EUROPEAN COMMISSION Brussels, 22.9.2021 SWD(2021) 266 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on applying a generalised scheme of tariff preferences and repealing Regulation (EU) No 978/2012 of the European Parliament and of the Council













{COM(2021) 579 final} - {SEC(2021) 330 final} - {SWD(2021) 267 final}



Table of contents 1.Introduction: Political and legal context 1.1.The EU Generalised Scheme of Preferences 1.2.What is the prevailing political/legal context as to why the initiative is being brought forward now? 1.3.Are there European Council conclusions, Council conclusions, EP resolutions or College decisions? 1.4.Are related initiatives also under preparation? Which issues will each initiative tackle? 2.Problem definition 2.1. Problems identified 2.2.What are the problem drivers? 2.3. How will the problems evolve? 3.Why should the EU act? 3.1. Legal basis 3.2. Subsidiarity: necessity of EU action 4.General and specific objectives of GSP: What is to be achieved? 4.1. General Objective No 1: To further contribute to poverty eradication in countries most in need 4.2. General Objective No 2: To further contribute to sustainable development and good governance in beneficiary countries 4.3. General Objective No 3: To ensure protection of EU economic interests in the functioning of the scheme 5.What are the available policy options? 5.1.What is the baseline from which options are assessed?

5.2.Description of the policy options 6.What are the impacts of the policy options? 6.1.Impact of the options under Cluster 1: arrangements and beneficiary countries 6.2.Impact of the options under Cluster 2: products coverage and graduation mechanism 6.3.Impacts of the options under Cluster 3: conditionality 6.4.Impacts of the options under Cluster 4: transparency 6.5.Impacts of the options under Cluster 5: safeguards 7.How do the options compare? 7.1.A comparison among the options proposed to address problems related to Cluster 1: arrangements and beneficiary countries 7.2.Comparison among the options proposed to address problems related to Cluster 2: products coverage and graduation mechanism 7.3.Comparison among the options proposed to address problems related to Cluster 3: conditionality (positive, negative, international conventions, withdrawal procedure) 7.4.Comparison among the options proposed to address the problems related to the Cluster 4: transparency 7.5.Comparison among the options proposed to address the problem related to Cluster 5: safeguards 8.Preferred options 8.1.Preferred option related to Cluster 1: arrangements and beneficiary countries 8.2.Preferred option related to Cluster 2: products coverage and graduation mechanism 8.3.Preferred options related to Cluster 3: conditionality 8.4.Preferred options regarding Cluster 4: transparency 8.5.Preferred option regarding Cluster 5: safeguards 9.How will actual impacts be monitored and evaluated?

9.1. Measuring performance with regard to GSP overarching objectives (at the mid-term review and/or at the end of the Regulations’ application) 9.2. Measuring performance with regard to GSP specific objectives (to be measured in line with GSP monitoring cycle) Annex 1: Procedural information Annex 2: Stakeholder consultation Annex 3: Who is affected and how? Annex 4: Analytical methods Annex 5: Summary of the Mid-Term Evaluation Annex 6: Executive summary and full Interim Report of the supporting Study Annex 7: Detailed description of baseline scenarios Annex 8: The current temporary withdrawal procedure Annex 9: Detailed description of International Conventions analysed by the supporting study Annex 10: Performance measurement framework for the GSP Regulation



Acronyms Acronym Definition CGE Computable General Equilibrium COVID-19 Coronavirus disease CSD Civil Society Dialogue CTEO Chief Trade Enforcement Officer EBA Everything But Arms EEAS European External Action Service EP European Parliament EPA Economic Partnership Agreement EU European Union FTA Free Trade Agreement GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product GHG Green House Gas GSP EU Generalised Scheme of Preferences GSP+ Special Incentive Arrangement for Sustainable Development and good Governance HS Harmonised System ILO International Labour Organisation LDC Least Developed Country LMIC Low- and Middle- Income Countries MFN Most Favoured Nation MTE Mid-Term Evaluation of the EU GSP OECD Organisation for Economic Cooperation and Development OPC Open Public Consultation RoO Rules of Origin TPR Trade Policy Review



Glossary Term Meaning or definition Product coverage The list of products included in the EU GSP arrangements Effective implementation The integral implementation of all obligations undertaken under the international conventions listed in Annex VIII to the EU GSP Regulation Export diversification A change in a country’s export structure, which is typically reflected in the range of goods that is exported from the same sector or from different sectors Product graduation Imports of particular group of products and originating in a given GSP beneficiary country lose GSP tariff preferences. It concerns imports that are competitive on the EU market and thus no longer need the GSP to boost their exports to the EU Non-sensitive products In the GSP scheme, non-sensitive products enjoy duty free access Preference erosion The process by which the preference granted to a specific good loses its nominal or relative value (in particular in light of EU trade agreements which have recently been negotiated with other countries in the world which may grant these other countries access to the EU market which is similarly generous as the GSP preferences once granted only to GSP beneficiary countries) Sensitive products In the GSP scheme, sensitive products benefit from tariff reductions compared to the standard most favoured nation tariff, but these reductions are somewhat less favourable than the duty-free access accorded to non-sensitive products. Standard GSP The general arrangement provided for in Art. 1(2)(a) of the EU GSP Regulation Utilisation rate GSP preferential imports as a percentage of eligible imports under the respective GSP arrangement Everything But Arms or ‘EBA’ The special arrangement for least developed countries in Art.1(2)(c) of the EU GSP Regulation GSP+ A special incentive arrangement for sustainable development and good governance in Art.1(2)(b) of the EU GSP Regulation The GSP Arrangements The Standard GSP, GSP+ and EBA arrangements Vulnerability criteria A set of two economic criteria for GSP+, limiting access to the scheme to beneficiaries with less diversified exports and limited export competitiveness.





