4:41 AM Oct 30, 1995

GSP ROLE, VALIDITY REAFFIRMED

Geneva Oct 28 (Chakravarthi Raghavan) -- The UNCTAD Special Committee on Preferences, in a Chairman's summing up, agreed that the Generalized System of Preferences (GSP) is fulfilling an important role as a multilateral tool of development and retains its validity in the new international trading context.

The Committee said that the original objectives of the GSP and its principles also remain valid, but that their full attainment needs strengthening and revitalization of the GSP.

The Special Committee, at a week-long meeting, undertook a comprehensive policy review of the GSP and ended its work Friday with a Chairman's summary which also indicated several areas of gap in conceptual and other thinking about future directions of GSP as between the preference-receiving and preference-giving countries.

The Committee endorsed the recommendations of an intergovernmental expert group on harmonisation, simplification and improvement of rules of origin and recommended that the Trade and Development Report adopt them and arrange for followup. It also agreed on need for special measures for the Least Developed Countries (LDCs) under the GSP schemes.

On the future role of GSP and the work of the Special Committee, there was general agreement about crucial importance of GSP for beneficiary countries and that hence GSP would continue to be an important activity of UNCTAD. The GSP provided an important forum for consultations and dialogue in the future between preference-giving and preference-receiving countries on the evolution of the GSP schemes and policy issues involved.

On the overall GSP and the suggestions for widening the coverage and scope, and the questions of increasing departures by preference giving countries of the original scope and principles of the GSP system and using it for other purposes or reciprocal gains, the debate showed a wide gap between the views of the preference-receiving countries and of the preference-giving countries.

There was also gap between perceptions of the preference-receiving and preference-giving countries on the increasing links between GSP benefits and non-trade factors. The Committee discussed in this connection the linking of GSP to several such non-trade objectives -- environmental objectives, social standards, workers rights, conditionalities relating to protection of intellectual property rights and others.

While some preference-giving countries maintained such linkages to be legitimate -- since they conduced to improving conditions of workers, children and the population of beneficiary countries, the preference-receiving countries raised serious objections to these linkages. GSP, the latter stressed, was a trade promotion tool and as such non-trade objectives were contrary to the original multilaterally agreed principles and introduced a certain degree of reciprocity.

On the issue of extending GSP to new areas of trade, some preference-giving countries indicated their interest in pursuing the concept of GSP to embrace trade in services and investment, in line with the extension of the multilateral trading system to these new areas. But other preference-giving countries were doubtful whether GSP could be applied to these areas.

The UNCTAD secretariat report had advocated such an approach, noting the major asymmetries in the degree of development of services sectors in the industrialized and developing countries.

Most developing countries, it noted, had neither the capital nor the expertise to compete globally and they faced inherent disadvantages because of governmental measures and anti-competitive activities of existing market operators.

Immigration regulations, the secretariat noted, were often applied differently to nationals of developing countries, thus limiting the movement of natural persons for delivery of services. The cost of telecommunications or transport rates for shipping goods to developed countries are also higher than rates applied among developed countries.

In recommending extension of the GSP concept to trade in other areas than goods, with a view to correct these asymmetries, UNCTAD suggested that the developing countries should get benefits comparable to those enjoyed by OECD countries under regional arrangements or otherwise relating to supply of services and services regulations. Additional market access and national treatment commitments, not applicable to other industrialized countries, could be entered into under GATS.

But since barriers to trade in services are caused by regulations that are not measurable like tariffs or other quantifiable parameters, to give preferences automatically to exporters from developing countries, a GSP in services would need to be specific to the sector and mode of supply. Towards this end, the regulatory framework for services would need to be studied, including visa, licensing, standards and qualifications as well as existing preferential arrangements -- bilateral or regional agreements, networking etc.

Government procurement policies could also be liberalized to give advantage to procurement of services from developing countries. Fiscal regimes and investment insurance of industrialized countries could also be used to provide GSP benefits to the developing countries.

For e.g. tax relief could be given to corporations having investments in the developing countries on any tax saved by them in the host country through incentives such as tax holidays. Many important home countries for FDI now provide no such incentive.

Many government agencies also provide firms investing abroad with insurance coverage larger than private firms and at better terms. One possible measure could be to strengthen the financial means available to agencies charged with promoting investment in developing countries, the UNCTAD suggested citing the experience in the US of the Overseas Private Investment Corporation.

Public investment guarantee agencies should adopt a more liberal approach to investments in developing countries and thus promote increased FDI flows, in particular to smaller, lower-income developing countries.

The preference-receiving countries called for expansion of the product coverage of the GSP schemes to sectors not being fully integrated into the multilateral trading system. They sought extension of the GSP to agricultural products (which after the Uruguay Round and its tariffication and tariff cuts face very high tariffs), processed food, textiles. clothing, leather and footwear products. Such an extension they said would substantially improve the correspondence between GSP benefits and the production and export capacities of developing countries, in particular the LDCs.

The preference-receiving countries welcomed the extension of coverage to agricultural products by Norway and similar plans of other preference-giving countries for agricultural, textiles and clothing products or for wider product coverage in favour of least developed countries, and the introduction of a new GSP scheme by Belarus.

Some preference-giving countries restated the need for burden-sharing and proposed that other countries in a position to do so should also introduce GSP schemes at least in favour of LDCs.

The Special Committee discussed at length the EU's new scheme and its key features -- tariff modulation, country-sector graduation, special incentive arrangements and elimination of all quotas and tariff ceilings.

The preference-receiving countries insisted that graduation measures introduced in individual GSP schemes should be multilaterally agreed and take account of the overall level of economic and social development of the countries concerned, the share of manufactures in exports, as well as the degree of export diversification achieved. GSP benefits, they said, should not be withdrawn abruptly.

But preference-giving countries did not agree to graduation schemes being subject to multilaterally agreed principles, in view of the basic differences in their individual GSP schemes.

The preference-receiving countries also argued that predictability of the GSP would be enhanced if tariff ceilings and quotas could be replaced by modulated GSP tariffs and traditional safeguards along the relevant WTO provisions. However, some of the preference-receiving countries also stressed that tariff modulation should still provide for commercial meaningful preference margins which allowed from the beneficiary countries to flow.

On the rules of origin, the IGE had recommended that the Special Committee monitor and follow the work being done in the Technical Committee of the World Customs Organization (WCO), the former customs cooperation council, for elaborating a harmonized set of non-preferential rules of origin. Once the WCO Technical Committee had completed its work, and taking account also of the WTO work on rules of origin, UNCTAD should propose a harmonized set of rules of origin, including modifications and amendments.

The differing rules of origin under various GSP schemes, and often differing requirements about cumulation etc, have been found in earlier UNCTAD reports to be complicating the preference receiving countries in production and exports.

The IGE in its recommendations had suggested that improvements in rules of origin should be sought by expanding global or regional cumulation and extending its scope to additional or newly formed regional groupings. The IGE had also suggested relaxation of the stringent rules of origin to facilitate use of GSP by the preference receiving countries.

The provisions in several rules of origin calling for direct consignment of products to benefit from GSP, the IGE had said, hampered preference-receiving countries, especially the landlocked countries, from fully utilizing the benefits. For example when exported goods are in transit in a third country, customs authorities of the third countries do not issue usually required documentary evidence and, in some cases, exporters are not even in a position to know the final destination of goods as the transactions are made via trading houses that don't reveal the names of final consignee.