EU GSP schemes: Options for Bangladesh

Manzur Ahmed | Published: October 06, 2018 21:24:10 | Updated: October 10, 2018 21:31:07

Commerce Minister Tofail Ahmed, as reported by the Financial Express, recently urged the European Union (EU) to give GSP-plus facility to Bangladesh after 2027. "We call upon the European Union to provide GSP Plus facility to Bangladesh like Sri Lanka and Pakistan," he told the media at the secretariat in Dhaka after the EU-Bangladesh Business Climate Dialogue.

However, the EU 'Standard GSP' and the GSP+ schemes are neither meaningful in respect of product coverage nor margin of preference. The issues involved in EU GSP (generalised scheme of preferences) schemes and possible options for Bangladesh are the following:

EU GSP SCHEMES: To accommodate developing countries' trade, development and financial needs effectively, the EU GSP provides three different preference arrangements: a general GSP arrangement and two special arrangements. These are:

EBA: The special arrangement Everything But Arms (EBA) grants full duty-free, quota-free access to all products except arms and ammunition from countries classified by the UN as LDCs. There are currently 49 EBA beneficiaries. Bangladesh is by far the biggest user of EBA, followed by Cambodia. In 2014, these two beneficiaries together accounted for 85.4 per cent (Bangladesh 69.1 per cent and Cambodia 16.3 per cent) of all imports where EBA preferences have been used.

STANDARD GSP: The general arrangement ('Standard GSP) grants duty reductions for 66 per cent of all EU tariff lines to countries of low or lower-middle income, which do not benefit from other preferential trade access to the EU market. As on January 01, 2017, twenty five countries benefited from the Standard GSP scheme. These are: Cameroon, Cote d'Ivoire, Republic of Congo, Kenya, Ghana, Namibia, Nauru, Nigeria, Swaziland, Kyrgyzstan, India, Indonesia, Sri Lanka, Vietnam, Tajikistan, Uzbekistan, Cook Islands, Fiji, Marshall Islands, Micronesia (Federate States of), Niue, Tonga, Ukraine, Iraq and Syria

GSP+: The GSP+ scheme is designed to help developing countries face the special burdens  and  responsibilities  resulting  from  the  ratification  of  27  core international  conventions  on  human  and  labour  rights,  environmental protection  and  good  governance  as  well  as  from  effective  implementation thereof. It does so by granting full removal of tariffs on over 66 per cent tariff lines covering a very wide array of products including, for example, textiles and fisheries. The  current  GSP+  scheme  is  in  place  until  the  end  of  2023. There are currently eight GSP+  beneficiaries. These are:  Armenia,  Bolivia,  Cape  Verde, Kyrgyzstan, Mongolia, Pakistan, Paraguay and the Philippines. Pakistan and the Philippines together accounted for 87.8 per cent of GSP+ preferential imports.

CRITERIA FOR GRANTING GSP+: Firstly, the applicant must meet economic criteria, i.e., it must be a vulnerable developing country  with  a  undiversified  economy  and  low  level  of  imports  to  the  EU. A vulnerable country means a country which is not classified by the World Bank as a high-income or upper-middle income country during three consecutive years. Undiversified economy and low level of imports imply that the country's exports are heavily concentrated to a few products (the largest sections of its GSP-covered imports into the EU represent more than 75 per cent in value of its total GSP-covered imports)  and with a low level of imports into the EU (its GSP-covered imports into the EU represent less than 65 per cent in value of the EU's total GSP-covered imports from all GSP beneficiaries). Secondly, the country must have ratified the 27 international conventions required under GSP+ scheme. It  must  not  have  formulated  reservations  which  are prohibited  by  these  conventions,  and  the  most  recent  conclusions  of  the monitoring bodies under those conventions must not identify any serious failure to effectively implement them. Moreover, GSP+ applicants must give a binding undertaking in writing to maintain the ratification of these conventions, and to effectively implement them. Applicants must also accept these conventions' reporting and monitoring requirements without reservation, and must agree to co-operate with the EU monitoring procedure led by the European Commission.

VALIDITY OF EU GSP+: In view of the above, it is clearly evident that EU GSP+ conditionalities, in respect of compliance of non trade issues, beyond the scope of WTO TBT, SPS and other Agreements, covered under 27 core international conventions, are inconsistent with Clause 2 (b) & 3 (c) of the Enabling Clause, Paragraphs 148, 164, 167 and 182 of the Appellate Body decision on India-EU-GSP Dispute: WT/DS246.   

POST-2027 MARKET ACCESS STRATEGY IN EU: Bangladesh, which is expected to graduate out of the list of LDCs by 2018-2021-2024 period may, however, continue to be eligible for DFQFMA in EU Countries under the EU EBA scheme till 2027. There are two possible options for Bangladesh for the post-2027 market access strategy in EU: 1. EU GSP or GSP+, and 2. Bangladesh-EU Free Trade Agreement (FTA).

The Standard GSP scheme grants only duty reductions (not duty free) for maximum 66 per cent of all EU tariff lines. Under the terms of WTO, this unilateral GSP scheme can be withdrawn any time. The GSP+ scheme (may terminate in 2023) with only 66 per cent product coverage imposes a 27+ additional bundle of NTBs based on compliance of non-trade 27 core international conventions, beyond the scope of WTO TBT, SPS and other Agreements. 

Thus the 'Standard GSP' and the GSP+ schemes are neither meaningful in respect of product coverage nor margin of preference.

USA, EU and other GSP granting Countries (including Australia and Canada) have signed and are going to sign free trade agreements with all global trading partners including most of competing countries of Bangladesh like India, Pakistan, Sri-Lanka, Vietnam, Cambodia, China, Korea, Malaysia, Philippines, Indonesia and others in different combinations. Bangladesh must also act accordingly.

BD-POST-BREXIT UK: British Prime Minister Theresa May has named India, Canada, China, India, Mexico, Singapore and South Korea among the countries keen on a free trade agreement with the post-Brexit UK and already agreed to start discussions on trade agreements with Australia and New Zealand. Bangladesh must also act in the same direction.

Therefore, signing an FTA with the EU (and other trading blocs) is the best available strategy for Bangladesh in retaining its competitive advantage in exports to the EU vis-à-vis its competitors. Looking for an EU-BD FTA has become imperative for Bangladesh, as its competitors and the EU GSP beneficiary countries (e.g. India, Vietnam, ASEAN+) are also negotiating bilateral FTAs with the EU to safeguard their long-term sustainable interests.

PROPOSED TERMS FOR FTA: Bangladesh already has a very liberal services, public procurement and investment policy regime open on MFN (most favoured nation) basis under its domestic regulations. Bangladesh should, therefore, take the credit and claim on reciprocal basis duty-free market access in goods and Mode 1, Mode 3 and 4 accesses in Services sector from FTA partners. SAFTA terms of trade in goods and services between Bangladesh and India will be very prudent and highly acceptable terms of negotiations for Bangladesh for the above initiatives. This will facilitate trade creation by neutralising the prevailing India-to-Bangladesh trade diversion. The terms of BFTA  trade  in  goods,  services  and  investment  with  EU, US  and others  should  be  without  prejudice  to  the  rights  and obligations  under  the World Trade Oreganisation (WTO)  Agreements  and  respective  international  rights  and  obligations  as  agreed  in Bangladesh-US and Bangladesh-EU Frame Work Trade Agreements.

Manzur Ahmed is Trade & Tariff Policy Adviser, BEI, BCI, and BPGMEA. He is a former Adviser of FBCCI (2005-2017) and former Chairman of Bangladesh Electrical Association.



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