1.Introduction: Political and legal context The European Commission services prepared this Impact Assessment Report (IAR) in support of a new regulation for the EU Generalised Scheme of Preferences (hereafter ‘the GSP’). The GSP is a multifaceted instrument covering a variety of economic and sustainability obligations, which all impact the drivers for improvement and the related policy options. To facilitate the analysis, the problems’ underlying drivers have been grouped in clusters according to the main aspect they are related to: GSP arrangements and beneficiary countries coverage, the products, conditionality, transparency, and safeguard mechanisms (see Table 5 in Section 5.2.). The GSP is a very mature part of the EU’s trade policy tool box. Its review is about fine-tuning the way the GSP works and improving its efficiency and effectiveness – hence, the drivers and policy options defined and further explored in the External Study and IAR have a high level of granularity. A Midterm Evaluation (MTE) of the current GSP Regulation was completed in 2018. An External Study (hereafter the Study) undertaken by BKP Economic Advisors GmbH, as well as an open public consultation (OPC) supported the preparation of the IAR. This document builds upon the Inception Impact Assessment published in May 2019. 1.1. The EU Generalised Scheme of Preferences The EU’s GSP is a well-established EU trade policy instrument with development objectives, which has been in place since 1971. The legal basis was made permanent by the GATT’s Enabling Clause, which grants a permanent exemption from the Most Favoured Nation (MFN) principle, for developed countries to unilaterally grant reductions in the tariffs paid on imports from developing countries. The current GSP scheme is based on Regulation (EU) No 978/2012 of 25 October 2012 (hereafter ‘the Regulation’). The scheme offers easier access to the EU market for goods exported from developing countries by eliminating or reducing import tariffs unilaterally (i.e., on a non-reciprocal basis). Lower tariffs enable these countries to increase their exports to the EU and contribute to economic growth and jobs creation. Preferential access to the EU market also helps developing countries to generate additional revenues, which can be reinvested to diversify their economies. Finally, the EU’s GSP scheme supports beneficiary countries’ sustainable development, because the promise of lower-tariff or tariff-free access to the EU’s large market is an incentive for developing countries to promote respect for human rights, labour rights, environmental protection, and good governance. The current Regulation sets up three distinct arrangements, adapted to the needs of different categories of developing countries: (1)Standard GSP : The general arrangement for low and lower-middle income countries, which offers a partial or full removal of customs duties on two-thirds of the EU’s tariff lines. It is granted automatically to all developing countries in WTO context. At present, there are 15 beneficiary countries. (2) GSP+ : The special incentive arrangement for sustainable development and good governance. To qualify for GSP+, the countries must benefit from Standard GSP and be considered “vulnerable” in terms of low level of diversification of their exports to the EU, and insufficient integration in the international trading system. It reduces import duties for the same tariff lines as Standard GSP to 0% for countries that have ratified and implement 27 major international conventions. At present, there are 9 GSP+ beneficiary countries. (3) EBA (Everything But Arms): The special arrangement for least developed countries (LDCs) is one of the world’s most generous and inclusive scheme, providing LDCs with duty-free, quota-free access to the EU market for all products except arms and ammunition. At present, there are 48 EBA beneficiary countries. The Standard GSP covers a wide range of products, split into non-sensitive and sensitive categories: -Non-sensitive products enjoy duty-free access; -Sensitive products (a mixture of agricultural, chemical, textile, clothing and footwear items) benefit from a tariff reduction of 3.5 percentage points (20% in case of textiles and clothing) on ad valorem duties or a reduction of 30% on specific duties compared to the MFN levels. Under the GSP+ arrangement, tariffs for most of the sensitive products are removed, making the GSP+ much more attractive in comparison to the Standard GSP. The EU is willing to open up its market for sensitive products for the EU industry, provided the aim is to support beneficiaries’ sustainable development. EBA countries get more than 99% duty-free quota-free coverage together with the EU MFN zero tariff lines. Additional major features to enjoy GSP preferences are: conditionality, graduation and safeguards. The tariff treatment of beneficiary countries is conditional on the respect of 27 international Conventions on human rights, labour rights, environmental protection, and good governance listed in Annex VIII to the GSP Regulation. The GSP Regulation uses two different ways of conditioning preferences: a “negative” conditionality for Standard GSP and EBA beneficiaries, and a “positive” conditionality only for GSP+ beneficiaries. Conditionality remains one of the key EU instruments to promote respect for human and labour rights, environment and good governance in GSP beneficiary countries: a country should not benefit from preferential trade arrangements if it is acting in a way that is contrary to its own developmental needs or contrary to international standards and principles. Negative conditionality implies that beneficiaries lose GSP preferences for non-compliance with a series of obligations, including failure to respect the main principles of the relevant international Conventions. Such a procedure is referred in the GSP Regulation also as a “withdrawal” of GSP preferences. The withdrawal of preferences results in EU customs authorities applying the standard Most Favoured Nation WTO tariffs with respect to the affected imported products. Positive conditionality, applicable only to GSP+ countries, implies that beneficiaries must take certain actions to become eligible and maintain the GSP+ preferences, namely to ratify the conventions and effectively implement them.

