5:21 AM May 17, 1993


Geneva Apr 15 (Chakravarthi Raghavan) -- A policy review of the two-decade old Generalized System of Preferences is to be undertaken at the UN Conference on Trade and Development (UNCTAD) in 1995.

The GSP was negotiated and agreed upon at UNCTAD and individual preference-giving countries promulgated their schemes and have been implementing them as 'autonomous' actions.

The decision to undertake the policy review was agreed upon this week at the UNCTAD Special Committee on Preferences which had an extensive exchange of views on the implementation of the GSP and the various schemes under it in various preference-giving countries.

Some 74 countries -- those giving preferences and those receiving -- participated in the meeting and reviewed the implementation of the GSP, the rules of origin governing the system and the technical assistance programmes provided by UNCTAD. Parallel to the Special Committee meetings were 80 bilateral and plurilateral consultations on individual GSP schemes of which the major ones are those extended by the European Community, Japan and the United States.

In the discussions, developing countries had expressed concern over possible erosion of preferential margins as a result of the conclusion of the Uruguay Round. Several countries were also concerned over the addition of Central and East European countries to the list of GSP beneficiaries.

While developing countries wanted the UNCTAD secretariat to carry out a study of its economic implications, the preference-giving industrialized countries had doubts on the feasibility of such a study.

Discussions also centred on the rules of origin and need for harmonization, with developing countries urging this to be a subject of the comprehensive and detailed review at the Committee's meeting in 1994. Developing countries called for global cumulation so that a product that undergoes various stages of processing in various preference-receiving countries would be eligible for benefit.

Currently, Japan and the EEC apply the 'process criteria' under which eligibility for GSP treatment depends on the degree of processing of imported materials in the preference-receiving country. Others use a percentage criteria -- maximum percentage figure on value of imported materials as by Canada, or minimum percentage of value of domestic materials and processing used in export of the manufactured product as by the US. These variations have generally been identified as making it difficult for exporters to comply with differing rules in differing markets.

In summing up the week-long meeting and exchange of views, Chairman Bachrum S. Harahap of Indonesia, said that while there was agreement on the importance of the GSP, "a number of countries felt that the system should be revitalized and that fresh and innovative approaches should be taken in its design and improvement."

The Special Committee, in this connection, has asked the UNCTAD secretariat to prepare for its next annual session "in-depth analytical studies on the possibilities for improving the functioning and enhancing the impact of the GSP in the light of the evolution of the international economic and political environment."

For the study, in addition to inputs from countries, the UNCTAD Secretary-General has been asked to seek the advice of senior experts on GSP, eminent personalities in international economics and international trade, academics and representatives of business communities from both developed and developing countries.

Harahap in his Chairman's summary said that the preference-giving industrialized countries had noted with satisfaction that preferential imports were increasing at a steady pace, often faster than total imports, while the preference-receiving developing countries saw ample scope for improvement in the schemes, in terms of trade coverage and methods of operation.

They preference-receiving developing countries noted in this regard that the trade eligible for preferential treatment had remained stationary over the past years at no more than 50% of dutiable imports and that preferential imports, reflecting the utilization of schemes, had remained stagnant at about 25% of dutiable imports. The low utilization, they said, was due to built-in limitations such as tariff quotas, ceilings, maximum country amounts and competitive need limitations.

An important question that had figured in the Special Committee was the issue of 'graduation'.

In summing up these discussions, Harahap said that developing countries had stressed the need for consensus on unilaterally agreed criteria for application of graduation and that, in principle, these criteria should be based strictly on trade and economic considerations and exclude issues non-trade issues.

Also, sustained and absolute competitiveness should be demonstrated before a preference was withdrawn from a production and graduation measures decided upon on the basis of multilaterally agreed criteria should be applied only after sufficient time had been given to beneficiaries to allow them to adapt their supply to the new access conditions.

Earlier, in the discussions, Chile's Hugo Cubillos had proposed that once a consensus was reached on rules of graduation and competitive need clauses, the Committee could review specific cases of prejudice to a given industry and the production of one or more countries. Such a review could be prepared by a new mechanism of consultations, involving a limited number of governmental experts who could also make recommendations for the simplification and harmonization of the rules of origin.

Syed Jamaluddin for Bangladesh, on behalf of the least developed countries, called for implementation of the actions identified in the UN Programme of Action for LDCs -- in particular increase in the range of production, application of flexible rules of origin, special terms or exemptions from quotas and ceilings and greater long-term stability and predictability in management of the schemes, and simplification of procedures.

