The European Union’s

Generalised System of Preferences

GSP

European Commission | Directorate-General for Trade

© Sven Torfinn/Panos Pictures
 Contents

2 What is GSP?

3 Chronology

4 Structure of the EU's GSP

5 > The general arrangements

6 > The special incentive arrangements for the protection of labour rights
7 > The special incentive arrangements for the protection of the environment
8 > The special arrangements for least developed countries
9 > The special arrangements to combat drug production and trafficking

10 Rules of origin
11 Cumulation of origin

12 How does an importer get the GSP benefit?

15 How the GSP is managed

17 Further information
What is GSP?

rade policy plays a key role in the European Union (EU)'s relations with

T the rest of the world and the EU is one of the most important actors in
international trade, accounting for a fifth of all world trade. The EU
strives to include developing countries more fully into the world trade system so
that all countries may share its potential benefits.

The EU's common commercial policy must be consistent with and consolidate
the objectives of development policy, in particular the eradication of poverty and
the promotion of sustainable development in the developing countries.

Trade has proved to be one of the most effective tools to foster development.
Increased trade with developing countries will enhance their export earnings,
promote their industrialisation, encourage the diversification of their economies
and accelerate their economic growth. The classical instrument for achieving
these objectives is tariff preferences, which provide an incentive to traders to
import products from developing countries and thus help them to compete on
international markets. Such tariff preferences should be sufficiently attractive
in order to motivate traders to use the opportunities offered by the scheme.
In 1968, UNCTAD recommended the creation of a ‘Generalised System of
Preferences’ under which industrialised countries would grant autonomous trade
preferences to all developing countries.

The EU's generalised scheme of tariff preferences (GSP) offers lower tariffs or
completely duty-free access for imports from 178 developing countries and
territories into the EU market. The EU's scheme grants special benefits for the
49 least developed countries and to countries implementing certain labour or
environmental standards. The EU grants the preferences without asking for
concessions from the beneficiary countries. In 2002, EU imports benefiting from
GSP preferences amounted to EUR 53 billion.

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 Chronology

2002
A new GSP regulation, the third of
the 10-year cycle, (Council Regulation (EC)
No 2501/2001 as last amended by Council
Regulation No 2211/2003) implements the
current scheme from 1 January 2002 to
31 December 2005. New guidelines for the
next 10-year cycle 2006-2015 are currently
being prepared.

1995
The present 10-year cycle began
in 1995 and will expire in 2005.
A single ‘multiannual’ regulation
now covers all products.

1971
Contracting parties to the General
Agreement on Tariffs and Trade
(GATT) approved a waiver to the
most-favoured-nation clause of the
Agreement and in 1979 adopted the
so-called ‘enabling clause’, creating
the legal framework for the
Generalised System of Preferences,
and authorising developed countries
to establish individual GSP schemes.
1971
The European Community
implemented its first GSP scheme.
GSP was applied in the framework of
10-year programmes, through different
regulations for industrialised products,
textile products, agricultural products
and those covered by the European Coal
and Steel Community (ECSC) Treaty,
adopted on a yearly basis.

1968
The United Nations Conference on
Trade and Development (UNCTAD)
recommended the creation of a
‘Generalised System of Preferences’
under which industrialised countries
would grant trade preferences to all
developing countries.

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Structure of the EU's GSP

The availability of tariff preferences as well as their scope depend on the

arrangement enjoyed by the beneficiary country of the exporter in which the
products originate.

Arrangements
Five arrangements are available for beneficiary countries under the GSP:
> The general arrangements
> The special incentive arrangements for the protection of labour rights
> The special incentive arrangements for the protection
of the environment
> The special arrangements for the least developed countries
> The special arrangements to combat drug production and trafficking

Each of the different GSP arrangements includes different products, which are
listed in Annex IV of the Regulation. Different arrangements may grant different
tariff preferences for the same products. The availability of tariff preferences as
well as their extent therefore depend on the arrangement enjoyed by the
beneficiary country.