In addition to the withdrawal procedure, there is also the “graduation” procedure that can lead to a GSP country losing wholly or partially is preferential treatment, for which we need to distinguish between “product graduation” and “countries graduation”. Product graduation (according to Article 8 of the GSP Regulation) takes place when imports of a particular group of products originating in a GSP beneficiary country exceeds a given threshold. In that case, imports of that group of products from that country are considered too competitive on the EU market and thus no longer need the GSP to boost their exports to the EU. This mechanism currently applies only to the Standard GSP, but not to the GSP+ or EBA arrangements. At present, the list of graduated products is revised every three years. Countries’ graduation apply to all GSP beneficiaries’. -Graduation out of EBA takes place when a country loses the “Less Developed Country” status granted by the UN Committee for Development Policy (CDP). Following graduation from the EBA arrangement, these countries could move to Standard GSP or, pending their application (and meeting the eligibility criteria) to GSP+. -Graduation out of standard GSP and GSP+ takes place if that country (i) has another type of special trade arrangement with the EU, granting the same tariff preferences (e.g. an FTA), or (ii) it has achieved high or upper-middle income status during three consecutive years on the basis of the World Bank’s classification. Free Trade Agreements by their nature, offer substantially more benefits to parties (e.g., legal certainty, chapters on services, SPS/TBT issues, IPR, cooperation, etc.) beyond market access for goods and, thus, are significantly more advantageous in commercial terms than unilateral preferences which are limited to goods. In terms of goods, Economic Partnership Agreements with ACP countries provide the same 100% tariff-free quota-free benefits as the EBA. Other bilateral FTAs provide better benefits than Standard GSP or GSP+, which cover around 66% of tariff lines; the average product coverage of an EU FTA is above 90%. Finally, beneficiary countries can lose preferential tariff treatment as a result of the application of safeguards, which can be “general” or “automatic”. The general safeguard mechanism applies to all GSP beneficiaries and products, where products are imported in volumes and/or at prices that cause, or threaten to cause, serious difficulties to Union producers of like or directly competing products. The first investigation under the general safeguards was concluded in 2019 on rice imports from Cambodia and Myanmar. The automatic safeguard mechanism applies only to specific product groups which are indicated to be sensitive in the GSP Regulation, primarily textiles and garments as well as a few selected other products. The automatic safeguard measures do not apply to EBA beneficiary countries; and, among the Standard GSP and GSP+ countries, only to those that meet certain minimum thresholds in EU imports. The Commission has never activated the automatic safeguard mechanism because the conditions provided in the GSP Regulation have not been met. This reflects the exceptional nature of the automatic safeguard mechanism. Figure 1: World map – GSP beneficiary countries by arrangement EBA GSP+ Standard GSP 1.2. What is the prevailing political/legal context as to why the initiative is being brought forward now? The current GSP Regulation will expire on 31 December 2023. Unless a new regulation is adopted, the Standard GSP and the GSP+ arrangements will cease to apply. Imports from developing countries under Standard GSP and GSP+ would thus be charged with higher duties as from 1 January 2024. However, imports from least developed countries (LDCs) would still be covered by the EBA arrangement which does not have a fixed expiry date. The GSP pursues three main objectives, namely, to assist developing countries in their efforts to reduce poverty, to promote good governance and sustainable development, while taking into account the situation of the sectors manufacturing the same products in the EU. This is in line with EU’s Policy Coherence for Development (PCD) which constitutes a key pillar of EU efforts to enhance the positive impact and increase effectiveness of development cooperation. The supporting Study for this Impact Assessment showed that the highest positive impact of GSP was the support given to growth and trade diversification through EBA, which benefits LDCs. Building on what the GSP has achieved, because of the continued relevance and coherence of its general objectives, and even more so in view of the recovery from the Covid-19 pandemic, this GSP review aims to maintain the scheme as such, while improving its efficiency and effectiveness. The EU’s overarching objectives in revising the GSP Regulation are to maintain the essential features of the present Regulation, and specifically the focus of the 2012 reform on the three goals of poverty eradication, support for sustainable development and good governance, while also better defending EU industries that may face serious difficulties as a result of increased imports from GSP beneficiary countries. The continuation of GSP is part of the EU’s political commitment to support sustainable development globally, as reflected in the implementation of the UN Agenda 2030 for Sustainable Development and Sustainable Development Goals (SDGs), to which all WTO Members have committed. The Midterm Evaluation (MTE) of the implementation of the GSP Regulation concluded that overall the GSP was delivering on its objectives and there was no need to amend the Regulation before its expiry on 31 December 2023. However, the MTE made several recommendations to improve the effectiveness and efficiency of the scheme. These recommendations underpinned the identification of the problems defined in detail in Section 2. 1.3.Are there European Council conclusions, Council conclusions, EP resolutions or College decisions?

