The General System of Preferences (GSP) is a system of preferences granted by the EU and other states. The GSP provides for preferential tariff treatment accorded by developed contracting parties to products originating in developing countries. It is part of the trade policy of development aid agreed pursuant to the United Nations Council on trade and development for the adoption of a policy of development cooperation on a worldwide scale.
The GSP requires a waiver of the basic most favoured nation principle in GATT. This provides for differential more favourable treatment without reciprocity of developing countries. The agreement provides that notwithstanding the provisions of the GATT contracting parties may accord differential and more favourable treatment to developing countries without according such treatment to other contracting parties.
The scheme is updated from time-to-time. It applies to many products including certain agricultural and industrial products. It is established (in the EU) by EU regulation from time to time and is reviewed. A very wide range of states benefit in some way from the generalised preferences Countries may be removed from the list as they develop.
The GSP Regulation provides a sliding scale of preferences within three schemes according to the different needs of developing countries:
- Standard GSP for low and lower-middle income countries
GSP+ for vulnerable low and lower-middle income countries
EBA (Everything But Arms) for least developed countries
Tariff preferences provide for reductions of customs duty on a large number of particular specified products The purposes to support sustainable t development and good governance. There are additional benefits for countries which meet international human rights standards. Everything but arms arrangements applies to the least developed countries.
The EU’s general system of preferences provides for rules of origin. The rules of origin applicable are specific to particular preference agreement concerned. Formerly the change of tariff heading rule was the primary test. As part of the harmonisation of EU rules of preferential origin, the test of sufficient working or processing now commonly applies in testing the listed conditions.
The General System of Preferences lists criteria for particular products which are deemed wholly obtained in a particular country. Special considerations arise in respect of fishing or processing at sea, including particular factory ships.
Some works may be deemed insufficient. The basic principle is that the product should be wholly obtained there or have undergone sufficient working or processing at that place. Where goods are transferred from one country to another for processing they may be deemed not originating unless the products imported or exported have not undergone any operations beyond what is necessary to preserve them in good condition while abroad and being exported.
Where products are not wholly obtained in a country, they may obtain origin in the country in which they have been worked or processed provided the non-originating materials used in the products have undergone sufficient working or processing. This does not apply to non-originating materials with a total value of less than 10 per cent of the price of the final product, so long as the percentages given for the maximum value of non-originating materials listed in the legislation is not exceeded (general tolerance rule).
Sets and Units
The rules apply in general to a single unit of the product concerned. There are rules regarding spare parts, accessories, rules that are part of the normal equipment. If they are comprised in the price and not separately invoiced, then may be considered one product.
Sets of goods are treated as originating sets when their components are treated as originating products. Where the set has mixed origin, it is deemed to originate in the relevant country provided that the value of non-originating elements does not exceed 15 per cent of the price of the set.
More Favourable Rules of Origin
The General System of Preferences sets out a list of least developed countries which are given additionally favourable treatment. They may seek derogations from the general rules of origin in the GSP
- where the rules would affect the industry in the developing countries’ ability to export the EU
- where a significant investment may be deterred or
- where a staged derogation may assist in investment and development.
The economic and social impact of the decision should be also taken into account in terms of its impact on employment in both the EU and the country concerned by the Commission considering whether to grant a derogation).
The accumulation rules are more favourable in respect of ACP states. Largely, the ACP states as a whole are considered as a single territory. Goods originating in ACP states originate there they are wholly obtained or sufficiently worked or processed in them. The EU and the relevant states must have entered administrative agreements to facilitate cooperation in the implementation of the rules.
There are provisions for regional accumulation between three sets of less developed countries, broadly those in South East Asia, South and Central America and the Indian sub-continent and surrounds. The rules apply, provided that the rules between the countries in the group are identical to those in the EU legislation and the countries concerned to undertake administrative cooperation with the European Union.
A product may be manufactured in one country and further processed or subject to further manufacturing in another country in the regional group. It is treated as a country in which last processing was undertaken provided that the value added in that last country must be of highest value added in all countries concerned.
Materials originating in the EU or in African Caribbean Pacific (ACP) countries are deemed originating in the overseas countries and territories when incorporated into a product in them. They need not undergo sufficient working or processing beyond the level sufficient to deem it an originating product. Works and processes in the ACP states are deemed carried out in the overseas countries and territories when materials undergo subsequent working or processing in them in accordance with the list of operations set out in the legislation.
The EU Commission has published a handbook on rules of preferential origin for countries participating in the Euro-Mediterranean Partnership. The European Union has also published explanatory notes in relation to the ACP agreement with the ACP states.