Beneficiary Countries
Beneficiary countries are developing countries, i.e. those which are members
of the Group of 77. Beneficiary countries also include China, the so-called
‘economies in transition’ that appeared after the break-up of the Soviet Union, as
well as dependent territories with a level of development similar to that of
developing countries. The scheme includes 142 beneficiary countries and
36 territories. Certain beneficiary countries of the GSP, for example the ACP
countries, enjoy at the same time other preferential arrangements. It may be
assumed that traders use the most favourable treatment. (1)
Products which
outside a
Originating products preference
To be eligible for preferential tariff treatment under the EU's GSP scheme, scheme would
face a tariff rate
products have to originate in a GSP beneficiary country. Preferential rules of origin greater than zero.
for the GSP determine whether or not goods produced in the beneficiary
(2)
countries are eligible. The country also has to benefit from GSP arrangements Duty applied by
which include those products. The GSP covers only products which are the EU on the
imports from
‘dutiable 1’. It is, of course, not possible to grant tariff preferences for imports of third countries
products for which the Most Favourite Nation (MFN) duty 2 is already zero. (WTO members),
according to the
Furthermore, the GSP does not include import of products of Chapter 93 (arms Common
and ammunition) of the EU's Common Customs Tariff. Customs Tariff.

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 > The general arrangements
Purpose
The General Arrangements offer the basic preferential treatment to beneficiary
countries.

Products covered
The general arrangements cover roughly 7000 products, of which 3250 are
classified as non-sensitive and 3750 are classified as sensitive products. The
sensitivity of products is determined by the situation of the sector manufacturing
the same products in the Union. Sensitive products still require a higher border
protection, while non-sensitive products can compete with duty-free imports
from developing countries.

Benefits
The tariff preferences offered by the general arrangements differ according to the
sensitivity of the products concerned: non-sensitive products enjoy duty free
access to the EU market, while sensitive products benefit from a tariff reduction.

These arrangements provide, as a rule, for a reduction of MFN ad valorem duties

by a flat rate of 3,5 percentage points. An important exception to this rule of a
flat rate reduction is the textiles and clothing sectors which enjoy a percentage
reduction 3 of 20%. For specific duties, a percentage reduction of 30% is the
(3)
general rule. Where duties include ad valorem and specific duties, only the ad
In a flat rate valorem duties are reduced.
reduction, the
percentage
points are In order to avoid any increase of preferential duties as compared to the previous
deducted directly
from the normal
scheme, the new regulation provides for a stand-still clause according to
MFN duty rate which ad valorem preferential duty rates applicable on 31 December 2001 will
while in a
percentage
continue to apply as long as they are more favourable than the ones that result
reduction the from the provisions of the new Regulation.
reduction is first
calculated from
the MFN duty Beneficiaries
rate using the
percentage and
The 178 countries and dependent territories listed in Annex I of the regulation
then deducted. benefit from GSP.

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> The special incentive arrangements
for the protection of labour rights

Purpose
Promoting the respect of international labour standards through additional tariff
preferences.

Products covered
These arrangements cover all sensitive products included in the general
arrangements (as non-sensitive products are exempted from duties under the
general arrangements, they cannot qualify for additional preferences).

Benefits
For ad valorem duties of products covered by the arrangements, a reduction of
5 percentage points in addition to the basic reduction of 3,5 percentage points
is provided (thus raising the total reduction to 8,5 percentage points). The
additional reduction is 20% for textiles and clothing and 30% for specific duties.
Where duties include ad valorem and specific duties, only the ad valorem duties
are reduced. This arrangement also applies to products of sectors which have
been graduated (i.e. excluded from the GSP for a beneficiary country). Products
of these graduated sectors then enjoy a treatment which is equivalent to the one
offered by the general arrangements.

Beneficiaries
These special arrangements are available for countries complying with the so-
called ‘core labour standards’. These are the standards laid down in the eight
International Labour Organisation (ILO) Conventions concerning the four areas to
which the 1998 ILO Declaration on Fundamental Rights and Principles at Work
refers: the elimination of all forms of forced or compulsory labour, freedom of
association and the effective recognition of the right to collective bargaining,
elimination of discrimination in respect of employment and occupation, and the
abolition of child labour.

The arrangements are available upon request of any GSP beneficiary countries
(not on request of individual companies). The requesting country has to commit
itself to monitor the application of the special incentive arrangements and to
provide the necessary administrative co-operation.

The European Commission examines the requests. The authorities of the

requesting country are involved at all stages and this process should be
completed within a year.

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> The special incentive arrangements
for the protection of the environment

Purpose
Promoting the respect of international environmental standards through addi-
tional tariff preferences.

Products covered
These arrangements cover about 50 tariff lines concerning tropical forest
products.