On 14 March 2019, the European Parliament (EP) adopted a non-legislative resolution on the implementation of the GSP Regulation (hereafter ‘the Resolution’). The Resolution acknowledged the overall positive impact of GSP on developing countries, but made a number of recommendations for improving the scheme, including: further encouraging export diversification of beneficiary countries; placing more emphasis on improving environmental standards, reinforcing stakeholders’ involvement in order to ensure better monitoring of the scheme’s implementation; and introducing additional tariff preferences for products that have demonstrably been produced sustainably. European Commission President Ursula von der Leyen promised that under her leadership the Commission would further strengthen the use of trade tools in support of non-trade policy objectives. In her Agenda for Europe 2019-2024, she stressed, “Trade is not an end in itself. It is a means to deliver prosperity at home and to export our values across the world” including “the highest standards of climate, environmental and labour protection, with a zero-tolerance policy on child labour”. The Commission Communication Trade Policy Review – An Open, Sustainable and Assertive Trade Policy, reflecting the above objectives, was adopted on 18 February 2021 . It sets the medium-term direction of trade policy in response to a variety of new global challenges, including the post-Covid-19 economic recovery. The Trade Policy Review (TPR) confirms that “One of the key objectives of the upcoming review of the Generalised System of Preferences (GSP) will be to further increase trading opportunities for developing countries to reduce poverty and to create jobs based on international values and principles, such as labour and human rights”. The TPR also notes that the EU has a “strategic interest to support the enhanced integration into the world economy of vulnerable developing countries” […] “The EU must fully use the strength provided by its openness and the attractiveness of its Single Market […]” to support multilateralism and to ensure adherence to universal values, adding a focus on climate and environmental challenges, while also remaining ready to act assertively in defending its interests. For GSP specifically, the TPR notes its important role to promote “respect for core human and labour rights”. 1.4.Are related initiatives also under preparation? Which issues will each initiative tackle? The Action on GSP Trade Preferences (GSP Hub) The 2018 Mid-Term Evaluation of GSP called inter alia for more transparency and inclusiveness of stakeholders in the scheme. Along the lines of the Resolution adopted by the EP, the MTE also asked the Commission to raise the utilisation and impact of GSP through increased awareness and engagement with stakeholders, including industry. In 2020 – in order to address some of the concerns highlighted by the MTE and the EP Resolution – the Commission launched a dedicated two-year project: the Action on GSP Trade Preferences (GSP Hub). Its overall aim is to increase the effectiveness, inclusiveness, and transparency of the GSP (including the GSP+ monitoring process) via a dedicated GSP platform/website along with other activities and engagements with stakeholders. 2.Problem definition The identified problems and their underlying drivers are set out in a problem tree in Figure 2 below. This builds on the results and recommendations of the 2018 Mid-Term Evaluation (MTE) and the 2020 External Study on GSP . Both studies confirmed that a major overhaul of the existing legal framework would not be justified and identified ways to improve the efficiency and effectiveness of the GSP instrument. The MTE pointed out to areas for improvement that – if addressed by appropriate policy options – could enhance the efficiency and effectiveness of the GSP. The 2020 External Study focused on several policy options that could improve achieving the overall objectives of the GSP instrument. In open public consultations, the vast majority of respondents supported maintaining GSP preferences with its three arrangements, on the grounds that it helped to eradicate poverty, create jobs (notably for women), and support economic growth (including economic recovery of beneficiary countries severely impacted by the COVID-19 pandemic), while contributing to sustainability of development and possibly serving as a stepping stone to reciprocal trade agreements as countries graduate from the GSP. In Figure 2 below, some of the underlying drivers are shown in red, others in grey. As will be seen in sections 5 (policy options) and 6 (impact of the policy options) of this impact assessment report, options to address each of the specific problems and their underlying drivers have been considered and analysed. In some cases that analysis led to the conclusion that the options for specific new policy measures would be ineffective or inefficient. In those cases, the underlying drivers are shown in grey. Figure 2: Problem definition tree 2.1. Problems identified The three main (overarching) problems identified correspond to weaker than intended performance for each of the three main objectives of the GSP. To address these issues, the analysis has identified five specific implementation problems to look at. They are briefly summarised in Table 1. Table 1: Main problems identified Main Problems (MP) Specific problems (SP) Main Problem #1 (MP1) The GSP potential for contributing to poverty eradication – through expansion and diversification of exports of beneficiary countries, especially those most in need – is not fully exploited SP1: Limited exports under GSP from some beneficiary countries, particularly those most in need SP2: Limited export diversification of beneficiary countries Main Problem #2 (MP2) The GSP potential for contributing to sustainable development and good governance in beneficiary countries is not fully exploited SP3: Insufficient impact of GSP on sustainable development, good governance, and human and labour rights SP4: Insufficient availability of information on the GSP+ monitoring process Main Problem #3 (MP3) The protection mechanisms in GSP in favour of EU economic interests are not fully exploited SP5: Safeguard mechanisms in the GSP Regulation are not perceived by economic operators as fully exploited

