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GSP+,
Right of Sri Lanka or a grant from the EC?
By
an independent analyst
Today, it has been proved the extent to which the sovereign
decisions of countries in the world can affect other countries’
economic and political interests at their home front. These
developments signal us to done away with our inheriting ‘island
mentality’ and to face with pragmatic world realities.
In this regard, the GSP+ has provided us a good lesson. The
GSP+ debate has heated-up as deadlines for application and
compliance is reaching. According to a recent speech delivered
by Hon. Minister of Export Development and International Trade,
he is even ready to take the EC to WTO dispute settlement
in the event of Sri Lanka is denied GSP+ on unjustifiable
grounds as India did against the EC’s former GSP regime.
However, the purpose of this article is not to explore the
ways and means of challenging EC’s possible decision
against Sri Lanka, but to give an analytical overview of the
EC GSP system and to explore the ways and means of securing
current preferences at European markets available for Sri
Lankan exporters.
Legality
In 1968, the United Nations Conference on Trade and Development
(UNCTAD) recommended the creation of a “Generalised System
of Tariff Preferences” under which industrialised countries
would grant trade preferences to all developing countries.
This initially authorised developed countries to establish
individual GSP schemes.
On the face of it, GSP Schemes are gross violations of cardinal
principle of international trade law i.e. Most Favoured Nation
(MFN) treatment, which requires “any advantage, favour,
privilege or immunity granted by any contracting party to
any product originating in or destined for any other country
shall be accorded immediately and unconditionally to the like
product originating in or destined for the territories of
all other contracting parties.” However, a special carve-out
is provided within the WTO system itself in order to legally
recognise the GSP schemes by way of so called “Enabling
Clause”, adopted at the end of Tokyo Round of negotiations
under the WTO in 1979. The Enabling Clause, officially called
the “Decision on Differential and More Favourable Treatment,
Reciprocity and Fuller Participation of Developing Countries”,
enables developed members to give differential and more favorable
treatment to developing countries. The Enabling Clause therefore,
is the WTO legal basis for the Generalised System of Preferences
(GSP). Under these GSP schemes, developed countries offer
non-reciprocal preferential treatment (such as sero or low
duties on imports) to products originating in developing countries.
The one of the implicit criteria of the GSP schemes is that
the preference-giving countries unilaterally determine which
countries and which products are included in their schemes.
Nonetheless the Enabling Clause is also provided the legal
carve-out for regional arrangements among developing countries
(eg: FTA with India, Pakistan, SAFTA, Etc,.) and as well as
for the Global System of Trade Preferences (GSTP), under which
a number of developing countries exchange trade concessions
among themselves.
EU Scheme
The European Community was the first to implement a GSP scheme
in 1971. The EU’s GSP scheme grants preferences for the
products imported from GSP beneficiary countries either duty-free
or a partial tariff reduction, depending on which of the GSP
arrangements a country enjoys. The EUs’ GSP scheme is
implemented following cycles of ten years, for which general
guidelines are drawn up before commencing a particular ten
year cycle. Guidelines for the EU GSP scheme for the ten year
period from 2006 - 2015 were adopted in 2004. However, in
practice, the GSP is implemented by means of EC council regulations
on piecemeal basis, within this ten-year cycle. The current
(first phase) GSP regulation applies until 31 December 2008;
it will then be replaced by a new Regulation, which has already
agreed by the European Council on 22 July 2008.
According to the guidelines agreed in 2004, there are three
separate preferential regimes in operation as the EU’s
GSP scheme. The first regime is the general arrangement, which
provides preferential access for all beneficiary countries
and territories. The second regime is the special incentive
arrangement for sustainable development and good governance
(the “GSP+”), which provides additional benefits
for countries ratifying and implementing certain international
standards in human and labour rights, environmental protection,
and the good governance. The third and the final regime is
the special arrangement for the Least-Developed Countries
(LDCs), also known as the “Everything But Arms”
(EBA) initiative, which provides for the most favourable treatment
of all, by granting the LDCs “duty-free and quota-free”
access to the EU’s market for all products except arms
and armaments.
Sri Lanka was one of the eligible countries among 15 states
(Moldova was already removed from the beneficiary list of
the current GSP regulation and at the same time the EC granted
it more far-reaching autonomous preferences under a separate
legal instrument in March 2008.) that declared as beneficiaries
under special incentive arrangement for sustainable development
and good governance (the “GSP+”) for the first phase
of 2006-2015 EC GSP cycle that is in implementation from 2006
to end of 2008. Sri Lanka was the one and only country selected
from Asian region as a beneficiary for GSP+ scheme at this
first phase. The trade value of this selection is enormous,
as Sri Lanka is eligible to export around 7,200 products at
sero rate of duty to the EC, including Sri Lanka’s most
export sensitive product i.e. the garments. This helped Sri
Lanka a lot to keep ahead from her fierce competitors of the
region such as India, Pakistan, Thailand, Vietnam, Indonesia
and China whose tariff preferences were only a reduction of
20% for garments and 3.5-percentage reduction for other eligible
products. The table 1 shows the increase of exports to EU
with the implementation of the first phase of the GSP+ in
2006.