Benefits
For ad valorem duties of products covered by the arrangements, a reduction of
5 percentage points in addition to the basic reduction of 3,5 percentage points
is provided (thus raising the total reduction to 8,5 percentage points). The
additional reduction is 30% for specific duties. Where duties include ad valorem
and specific duties, only the ad valorem duties are reduced. This arrangement
also applies to products of sectors which have been graduated. Products of
these graduated sectors then enjoy a treatment which is equivalent to the one
offered by the general arrangements.

Beneficiaries
These special arrangements are available on request of a GSP beneficiary
country (not on request of individual companies) complying with international
standards concerning sustainable forest management. Requests have to include
the laws of the requesting country incorporating the substance of the
international standards concerned as well as the measures taken in order to
implement them. The requesting country has to commit itself to maintain these
laws, monitor the application of the special incentive arrangements and provide
the necessary administrative co-operation.

The European Commission examines the requests. The authorities of the

requesting country are involved at all stages and this process should be
completed within a year.

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> The special arrangements for
least developed countries

Purpose
Many developing countries are facing particular problems, which impair their
efforts to develop. Such a group are the 49 countries that have been identified
by the United Nations as ‘least developed’ in terms of their low GDP per capita,
their weak human assets and their high degree of economic vulnerability.
Extreme poverty is pervasive and persistent in most Least developed countries
(LDCs), many of them dependent on primary commodity exports. Pervasive
poverty within LDCs has effects at the national level that cause poverty to persist
and even to increase. Rapid reduction in extreme poverty in the LDCs can be
achieved through sustained economic growth. These special arrangements (also
known as ‘EBA’ – the Everything But Arms initiative) were established to address
the special needs of this group of countries.

Products covered
All ‘dutiable’ products (more or less 8200 tariff lines, without Chapter 93, arms
and ammunition) are included in these special arrangements for LDC’s which
grant duty free access to the EU market.

Benefits
These arrangements provide duty-free access for all products covered and
originating in the beneficiary country. Only imports of fresh bananas, rice and
sugar are not fully liberalised immediately. Duties on those products will be
gradually reduced until duty-free access will be granted for bananas in January
2006, for sugar in July 2009 and for rice in September 2009. In the meantime,
duty-free tariff quotas for rice and sugar have been set up. These quotas will
increase annually.

Beneficiaries
The beneficiary countries are the 49 least developed countries, as defined by the
United Nations.

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> The special arrangements
to combat drug production and trafficking

Purpose
These arrangements are meant to assist the beneficiary countries in their struggle
to combat illicit productions by providing them with export opportunities for
substitution crops and by improving their economic and social development. The
objective is not only to foster industrialisation and diversification, but also to
promote sustainable development.

Products covered
The special arrangements to combat drug production and trafficking cover all
industrial products (Chapters 25 to 97 of the Common Customs Tariff, except
Chapter 93) included in the general arrangements and classified as sensitive (on
non-sensitive products, no additional preferences can be applied). They also
cover some agricultural products (Chapters 1 to 24 of the Common Customs
Tariff), which are included in the general arrangements and classified as sensitive,
as well as to certain agricultural products which are not covered by the general
arrangements.

Benefits
These arrangements provide duty-free access to the above products covered by
the scheme.

Beneficiaries
These arrangements were unilaterally granted by the EU to Andean Community
countries in 1990, to imports of certain products originating in Bolivia, Colombia,
Ecuador, Peru, and later in Venezuela. Subsequently, the special arrangements
were extended to the member states of the Central American Common Market
(Costa Rica, Guatemala, Honduras, Nicaragua and El Salvador) as well as to
Panama, and more recently to Pakistan.

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Rules of origin
Preferences under the GSP apply to
imports into the customs territory of the
European Union, of specific products
from individual countries. The products
have to originate in a beneficiary country,
and that country has to benefit from GSP
arrangements which include those products.

For being considered as originating in the

exporting country, products have to meet certain
requirements which are laid down in the rules of origin.
The rules of origin are contained in Commission Regulation No 2454/93, as
amended (see Guide on GSP rules of origin at the website indicated on the last
page of this brochure). The rules of origin applying to imports under the GSP are
meant to ensure that the tariff preferences foster the development of beneficiary
countries.

While products wholly obtained in the exporting country are considered as

originating there, products manufactured with inputs from other countries are
considered so only if they have undergone sufficient working or processing.