2.1.1.Main Problem #1: The GSP potential for contributing to poverty eradication – through expansion and diversification of exports of beneficiary countries, especially the most in need – is not fully exploited By providing preferential access to the EU market, the GSP instrument can assist developing countries in their efforts to reduce poverty. As the causal link between the GSP and poverty reduction is difficult to ascertain with precision, GSP effectiveness is primarily measured through its impact on exports and its diversification. Trade statistics prove GSP has positive impact on improving trade flows from GSP beneficiaries to EU. Between 2014 and 2019, EU27 imports from current GSP beneficiaries utilising any of the existing arrangements increased by 25%, whereas overall imports from third countries increased by 16% over the same period. Imports under EBA even outperformed this increase with 47% (from 17.1 billion EUR in 2014 to 25.2 billion EUR in 2019). Imports from LDCs accounted for 2% of total EU imports in 2019; 67% of these imports from LDCs benefitted from EBA preferences. During the same time, the share of imports under EBA in total imports from LDC increased from less than half to over two thirds, suggesting a diversification away from fuels and other items not receiving EBA preferences. For GSP beneficiaries as a whole, this increase was from 32% to 39%. Ensuring the continuing relevance of the scheme requires in the first place focusing the GSP preferences on the developing countries most in need, to help them to boost their exports. At the same time, the contribution of GSP to export diversification is modest and depends more on how well export opportunities under GSP are integrated into the broader domestic policy mix in the beneficiary country. Moreover, extending to GSP beneficiaries certain advantages related to GSP status (in compliance with the rules of origin in the EU Custom legislation) should respond to the country’s development, financing and trade needs as well as future perspectives with regards to the product benefitting from preferential tariffs. This Main Problem #1 (i.e., not fully exploiting GSP’s potential for contributing to poverty reduction) results in part from the concentration of GSP preferences in a limited number of countries. Bangladesh (EBA, 25% of total GSP), India (Standard GSP, 23% of total GSP), Indonesia (Standard GSP, 10% of total GSP), Vietnam (Standard GSP, 14% of total GSP) and Pakistan (GSP+, 8% of total GSP) are the five biggest users responsible for 80% of total GSP imports to the EU in 2019. Around 99% of imports from countries covered by Standard GSP are from three beneficiaries: India, Indonesia, and Vietnam. Vietnam will leave GSP in 2023 (because since August 2020 it has preferential access to the EU market under a bilateral free trade agreement) and Indonesia reached upper middle-income status in 2020 and may be out of the Standard GSP by 2024 (though Covid-19 may have an impact). This development will concentrate the preferences even more in two countries, India, and Bangladesh, with Pakistan coming third, raising doubts about the accuracy of the targeting. Another risk relating to Main Problem #1 is that several EBA beneficiaries will soon lose their status as LDCs, and will consequently move into another GSP arrangement (under Standard GSP they will enjoy a less preferential access). This would be of some concern because of their poorer performance and because of their vulnerability to trade shocks on the current account. Finally in connection with Main Problem #1, the MTE identified modest overall improvements in export diversification but could not establish a clear link with the GSP Regulation. Any positive impact largely depended on whether the beneficiary countries had policies and administrative capacity in place to effectively channel the extra resources to social and distribution-improving policies. These findings were corroborated by the 2020 External Study. In the public consultation, some stakeholders noted that the GSP had not contributed to economic diversification in beneficiary countries in the way that had been expected. Figure 3: The causal link between Main Problem #1 and its underlying drivers 2.1.2.Main Problem #2: The GSP potential for contributing to sustainable development and good governance in beneficiary countries is not fully exploited The present GSP instrument has contributed to the promotion of sustainable development and good governance, in particular through the EU’s monitoring of the implementation of the international conventions relevant to GSP+. The MTE recognised that overall, the GSP has created incentives for ratifying international conventions and has, therefore, contributed to a better framework for progress. However, one aspect highlighted by the MTE that contributes to Main Problem #2 is the need to put further measures in place in order to ensure that the GSP supports positive environmental development. In particular, it recommended that the Paris Agreement on Climate Change should be added to the list of 27 international conventions that GSP+ beneficiary countries must comply with. The 2020 External Study confirmed that GSP has fostered the potential for sustainable development and brought benefits in terms of respect for human rights, labour standards promoted by the International Labour Organization (ILO), environmental and governance conventions in the beneficiary countries. Aspects proposed for improvement include: extending negative conditionality to the environmental and good governance conventions; improving transparency towards and inclusiveness of civil society; raising awareness of the scheme in the GSP beneficiary countries.

