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India to lose EU preferential benefits

Pallavi Aiyar  |  Brussels 

Likely to be dropped from GSP access, though FTA under final negotiation would fully compensate

After nearly 40 years of preferential access to European markets, many of the world’s developing economies are set to lose these benefits.

The European Union’s (EU’s) Trade Commissioner, Karel De Gucht, has announced plans to slash the number of countries, from 176 to 80, that benefit from the generalised system of preferences (GSP) scheme, whereby eligible nations enjoy reduced or zero Customs tariffs on imported goods.

The proposed reforms would come into practice from 2014. Speaking to reporters, De Gucht made it clear the action was aimed at large emerging economies like India, Brazil and Russia, which did not require continued specialized assistance, given their newly muscular economies.

He said 40 per cent of the EU’s “current preferences benefit Russia, Brazil, China, India and Thailand, which no longer need the same.”

Although the detailed list of countries to be dropped from the GSP scheme had not been made available, De Gucht made special reference to Malaysia, Saudi Arabia and Qatar, in addition to BRICS. Countries classified by the World Bank as high-income or upper-middle income countries for three consecutive years would automatically become ineligible.

Currently, GSP benefits apply to EU imports worth about ¤60 billion or to just under 4 per cent of the total. Post-reform, the value of imports under the scheme would fall to ¤37.7 billion. While China is still covered by GSP, many of its exports were excluded from the preferential scheme in 2003 and 2004. China continues to benefit from discounted tariffs on agricultural, meat and mineral products.

It is expected that many countries dropped from the GSP system might be prompted to seek preferential deals with the EU through bilateral free trade agreements, a cornerstone of Europe’s long-term trade strategy.

“I believe (the reform) could and should boost our FTA effort,” De Gucht told reporters earlier in the week. India and the EU are in the final stages of negotiating an FTA, which would make any lost GSP privileges redundant.

The EU said it would now focus its GSP benefits on poorer countries it views as being in greater need of growth-boosting trade benefits, including Pakistan and Ukraine.

Analysts say the reforms reflect European ambitions to protect its industries from booming export economies, while using trade as a foreign policy and development tool.

The European Parliament approved a separate European Commission proposal yesterday to grant duty-free access to 75 Pakistani export products, mainly textiles, to assist Islamabad in its recovery from devastating floods last year.

However, the new proposals have a clause that would deny discounts to countries that encourage terrorism (a possible allusion to Pakistan) or withhold scarce and coveted raw material crucial for EU production — a reference to China, which has raised export taxes on raw materials in recent years and limited exports of rare earth.

The proposal would now go to the 27 member-states of the EU and the European Parliament, for endorsement.

First Published: Thu, May 12 2011. 01:09 IST
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