The rules of origin also provide that products have to be accompanied by a

certificate of origin Form A or an invoice declaration, and that they have to be
shipped directly to the EU.

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 Cumulation of origin
The rules of origin applying to imports under the GSP allow, under certain
conditions, for cumulation of origin. Where those conditions are met, inputs from
other countries are considered as originating in the exporting country. In order to
foster regional integration, the rules of origin provide for the possibility of regional
cumulation of origin between the members of regional groups. Where a product
has been manufactured in or with inputs from two or more countries belonging
to a group enjoying regional cumulation, inputs from other countries of the same
group are treated as if they originate in the exporting beneficiary country.

At present, there are three groups benefiting from regional cumulation:

> Group I
Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, the Philippines,
Singapore 4, Thailand, Vietnam.
> Group II
Costa Rica, Honduras, Guatemala, Nicaragua, El Salvador, Panama,
Bolivia, Colombia, Ecuador, Peru, Venezuela.
> Group III
(4) Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka.
Singapore,
excluded from
GSP, continues to In order to foster economic co-operation between the Union and beneficiary
participate to the
countries, the rules of origin provide that all imports under the GSP are entitled
cumulation of this
ASEAN group. to bilateral cumulation of origin, which is also known as ‘donor country content’.

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How does an importer get
the GSP benefit?

The importer has to provide a certificate of origin Form A to the customs

authorities in the EU in order to prove the origin of the imported products in the
beneficiary country. These certificates are issued by the competent governmental
authorities of the exporting country (usually customs authorities) if they find that
the exports meet the requirements of the rules of origin. This Form A is made
available to the exporter as soon as actual exportation has been effected or
ensured. When applying for tariff preferences, the importer has to join a certificate
of origin to the customs declaration.

For smaller consignments, an invoice declaration may be submitted instead of a

Form A as proof of preferential origin.

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> Checklist:
how to benefit from the EU’s GSP scheme

Step 1 > Establish product classification and duty rate

Establish the 8-digit product classification according to the EU’s Combined

Nomenclature and the product’s preferential rate of duty using the EU’s TARIC
database at the website indicated on the last page of this brochure.

The website shows the GSP preferential rate for a product and country. Any
special arrangement enjoyed by the country is included in the rate. The normal
third-country MFN duty rates are also shown.

If a product does not show a preferential rate this may be because:

• the country is not covered by the GSP (beneficiary countries are listed
in Annex I of Regulation 2501/2001);
• the product is not covered by the GSP (products covered are listed
in Annex IV of the Regulation 2501/2001);
• the sector to which the product belongs is graduated (excluded from
the GSP) for the country concerned (for graduated sectors, see current
regulation implementing graduation on the GSP website).

Step 2 > Check the origin criteria

Ensure that the product complies with the origin criteria set by the EU.

Step 3 > Check the consignment conditions

Ensure that the modalities governing the transport of goods from the preference-
receiving country to the EU market fulfil the provisions laid down in the rules of
origin.

Step 4 > Prepare documentary evidence

Fill in the certificate of origin Form A or the invoice declaration correctly; these are
the official documents on which the EU customs authorities rely to grant GSP
benefits to products.

Step 5 > Ship product and submit documents to customs authorities

in the EU

For information on steps 2 to 4, see rules of origin guide at website address at

the end of this brochure.

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Two examples of how the reduction is calculated under
the general arrangements:

> Without application of the stand-still clause: a product with the CN code 0703 90 00
(Leeks and other alliaceous vegetables, fresh or chilled) is a sensitive product
covered by GSP. The normal third-country duty rate is 10,4%. The reduction of 3,5
percentage points is deducted from the third-country rate, giving the preferential
rate of 6,9%. As the preferential rate under the previous GSP scheme (8,8%) was
higher, the new rate under the current scheme is applied.

> Applying the stand-still clause: a product with the CN code 3204 16 (Synthetic
organic colouring matter) is a sensitive product covered by GSP. The normal third-
country duty rate is 6,5%. The reduction of 3,5 percentage points is deducted from
the third-country rate, giving the preferential rate of 3%. As the preferential rate
under the previous GSP scheme (2,2%) was lower, the latter rate is applied.

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How the GSP is managed

The EU’s GSP is managed by the European Commission. It is assisted by the

Generalised Preferences Committee, composed of representatives of EU
Member States and chaired by the Commission.