Overall, across stakeholder groups, stakeholders consulted for the External Study consider that the GSP has positive impacts across all areas, with the exception of combating corruption, where it is seen as substantially less successful. Another aspect identified by the MTE which contributes to Main Problem #2 is that the scheme might not sufficiently incentivise beneficiary countries to improve the respect for human rights and other core rights and obligations related to sustainable development. Two aspects seem to be relevant. Firstly, negative conditionality (which means that eligibility for any of the three GSP arrangements can be withdrawn in case of serious and systematic violation of the principles laid down in the 15 core human rights and labour rights conventions of Annex VIII of the GSP Regulation) currently does not extend to environmental and governance issues. Secondly, positive conditionality (which makes eligibility for enhanced GSP benefits conditional upon ratification and effective implementation of international conventions) only applies to GSP+ countries; it does not apply to the beneficiaries of the Standard GSP and EBA. As noted by the MTE and by stakeholders in the open public consultation, the list of international conventions in Annex VIII to the GSP Regulation needs to be updated. Some additional conventions would be of particular relevance to the GSP objective of promoting sustainable development and good governance, including making the respect of certain international standards (e.g. on migration) a ground for possible withdrawal of preferences. Civil society stakeholders across beneficiary countries consulted during the MTE called for more information and transparency in the GSP+ monitoring process, and criticised in particular the lack of transparency of the written communication between the Commission and the beneficiary countries. They argued that greater transparency, accountability and standartisation of the monitoring mechanism could lead to improved effectiveness of the monitoring process. Indeed, based on input from the stakeholder consultations, the 2020 External Study recommended that transparency in the GSP+ monitoring process could be improved. Another aspect of GSP which can contribute to Main Problem #2 is the lack of flexibility in the withdrawal mechanism. This lack of flexibility makes it difficult to react promptly to seriously adverse developments in beneficiary countries. Some stakeholders contend that the lack of flexibility makes GSP leverage for improving the respect for human rights and sustainable development weaker than intended. Figure 4: The causal link between Main Problem #2 and its underlying drivers 2.1.3.Main problem #3: The protection mechanisms in favour of EU economic interests are not fully exploited There are two safeguard mechanisms built into the GSP. Their aim is to prevent serious difficulties for EU producers arising as a result of growing imports under GSP, by allowing for the re-introduction of normal Common Customs Tariff duties. In the context of GSP, there is a set of ‘offensive’ EU interests to promote values, international standards, and sustainable development through generous tariff reductions or the full removal of tariffs. We also have a set of ‘defensive’ EU interests focused on protecting EU producers in cases of serious market difficulties. Here, the views of industry are more nuanced, reflecting differences between the interests of domestic producers/competitors, of producers/users of imported inputs, and of export/importers. In terms of product sections, the majority of GSP imports remains in apparel and clothing (48%), followed by footwear (11%), mechanical appliances (7%), fish products (4%), leather (3.7%) and plastics (2.7%) – and this is where the pressure on EU industry can be felt. While the reduction in the number of beneficiaries has generally weakened the competitive pressure on EU industry, this is not the case in specific industry sectors such textiles, clothing, agricultural products, and tyres. That is why ensuring better safeguards for the EU’s economic interest remains among the Commission’s objectives. The MTE found that the present GSP scheme has improved the provisions for protecting the EU’s economic interests. Products that represent a high level of competitive threat to domestic EU producers are regularly removed from the scheme, and there are safeguard measures in force until 2022 for rice imports. However, the MTE study recommended that the Commission should more effectively use the safeguard mechanisms in the application of the current GSP. The general safeguard mechanism (Articles 20-28 of the GSP Regulation) applies to all beneficiaries and products covered by any of the GSP arrangements. The safeguard investigations on imports of rice from Cambodia and Myanmar/Burma have been the first test of the new safeguard provisions. An automatic safeguard mechanism (Article 29 of the Regulation) applies only to specific product groups and does not cover EBA beneficiaries. The Commission has never applied this specific safeguard mechanism since the conditions have not been met. The 2020 External Study’s recommendations called for the automatic safeguard to be better connected to its purpose – averting harm to EU industry. The public consultations carried out for the MTE and for the 2020 External Study provided opportunities for the EU private sector to point to cases of alleged suboptimal protection of EU economic interests due to insufficient use of the safeguards mechanism inbuilt in the scheme. A system of preferential tariffs in favour of developing countries is acceptable for European stakeholders only insofar it is perceived to offer sufficient protection against economic difficulties resulting from competition by developing countries.

