New GSP scheme may open more gates for India

Written by Malcolm Subhan | Updated: Jan 22 2005, 05:30am hrs
Just three letters should enable Indian exporters to make fresh inroads into the market of the 25-nation European Union (EU) from July 1, and perhaps even earlier. The letters are GSP. They stand for Generalised System of Preferences, and they have been around since 1971, when the then nine-nation European Community (EC) first introduced its GSP scheme. By granting duty-free access to its market, the EC undertook to help India and other developing countries increase their exports of manufactured products, thus speeding up their industrialisation.

What has changed The EUs trade supremo, Peter Mandelson, has been looking at ways of using EU trade policy to help the countries and businesses hit by the tsunami. The simplest way would be to grant these countries tariff concessions; but this is ruled out by the WTOs ground rules as discriminatory. India, in fact, successfully challenged in the WTO the EUs decision to grant Pakistan additional tariff preferences under its GSP scheme. The WTO held that the provision under which these benefits had been granted was discriminatory. As a result, Pakistan has disappeared from the revised GSP scheme. Its disappearance led to the hurried visit to the EU by Pakistans trade minister, Humayun Akbar Khan, earlier this week, but he had to return home empty-handed. Even so, Mr Mandelson is trying hard to use the revised GSP scheme to help countries hardest hit by the ocean wave. He is confident that India, along with Sri Lanka, Indonesia and Thailand, will be among the biggest beneficiaries of the new GSP scheme. What is more, the scheme may even become operational before July 1, the date set by the WTO for the elimination of the so-called drugs regime, which India had successfully challenged.

India already is a major beneficiary of the GSP scheme. Mr Mandelson believes that India, along with Thailand and Indonesia, will benefit additionally from the wider product coverage, especially marine products. There is no suggestion, however, that the EU will take steps to ensure that its stringent sanitary and phytosanitary (SPS) measures are less of an obstacle to Indian seafood exports. Mr Mandelson is looking, however, at ways of helping exporters comply with sanitary and food safety standards. He is focusing his efforts on simplifying and relaxing the rules of origin, which developing countries must meet if their exports are to qualify for GSP treatment. These rules stipulate the level of local content, which is set relatively high in order to prevent trans-shipment by countries that have exhausted their quotas. Thanks to its broad production base, India can meet these rules as regards its garment exports, for example, but not Bangladesh. To help countries like Bangladesh, the EU is planning to make regional cumulation easier. In other words, to make it easier for Bangladeshi, or Sri Lankan garment manufacturers to use fabrics from India, or Pakistan - i.e., from another Saarc country.

Regional cumulation is not new; it has been available to exporters in the Saarc and Asean countries for years. But it has been largely ignored because of bureaucratic obstacles. Hence, the EUs efforts for cumulation. All this is taking time. However, not all EU members want to make it easier for countries like India and Thailand to benefit from the revised GSP scheme. This is particularly true of the EU garment industry, already threatened by surging imports from China.

Sri Lanka and Bangladesh are particularly fearful of the effect that the elimination of quotas on January 1, will have on their exports. Mr Mandelson hopes they can be helped through the revised GSP scheme. He believes the elimination of these quotas was a major achievement, as he told a meeting with representatives of civil society organisations on Friday. The mechanism introduced by his predecessor, Pascal Lamy, for keeping an eye on Chinese exports to the EU will remain in place, but he made it clear that he was not keen to use trade defence measures, such as anti-dumping action, and would use them only as a last resort.

He was considering suspending anti-dumping duties on companies based in regions hit by the tsunami. A move that would benefit India. But this will not be easy: EU governments and industries could object. Clearly, it is not easy to modify trade policies to help countries hit by the tsunami. The WTO director-general, Supachai Panitchpakdi, has urged WTO members to use trade policy to help these countries. But in his letter to them he also wondered whether there is any action which can be taken immediately. A successful conclusion to the Doha Development round is the best solution, but its benefits will only be felt in the medium term, he noted.

Mr Mandelson told civil society representatives he wanted to make a success of the Doha development round, and to ensure that it benefits developing countries, given that the Doha Development Agenda was designed around them. He wants the Doha round to differentiate between developing countries, however, with the advanced developing countries opening up their markets to weak and vulnerable developing countries. But during his visit to India, he claims to have found that India shied away from this.