MILE alumni in the news

TNI: What is your first reaction on the proposed EU GSP reform and how has it been perceived in the Caribbean?

The proposed reform of the EU’s Generalised System of Preferences (GSP), made public in May 2011, has sparked much debate in various quarters, including among African, Caribbean and Pacific (ACP) States. The proposed new scheme will have a differentiated impact on developing countries, depending on the nature of any given country’s trade relations with the EU and on whether it is classified as upper middle income/high income by the World Bank.

As you know, although all developing countries will be eligible to participate in the scheme, except Overseas Countries and Territories (OCTs), [¹] some developing countries have been “weaned” from the scheme. Many view it as a paradox that the EC, in seeking to reform the GSP for the benefit of the poorest countries, has in fact favoured a criterion, the GNI per capita, which does not exclude some competitive emerging economies. In this respect, many observers believe that this criterion was strategically chosen. To understand this rationale, it is important to look at the proposed GSP scheme in a wider EU trade policy context, notably with regard to the EU’s ‘Trade Growth and World Affairs Strategy [²] which seeks to liberalise global trade to facilitate the EU’s access to the strategic inputs it will require to remain competitive. Emerging economies and other large competitive exporters (considered lower middle income countries), which have not signed FTAs with the EU, can obtain preferential access under the new GSP scheme. On the contrary, ACP states which are high or upper-middle income countries, and which have not signed an FTA/EPA with the EU, are of the view that, if they want to maintain their current market access conditions in the EU, the new GSP will force them to conclude an EPA through the ‘back door.’

TNI: What implications would the reform have for CARIFORUM States?

There are elements of the reform that have serious implications for CARIFORUM States, by virtue of the fact that the latter have concluded an EPA with the EU and will therefore not benefit from the scheme. Notwithstanding the fact that the EPA is of indefinite duration, if it were to be denounced for whatever reason, it is evident that not all CARIFORUM States would be considered beneficiary to benefit from the new GSP, at least not those which are classified as high income or upper middle income countries.  Such States, like my own (Jamaica), would be obliged to trade with the EU on an MFN basis. In fact, almost all CARIFORUM countries, except for Haiti, Guyana and Belize, would be in the same situation, in such a scenario.

Let us assume, however, that the EPA is here for the long haul. It should be borne in mind that The proposed new GSP scheme has triggered mixed reactions because it would ultimately erode the preferences we have obtained under the EPA.

Admittedly, by narrowing the list of potential beneficiaries, the new scheme may somewhat alleviate the competitive pressure being faced by CARIFORUM States on the 66% of tariff lines covered by the EU’s GSP scheme for products which either enter the EU duty free or with low duties. But this does not provide the much needed consolation, since the preservation of the large product coverage per se (66% of tariff lines) and the retention of some emerging economies (such as India classified as lower middle income countries) and competitive agricultural producers as beneficiaries will reinforce the competitive pressure on CARIFORUM States in the EU market including for traditional exports such as rum and sugar.

Finally, the proposed increase in the graduation threshold for the GSP, set at 17.5 percent instead of 15 percent, suggests that beneficiary countries which are competitive exporters because of economies of scale will have greater opportunities to export to the EU and compete with CARIFORUM exports because they will not breach the threshold as easily as before. We think the current graduation threshold of 15% should therefore have been maintained or lowered.

TNI: Should Caribbean countries worry about the relaxation of the GSP+ vulnerability criteria?

Yes. The GSP+ offers far greater trade concessions than the general arrangement. There are reasons to believe that compliance with the sustainable development and good governance standards will not pose a challenge for potential beneficiaries that stand to gain from the more attractive trade concessions.  Potential beneficiaries could therefore include large agricultural exporters which are in the WTO G-20 Group such as Pakistan, which are seeking progressive liberalisation of trade in agriculture. Accordingly, the GSP+ concessions could potentially heighten competitive pressure on CARIFORUM States in the EU market.

TNI: How would you like to see the way forward?

While awaiting the European Parliament and the EU Council’s reactions to the proposed new Regulation, we can only hope that in the context of its commitment to a more coherent approach to its trade policy development, the EU will consider the likely impact that the new scheme will have on CARIFORUM and other states that are not only small, but also have very vulnerable economies.

¹ See EC Proposal for a Regulation  of the European Parliament and of the Council applying the scheme  of generalised tariff preferences, European Commission, 10 May 2011, http://trade.ec.europa.eu/doclib/docs/2011/may/tradoc_147893.pdf

² European Commission (2010) Trade, Growth and World Affairs. Trade Policy as a core Component of the EU’s 2020 Strategy: //trade.ec.europa.eu/doclib/docs/2010/november/tradoc_146955.pdf

The interview with Symone Betton was conducted by ICTSD Trade Negotiations Insight (a direct link can be found in the grey box on the right).