Will the new GSP play an April Fool joke on India

Written by Malcolm Subhan | Updated: Feb 19 2005, 05:30am hrs
India will be an important beneficiary of the revised generalised system of preferences (GSP) which the European Union (EU) will introduce in six weeks time, on April 1, if all goes well. But the new GSP scheme could turn out to be an April Fools Day joke practiced on Indian exporters, if EU governments accept the advice they are being offered by two important EU institutions.

Exporters of textiles and garments are in the firing line; these products account for nearly a third of Indias total exports to the EU. Exporters would no longer be entitled to GSP benefits for textiles and garments if EU governments agree to reduce the graduation threshold for these products to 10%. The fact is that Indias share of the EUs total imports of these products under the GSP is over 11%. The Brussels-based European Economic and Social Committee (EESC) has recommended, largely on the advice of its Greek and Portuguese members, that the threshold be reduced to 10%. Indian diplomatic sources here have been told that the threshold will nevertheless be fixed at 12.5%, as proposed by the EUs trade supremo, Peter Mandelson. But the threshold could be exceeded if Indian garment exports take off (excuse the pun!), following the elimination of quotas on January 1.

Sukhdev Sharma, a UK member of the EESC, confesses that the question of GSP treatment for textiles and clothing presents him with a dilemma. He is concerned that the president of the European Commission, and commissioner Peter Mandelson, increasingly refer to India and China as a threat.

But he is equally concerned that Bangladesh and Mauritius, unlike India and China, may not survive the fierce international competition, following the elimination of quotas. He notes that even Italian garment manufacturers now employ Chinese workers in Italy. And Chinese workers are to be found in the export processing zone in Mauritius. Bangladesh, for its part, wants the EU to change its GSP rules of origin, to allow horizontal cumulation, so that it can import fabrics from Asean countries.

Mr Sharma, whose family emigrated to the UK from Kenya when he was 13, is a member of the India-EU Round Table, the brainchild of Indias former minister of external affairs, Jaswant Singh. The Round Tables European members are drawn from the EESC, its Indian members include senior representatives of Ficci, CII and the Indian Cotton Mills Federation as well as CEOs of Indian companies.

When it was first introduced by the EU in 1971, the GSP was meant to encourage the industrialisation of developing countries; relatively few agricultural products were included in it. The number of farm products has now been increased, along with marine products, partly to help the countries hardest hit by the Tsunami wave of December 26.

The EESC concluded last week that the GSP should be reserved for least developed countries and countries most in need, in order to ensure that they are the primary beneficiaries of the new GSP regime. It approved the fact that the number of beneficiary countries would be reduced, but feared that the reduction might not be of sufficient proportions. (Countries to be excluded are those which have bilateral or regional trade agreements with the EC.)

For Europes Parliament, the GSP was established to promote the development of the least developed countries. It, therefore, wants the rules of origin amended, so that exports from the least developed countries enjoy genuine preference. MEPs, in fact, want the EU to give priority in the WTO to harmonizing rules of origin which introduce preferential treatment for the developing and least developed countries.

As matters stand, Bangladesh cannot take full advantage of the GSP, although it does account for one-fifth of the total exports of all least developed countries to the EU. Its government favours horizontal cumulation, while the European Parliament wants global cumulation to be considered for countries deserving of more favourable treatment. European industry believes that advanced developing countries, like India, China and Brazil, should be denied easier access to the EU market for manufactured products. However, it is not Mr Mandelson who proposes the rules of origin to EU governments, but his colleague, who handles taxation and customs matters.

And while the revised GSP will come into force on April 1, it will be on the basis of the existing rules of origin. The new simpler, more flexible rules are likely to come into force only in the autumn; they are still under discussion here. Even so, Bangladesh will continue to enjoy duty-free and quota-free entry for all its exports to the EU (except arms) as a least developed country. Sri Lanka will be entitled to additional tariff preferences, because it can meet the criteria for sustainable development and good governance. Pakistan, however, will not, despite extensive lobbying that it needs these additional preferences if it is to lift itself out of poverty.

The EC, meanwhile, has indicated that some Indian companies may be entitled to a suspension of anti-dumping duties because they have been hit by the tidal wave, but none has come forward so far.