Figure 5: The causal link between Main Problem #3 and its underlying drivers 2.2.What are the problem drivers? The underlying drivers for each of the identified problems can be grouped in clusters (see Table 2) according to the main aspect they are related to: GSP arrangements and beneficiary countries coverage; product coverage and graduation; conditionality; transparency; and safeguard mechanisms. Table 2: Clusters of drivers of problems in the GSP implementation Main Problems (MP) Clusters of drivers Drivers and their description Main Problem No 1 (MP1) The GSP potential for contributing to poverty eradication – through expansion and diversification of exports of beneficiary countries, especially those most in need – is not fully exploited Coverage of beneficiary countries under GSP arrangements Driver No 1 (D1) Diminishing number of Standard GSP beneficiary countries Driver No 2 (D2) Large and industrialised beneficiary countries with diversified export structure also benefit from GSP Driver No 3 (D3) Unprecedented number of EBA beneficiary countries expected to graduate from LDC status and thus exit EBA Products coverage and graduation Driver No 4 (D4) Product graduation mechanism is not targeted enough on competitive products and covers only Standard GSP Driver No 5 (D5) GSP product coverage does not adequately reflect the export potential of beneficiary countries Main Problem No 2 (MP2) The GSP potential for contributing to sustainable development and good governance in beneficiary countries is not fully exploited Conditionality of GSP preferences with sustainability objectives Driver No 6 (D6) Negative conditionality (Article 19) for all GSP arrangements is restricted to the core international conventions (human and labour rights) listed in Part A of Annex VIII to the GSP Regulation Driver No 7 (D7) Positive conditionality (Art. 15) is only provided for GSP+. Standard GSP and EBA beneficiaries are not required to ratify the conventions listed in Part A and B of Annex VIII to the Regulation Driver No 8 (D8) The list of international conventions in Annex VIII to the Regulation is not up to date Driver No 9 (D9) Inefficient or insufficient response – through the GSP withdrawal mechanism – to “serious and systematic violations” Transparency Driver No 10 (D10) Insufficient information and transparency and lack of indicators for monitoring and evaluation of GSP impact Main Problem No 3 (MP3) The protection mechanisms in favour of EU economic interests are not fully exploited Safeguards Driver No 11 (D11) Safeguard mechanism not responsive enough, in particular on sensitive products Driver No 4 (D4) Product graduation mechanism is not targeted enough on competitive products and covers only Standard GSP 2.2.1.Drivers regarding the coverage of beneficiary countries under GSP arrangements oDriver No 1: Diminishing number of Standard GSP beneficiaries The 2012 GSP reform restricted access to the scheme only to those countries classified below Upper Middle Income by the World Bank, and which do not have an FTA with the EU. This resulted in the reduction of GSP beneficiaries from 178 to 92 countries. Subsequent economic growth in beneficiary countries, or new FTAs with the EU, has meant that in 2021 only 18 countries continue to benefit from the Standard arrangement. Since 2014, the share of imports under the Standard arrangement in total EU imports has decreased. By contrast, the shares of total EU imports for GSP+ and EBA countries has increased. The two largest beneficiaries of Standard GSP (India and Indonesia) now account for a large part of all Standard GSP imports. The large reduction in the number of beneficiary countries of the Standard arrangement raises the question of its relevance as a preferential arrangement distinct from GSP+ beyond 2023. This question was analysed in the supporting External Study. oDriver No 2: Large and industrialised beneficiary countries with a diversified export structure also benefit from GSP Since 2004, the Commission has aimed to focus GSP on the countries most in need, such as LDCs and the most vulnerable developing countries (small economies, land-locked countries, and low-income countries) in order to help them play a greater role in international trade. This was also one of the main objectives of the 2012 GSP reform. Taking into account all GSP preferential imports under the three different arrangements, Bangladesh (an EBA beneficiary) has become the EU’s top GSP partner with 25% of all GSP imports. However, some large industrialised lower-middle-income countries remain GSP beneficiaries and can dominate GSP imports into the EU. Preferences given to these countries may aggravate the competitive pressure on exports from LDCs and other vulnerable GSP countries. India is the Standard GSP beneficiary with the largest share (23%) of overall GSP imports into the EU, followed by Vietnam (14%) and Indonesia (10%). Other GSP users are smaller by comparison in percentage terms. oDriver No 3: Unprecedented number of EBA beneficiaries expected to graduate from LDC status (and thus exit EBA) Reports from the UN and UNCTAD indicate that several countries benefitting from the EBA could graduate from LDC status by 2024. They would thus be removed from the list of EBA beneficiary countries, following a transition period of three years, and, depending on their World Bank classification, they would transition to Standard GSP only or graduate entirely out of the GSP.

The unprecedented number of countries exiting the EBA poses the challenge of ensuring that this transition does not harm the results achieved in terms of economic development and eradication of poverty. 2.2.2. Drivers regarding the products coverage and graduation oDriver No 4: Product graduation mechanism is not targeted enough on sensitive products and covers only the Standard GSP arrangement Some stakeholders contend that the graduation mechanism of the GSP does not sufficiently support the aim of concentrating benefits on countries most in need. Currently, product graduation is calculated at Harmonized System section level ￼, and applies only to Standard GSP beneficiary countries (it does not cover EBA and GSP+ countries). Although the MTE did not make any recommendations, it found that the graduation of textiles from India had helped to expand the exports of other more vulnerable GSP beneficiaries. oDriver No 5: GSP product coverage does not adequately reflect export potential of beneficiary countries EBA beneficiaries enjoy duty-free access to the EU market for all their exported products except arms and ammunition – but the range of products benefitting from preferential access from Standard GSP and GSP+ countries is more limited. Extending product coverage could help with export diversification. The EP Resolution called on the Commission to consider expanding GSP product coverage, in particular with regard to semi-finished and finished products. The diversification of a beneficiary country’s exports depends on a variety of factors, including resource endowments and domestic policy choices that favour the development of a country’s productive capacity. This goes beyond the GSP instrument and relates more to EU development assistance and improving policy coherence in practice, notably between trade and development policies. 2.2.3. Drivers regarding conditionality of GSP preferences with sustainability objectives oDriver No 6: Negative conditionality (Article 19) for all GSP arrangements is restricted to the core international conventions (human and labour rights) listed in Part A of Annex VIII to the GSP Regulation Tariff preferences can be withdrawn, in respect of all or certain products, in cases of serious and systematic violation of the principles enshrined in the core human rights and labour rights conventions listed in Part A of Annex VIII. Article 19 refers to a negative conditionality to respect human rights and labour rights, as well as other conditions indicated therein. The use of the withdrawal procedure so far (against Sri Lanka, Belarus, Myanmar, and Cambodia ) has shown that conditionality can contribute to the creation of the necessary platform of dialogue on issues covered by the GSP Regulation and can increase EU’s leverage in pushing for respect of fundamental rights. Negative conditionality does not apply to the environmental or governance conventions in Part B of Annex VIII to the Regulation. At present, negative conditionality is restricted to core conventions on human and labour rights (Part A of Annex VIII). The conditions laid down in Article 19(1)(a) should also apply to the conventions relating to protection of the environment and governance listed in Part B of Annex VIII. Moreover, Article 19(1)(c) provides as a ground for withdrawing preferences “failure to comply with international conventions on anti-terrorism and money laundering”. This should be extended to cover other important areas for which international conventions for the respect of human rights and good governance standards exist. oOne such area is migration. It is essential for both origin and destination countries to address common challenges, such as stepping up cooperation on readmission of own nationals and their sustainable reintegration in the country of origin, in particular in order to avoid a constant drain in active population in the countries of origin, with the ensuing long-term consequences on development, and to ensure that migrants are treated with dignity. Driver No 7: Positive conditionality (Art. 15) applies only to GSP+ beneficiaries. Standard GSP and EBA beneficiaries are not required to ratify the international conventions listed in Part A and B of Annex VIII to the GSP Regulation There is no obligation for Standard GSP or EBA beneficiary countries to ratify the international conventions listed in Annex VIII (Parts A and B) in order to be eligible for GSP or EBA preferences. This condition exists for GSP+ countries only. In other words, there is no positive conditionality for Standard GSP and EBA beneficiaries in relation to the conventions listed in Annex VIII. The extension of positive conditionality to all GSP countries is supported by some stakeholders (e.g. international trade unions and civil society organisations as well as some EU industries such as footwear) as a measure to ensure a level playing field. Other stakeholders warn that such an extension could overburden the administrative capacity of especially the smallest and least developed GSP beneficiaries.

