementation of core human and labour rights, good governance and environmental conventions before the beginning of 2006. The ‘Everything but Arms’ arrangement which grants duty and quota free access for all imports except arms from least developed countries will remain unchanged.

The new system is made fairer by focusing preferential access on countries that have a lower share of EU imports. Groups of products from beneficiary countries which in a given sector account for more than 15% of EU imports from GSP countries are “graduated” and cease to benefit from preferential access. In the case of textiles the “graduation threshold” is set at 12.5%, as it is for clothing.

Under the new regime, China will be graduated for 80% of its exports, although it remains in the GSP. As in the previous regime, Indian textiles will not benefit from the GSP preferential access although its clothing exports will continue to do so.

As part of a wider review of its Rules of Origin, the EU is in the process of reforming the Rules of Origin that govern GSP eligibility. The objective is to simplify and, where appropriate, relax these rules to provide further access for developing countries.

The new GSP will remain unchanged until the end of 2008 hence providing stability and predictability for importers and exporters. At the end of this period, the allocation of preferences will be reviewed to better meet evolving development needs of each country.

The Council adopted a Regulation amending a Regulation amending Regulation (EC) N° 1255/96 temporarily suspending the autonomous Common Customs Tariff duties on certain industrial, agricultural and fishery products.

This regulation deletes from the list in the Annex to Regulation 1255/96 certain products regarding which it is no longer in the Community’s interest to maintain suspension of the autonomous Common Customs Tariff duties.  It adds to the list other products the description of which must be amended in order to take account of technical developments in products and the economic development of the market.

The amended regulation will apply from 1 July 2005.

The European Commission’s Directorate General for Taxation and Customs Union has issued the summary report on the outcome of an on-line consultation concerning the place of supply of services to non-taxable persons that it launched on 3 February 2005.

A total of 71 external contributions were received in response to the consultation. Of that total, 47 came from national and European federations or associations, 22 came from business and two came from individuals.

While the majority of respondents supports the direction of the Commission’s work to date on this matter, which is to maintain the current general rule (taxation where the supplier is established) and to modify the place of taxation only for certain services, the consultation has identified a number of issues warranting further consideration, which the Commission will take into account during its ongoing and future planning.

The goal of the consultation was to describe the problem areas the Commission has identified in Article 9 of the Sixth VAT Directive (Directive 77/388/EEC of 17 May 1977) when dealing with services supplied to non-taxable persons (B2C supplies). The consultation document also provided an overview of possible modifications to the rules in order to overcome these problems. The Commission was seeking reactions and input on the proposed modification, in order to be in a better position to consider how best to progress with the possible review of these rules.