Administrative co-operation

Administrative co-operation with the authorities of beneficiary countries is neces-

sary in order to control compliance with the requirements for benefiting from the
tariff preferences. In the framework of this co-operation, the Union customs
authorities may ask the beneficiary countries’ authorities issuing certificates of
origin Form A to confirm their authenticity and double-check their initial control.
In the event of fraud or in case that those authorities refuse to co-operate, arran-
gements may be temporarily withdrawn.

Exclusion of beneficiary countries

Some developing countries have reached a level of development similar to that

of developed countries. In that case, the rationale for granting trade preferences
does not exist anymore. Therefore, the GSP scheme provides the possibility of
excluding countries which are sufficiently developed and which fulfil certain crite-
ria during three consecutive years. Each year, the Commission determines which
countries meet the criteria and notifies them. Once excluded, a country may be
included again if during three consecutive years, it does not meet those criteria.

Graduation of sectors

Some beneficiary countries may have reached, in certain sectors, a level of com-
petitiveness which ensures further growth even without preferential access to the
EU market. Sectors in the meaning of the GSP Regulation are divisions of a
country’s economy manufacturing related products. Such sectors will be gra-
duated (excluded from the GSP) if they meet the criteria for graduation. Imports
originating in a beneficiary country that have been graduated in the sector of the
products concerned lose the benefit of GSP tariff preferences. Each year, the
Commission determines the sectors which meet the criteria and notifies the
countries concerned. Once graduated, a sector may be included again if during
three consecutive years, it does not meet the criteria.

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Safeguard measures

Since preferential treatment under the GSP is granted without any quantitative
limitations, preferential imports may increase in a way which causes serious diffi-
culties for Community producers of like or directly competing products. The GSP
regulation provides for the possibility to apply safeguard measures, i.e. to
reintroduce Common Customs Tariff duties where such difficulties arise.

Temporary withdrawal

Any arrangement may be temporarily withdrawn at any time, in respect of all

products from a beneficiary country or only some of them. Reasons include,
among others, practise of slavery or forced labour, violation of certain ILO core
labour standards concerning, for instance, freedom of association and the right
to collective bargaining, and failure to provide administrative co-operation.
Temporary withdrawal of preferences is an exceptional measure applied only in
cases of clearly unacceptable practices.

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 Further information 5
is available from the following:

For questions on the GSP, please contact

European Commission,
Directorate General for Trade:
Mr Philippe Cuisson
E-mail: philippe.cuisson@cec.eu.int
Tel: (32-2) 295.27.94
Fax: (32-2) 296.92.90
or
Mr Benoit Lefort
E-mail: benoit.lefort@cec.eu.int
Tel: (32-2) 299.86.90
Fax: (32-2) 296.92.90
or
Mr. Hannu Pitkänen
E-mail: hannu.pitkanen@cec.eu.int
Tel: (32-2) 296.83.25
Fax: (32-2) 296.92.90

For questions on the GSP rules of origin, please contact:

Mr. Robert Light
E-mail: robert.light@cec.eu.int
Tel: (32-2) 295.07.89
Fax: (32-2) 296.98.50
European Commission
Directorate-General for Taxation and the Customs Union
(5)
This guide is The GSP on the net:
intended only as an
introduction. http://europa.eu.int/comm/trade/issues/global/gsp/index_en.htm
The information is of
a general nature
only and does not Guide on GSP rules of origin:
necessarily address http://europa.eu.int/comm/taxation_customs/customs/origin/gsp/index_en.htm
all specific
circumstances of the
legislation or reflect Expanding exports to the EU: Helpdesk for Developing Countries:
the latest legislative
amendments. The http://europa.eu.int/comm/trade/issues/global/development/thd_en.htm
sole legal provisions http://export-help.cec.eu.int
are those contained
in the regulations E-mail: export-help@cec.eu.int
duly adopted by the Fax: (32-2) 296.73.93
Community. Readers
should consult the
relevant part(s) of TARIC (Integrated Tariff of the Community) data base:
the legislation for a
fuller explanation. http://europa.eu.int/comm/taxation_customs/dds/en/home.htm

FEBRUARY 2004

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http://europa.eu.int/comm/trade

Published by the European Commission

Directorate-General for Trade

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Printed in Belgium, February 2004