According to the table.1, exports to EC have grown 22% and
24% in 2006 and 2007 respectively. This shows the effectiveness
of GSP+ benefit for Sri Lankan exporters and the importance
of continuation of the scheme even at the next level.
How Sri Lanka qualified at the First Phase?
One of the criteria for the selecting to the GSP+ is the ‘vulnerability’
of an economy. To qualify as a vulnerable country firstly,
that country should not be classified by the World Bank as
a high-income country during three consecutive years. The
second parameter is that the five largest sections of beneficiary
countries’ GSP-covered exports into the Community represent
more than 75 % in value of its total GSP-covered exports to
the EC and the last parameter is the GSP-covered imports from
a eligible country into the European Community represent less
than 1 % in value of the total GSP-covered imports from all
beneficiary countries into the Community. At the first phase
of EC GSP scheme Sri Lanka was able to through the first acid
test on economic vulnerability along with lots of other countries
and entered at the gate of GSP+.
However, as per the Article 9 of the EC regulation No 980/2005
of 27 June 2005, under the second test for the GSP+, preference
seeking countries had to ratified and effectively implemented
16 core human and labour rights (UN/ILO) Conventions listed
in Part A of Annex III in the said regulation and to ratified
and effectively implemented at least 7 out of the 11 Conventions
on environment and governance principles listed in Part B
of Annex III of that regulation. Apart from ratification and
effective implementation of this initial 23 conventions which
are related to core human and labour rights and environment
and governance principles, preference seeking countries had
to commit itself to ratify and effectively implemented by
31 December 2008 those remaining 4 conventions related to
the environment and governance, which if it has not yet ratified
and effectively implemented at the beginning of first phase.
Finally, preference seeking countries had to give an undertaking
to maintain the ratification of these conventions and their
implementing legislation and accepts regular monitoring and
review of its implementation records in accordance with the
provisions of the conventions it has ratified.
However, the EC regulation also provided derogation to the
beneficiary countries under the special incentive arrangement
for sustainable development and good governance on ratification
and effective implementation of 16 Core human and labour rights
(UN/ILO) Conventions for countries faced with specific constitutional
constraints by way of getting a formal commitment from the
country concerned to sign, ratify and implement any missing
Convention, if ascertained that there exists no incompatibility
with its Constitution, ratification should be no later than
31 October 2005, and in case of an incompatibility with its
Constitution, the country concerned has to formally committed
itself to sign and ratify any missing Convention no later
than 31 December 2006. Nonetheless, the EC regulation also
includes a proviso to report to the Council on the compliance
by a country concerned with the above-mentioned commitments
before the end of 2006 on granting and continuation of the
special incentive arrangement for sustainable development
and good governance to those countries until end of first
phase.
In line with these procedures, after examined the requests
of preference seeking countries, the EC, through its Commission
Decision dated, 21st December 2005, recognised Sri Lanka as
one of the GSP+ beneficiary countries along with 14 other
states and granted to enjoy GSP+ entitlement until the end
of first phase. (31st December 2008) Requirements
The EC, through its Council regulation No 732/2008 of 22 July
2008 introduced the second phase of the scheme of generalised
tariff preferences for the period from 1 January 2009 to 31
December 2011. The basic three preferential regimes i.e. general
arrangement, special incentive arrangement for sustainable
development and good governance (the “GSP+”) and
special arrangement for the least-developed countries are
still covered even under this new legislation.
According to the Article 8, 9 and 10 of the new EC regulation
and the procedural Information Notice for countries wishing
to apply for the special incentive arrangement for sustainable
development and good governance issued on 6th August 2008
by the Directorate General of Trade in the EC, the substantive
criteria and the procedural aspects for GSP+ entitlement almost
similar to the previous scheme, which was applicable for the
period from 1st January 2006 to 31st December 2008.
In procedural perspective, countries have to submit its request
in writing; clearly stating that it is making a request for
the special incentive arrangement for sustainable development
and good governance under Council regulation 732/2008 together
with comprehensive information on ratification, implementation
and statement of commitment to maintain the ratification and
implementation of these 27 conventions referred under that
legislation by 31st October 2008.
Vulnerable
As it has been explained earlier, compliance requirements
are not different either procedural perspective or substantial
perspective in compared with the 1st phase of GSP+ regime
that is being implemented from 2006 January onward. In substantial
point of view, to get the GSP+ concessions even at the 2nd
phase, such countries should be categorised under the ‘vulnerable’
category and at the same time has to ratify and effectively
implemented the 27 Conventions on Core human and labour rights
(UN/ILO) Conventions and Conventions related to environment
and governance principles.