Gomi Senadhira of Sri Lanka, speaking for the Asian group of countries, referred to the non-discrimination principle of the GSP and called for extension to all preference-receiving countries of the special treatment meted out under the EEC schemes to countries of Central America.

Pakistan's Asaf Ghafoor was opposed to the concept of graduation, both in terms of country and products. Given their small export diversification base,it was not justifiable to penalize developing countries on one or two items in which they developed export capability on a competitive basis he argued. He also expressed opposition to the discriminatory administration of the GSP and the linking of non-economic considerations to extension of GSP.

Ainsjah Taufik of Indonesia urged discontinuance of product-specific graduation. The graduation or differentiation idea, he noted, had been intended to bring about a better spread of benefits among the countries and to open up new opportunities for a wider product coverage. Any graduation, it at all necessary, should be strictly based on trade and economic considerations. Per capita incomes and development levels, while valid, were not sufficient criteria for graduation. Also he urged preference-giving countries to follow the Japanese and Nordic examples and grant across-the-board duty free treatment especially since, due to the MFN tariff reductions expected as a result of the Uruguay Round, preferential margins in some cases would be so low as to be meaningless.

Manbir Singh of India said the socalled product country exclusions and competitive need provisions were among measures affecting India's GSP-eligible exports. He rejected product specific graduation. As for 'competitiveness', there had to be some multilaterally agreed criteria for proven, sustained and absolute competitiveness before the preferential treatment is withdrawn.

In other comments, Mexico's Sergio Soto Nunez said inclusion of new products should be the counterpart of trade liberalization efforts in developing countries.

Flavio Marega of Brazil stressed that though GSP was an autonomous instrument, the few multilateral rules relating to it should be respected. And given the general objectives of the GSP, any multilateral examination of graduation should not be made in isolation but as part of a more general review and revision of GSP.

Argentina's Jose Luis Perez Gabilondo stressed that before a preference was withdrawn, the country affected should be consulted to ensure that the withdrawal would have no impact on the competitiveness of the product on the export market.

Peru's Javier Prado said it was of the utmost importance that preference giving countries, on the eve of the conclusion of the Uruguay Round, honour their commitments to increase preferential margins under the GSP. Graduation should be based on clear, non-political and multilaterally agreed criteria and this would maximise the benefits for countries which really needed GSP support to have access in certain markets. Any product graduation should take account of the situation of countries depending heavily on one or a few products and their development level.

Speaking for China, Wang Tiance said in recent years there had been a gradual weakening of GSP due to various practices of the preference-giving countries which ran counter to the basic principles of the system. Among these practices, which were serious violations of the GSP principles, were antidumping measures, demand for reciprocity, arbitrary product or country graduation, and linking removal of GSP treatment with non-trade issues such as rights of workers, intellectual property protection and environment issues. The practice of product or country graduation had severely damaged industrialization in developing countries, their export trade and investment and cooperation projects. The practice of arbitrarily removing products or countries from GSP benefits should be reduced as much as possible. When under multilaterally agreed criteria a product or country was deemed eligible for removal from GSP treatment, this should be implemented stage by stage.

In their interventions, the preference-giving countries outlined and explained some of the recent changes in their country schemes, including the extension of benefits to east and central European countries.

Canada's Darwin Satherstrom said legislation would be needed to extend validity of his country's scheme beyond its current period of 30 June 1994. Canada had indicated it would be undertaking a comprehensive review of the scheme when the Uruguay Round was completed. But given the new time frames, any decisions on substantive changes to the Canadian GSP would have to be delayed.

Thomas Fusco of the United States while expressing the US commitment to the overall aims of the GSP, thought that the point was often missed that the GSP was not intended to be a permanent bilateral aid programme or a substitute for reduction of trade barriers through multilateral trade negotiations. The principle of graduation was a necessary corollary to the grant of GSP preferences.

Fusco said Congress was currently considering the administration proposal to extend the GSP for 15 months beyond its expiration date of 4 July 1993. This legislation would also delete the provisions preventing extension of the GSP to countries of the former Soviet Union. The process of renewal of GSP in the United States was an open process, and all interested parties, foreign and domestic, could participate and present their views. Every aspect of the scheme was now under review and the scheme that would eventually emerge could look considerably different.

Francois Nizery announced for the European Community that the EC had not yet reached any decision on the content of its scheme for 1994. Among the changes in the EC scheme, Nizery referred to the inclusion of the former Soviet Republics for 1993, on an exceptional and temporary basis to help smooth their difficult transition to an open market economy based on democratic institutions. But the preferences to these countries had not been extended to fisheries and iron and steel products.