When it comes to the vulnerability criteria, according to
the EC categorisation, Sri Lanka again in the vulnerable category
along with 91 other states and 50 Least Developed Countries(LDC)
who’s eligible for EBA (Everything But Arms) arrangement
irrespective of compliance under the 27 conventions. It is
evident that the all GSP+ beneficiary countries including
Sri Lanka, which were under first phase, are still remain
at the vulnerable status. The table.2 shows the status of
some of our regional competitors and their level of vulnerability
and the respective preference entitlement for the 2nd phase.
According to the table.2, one can raise a valid moral issue
with two dimensions. A one issue has already raised by the
Governor of Central Bank in a different form and got attacked
by the various stakeholders of the society. Let’s put
the argument in a different form; how morally corrects Sri
Lanka to press EC on GSP+ concessions being ‘vulnerable’
at EC market. Who is responsible for such vulnerability? Whether
it is our pioneering garment industry in the region, which
is in operation for more than two and half decades, for its
inability to compete to secure at least 1% of GSP entitle
imports to EC with subsequent market followers such as India,
Indonesia, Malaysia, Pakistan, Philippines, Thailand and Vietnam?
Whether it is our industries including garments for their
inability to innovate new products and diversify market share
in the EC? Whether it is our governments and policy makers
for their inability to give appropriate support for the respective
industries? Or whether it is Sri Lankas’ inability to
mange her overall economic policy parameters? All these questions
have to be answered by ourselves and solutions have to be
found within our own boundaries. It is under no circumstances
Sri Lanka can seek concessions as a ‘right’, being
vulnerable in other market due to her own domestic deficiencies
and problems.
At the same time, as sake of an argument, one can also raise
a moral issue for granting EBA for LDCs against the granting
of GSP+ subject to compliance with 27 conventions. When its’
come to market access level in the EU, there is a very little
margin between LDCs in this region and Sri Lanka. Someone
therefore, can argue that it is much more benefited to being
a poor country, where there is no direct bearing on honoring
internationally accepted human, labour, environment and governance
conventions in securing preferences than being penalised for
their economic efforts already taken to upgrade economies
from lower levels to middle level by way of taking additional
burden. There is a moral question whether the magnitude of
violation of human rights or labour rights in LDCs are less
important than the violation of those rights at the rest of
the countries in the world. However, it is equally worth to
note that two wrongs will not make a one right.
Though Sri Lanka has already passed the test on vulnerability
to qualify her self for the GSP+ concessions, the second criteria
for qualifying under GSP+ i.e. ratification and effective
implementation and continuation of application of 27 international
conventions is still an open issue. However, objectively,
Sri Lanka is deemed to be qualified under these criteria as
we passed these identical requirements at the very first phase
of the EC GSP cycle applicable for 2006 to 2008. Even EC cannot
challenge the objective aspect of ratification, effective
implementation and commitment for continuation for these 27
conventions as they had already accepted the objective adequacy
of compliance at the time of granting GSP+ status for Sri
Lanka from the beginning of 1st January 2006.
Now the issue at the stake on GSP+ for Sri Lanka is more or
less depends on the ‘subjective aspects’ of ground
implementation of these 27 conventions, specially the conventions
related to human rights and labour. In nutshell, Sri Lanka
is answerable to ineffective implementations, if any, of these
conventions for the period from 1st January 2006 to end of
2008.
The question here is that who is going to measure the ineffectiveness
of implementation aspects and the magnitude of such ineffectiveness?
Obviously, the final decision has to be taken by the EC itself,
based on the information that they gathered in accordance
with the Article10 (1) of the EC regulation by way of takeing
into account of the findings of the relevant international
organisations and agencies as well as asking questions by
EC, which it considers relevant, and verifying the same information
with the preference seeking country itself or with any other
relevant sources. The crucial issue here is the judgments
can be subjective and there will be a element of inconclusiveness
in evidence as well as the violations of provisions under
respective conventions under consideration, if any.
Concluding remarks
It is highly unlikely that the GSP+ as an overall system,
is going to be challenged at the WTO as India did against
the previous EC GSP regime on account of special arrangement
on ‘drug trafficking’. The current system has proved
its WTO compatibility by way of in operation for the last
three years without a complaint from its membership. Even
Sri Lanka has to wait until 15th December 2008 to bring EC
at WTO dispute settlement, if so wishes, as Sri Lanka’s
eligibility and any unjustifiable discrimination can be assessed
after that date only. As mentioned earlier, since the crucial
matter under consideration is related to subjective judgments
of various parties, Sri Lanka still have a fifty - fifty chance
to defend her case. At the same time, in the event ECs’
possible negative decision on 15th December 2008, Sri Lanka
should not lose her hopes. The second phase has also provided
an interim review, which was not in the first phase, where
Sri Lanka can build her good faith by undertaking best endeavor
possible and be a beneficiary of GSP+ at least at halfway
through. However, in worst case scenario Sri Lanka still gets
the general concessions from the EC like her regional competitors.
Last but not least, Sri Lanka has to seriously look into the
moral issue of asking an advantage from EC just because of
her vulnerability in EC markets, which is purely a matter
within our own boundaries.
The writer can be reached via TradePolicyLKA@gmail.com
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