oDriver No 8: The list of international conventions in Annex VIII is not up to date By making GSP+ status dependent on the ratification and implementation of a number of international conventions, the EU has leverage to directly contribute to sustainable development and human rights, through the adherence to these conventions by GSP+ beneficiaries. Expanding the list of conventions would provide an opportunity to ensure that GSP beneficiaries ratify and comply with further treaty obligations relating to human rights, sustainable development, and good governance. The economic and development challenges facing GSP+ beneficiaries are often long-term and structural; their alleviation may require major reforms over a long period. Thus, the fact that a convention must be ratified, and that the country has no serious failures in its implementation as a precondition to receive GSP+ status can induce positive sustainability effects, but over the long run. oDriver No 9: Inefficient or insufficient response – through the GSP withdrawal mechanism – to “serious and systematic violations” Some stakeholders consider withdrawal of preferences to be an effective way of inducing compliance with key human and labour rights obligations – and recommend more stringent enforcement of withdrawal. Others note that it would generate great uncertainty and disrupt supply chains, thereby undermining the purpose of the preference schemes themselves . As pointed out in the EP Resolution, a decision to withdraw preferences has to be consistent with the objectives of GSP. Some stakeholders argue that removing preferences – even if for reasons of serious human rights violations – can have a negative effect on poverty eradication by negatively affecting employment. However, others contend that in cases of serious violations of human rights or environmental protection, the objectives of GSP are being seriously prejudiced. Removing GSP preferences due to violations of human rights, labour rights, environmental and governance rules (including in new areas such as migration) could thus be seen as consistent with the scheme’s objectives. The introduction of the possibility of a partial withdrawal, under the current GSP regulation already laid down the possibility to calibrate the withdrawal. Moreover, experience has shown that when exercising the option of a temporary withdrawal, it is appropriate to carefully assess the socio-economic impact of any such withdrawal to avoid hurting disproportionately the most vulnerable part of the population. The MTE study recommended that the Commission should take immediate steps to initiate the relevant withdrawal procedures whenever a monitoring body reports serious and systematic violations (or findings of a similar gravity). The Commission, in its response to the MTE report, considered that such an approach might remove much of the leverage that GSP brings for pushing – over time – to resolve problematic issues related, for instance, to human rights. The 2020 External Study, however, noted there were situations where negative developments in beneficiary countries required the EU to respond faster than is currently possible under the withdrawal procedure. It highlighted that the current mechanism is administratively burdensome and lengthy and does not provide enough flexibility to react promptly to urgent situations. In addition, the current GSP scheme provides for full or partial withdrawal of preferences vis-à-vis a country, but no flexibility to apply a more targeted approach vis-à-vis individual operators from a given country.2.2.4. Driver regarding transparency oDriver No 10: Insufficient information and transparency, and lack of indicators for monitoring and evaluation of GSP impact A robust monitoring system is crucial to ensure effective dialogue and support for beneficiary countries in GSP implementation, as well as to ensure that the possibility of withdrawal is seen as a likely outcome for failing to meet the GSP+ requirements. The MTE study, the EP resolution, as well as civil society in the public consultation, have all called for the monitoring process to be made more transparent and inclusive, in order to help increase the GSP impact on sustainable development. They highlight the lack of public access to the written communication part of the GSP+ monitoring; the lack of formal structures for involving civil society in the monitoring; and the lack of a complaint mechanism linked to GSP+ monitoring. 2.2.5. Driver regarding safeguard mechanism oDriver No 11: Safeguard mechanisms are not responsive enough, in particular on sensitive products The MTE study recommended that the Commission should more effectively use the safeguard mechanism in the application of the Regulation. The EP Resolution pointed out that the GSP safeguard mechanisms were not responsive enough, in particular in the case of “sensitive products”. The Commission considers that the general safeguard mechanism laid down in Article 22 of the Regulation to be functioning well, but acknowledges concerns about the adequacy of the automatic safeguard mechanism established in Article 29.

Driver No 4, point 2.2.2 above, is also relevant when responding to concerns about sensitive products. EU industry representatives maintain that the current product graduation provisions may sometimes result in a failure to target competitive products, when these are only a part of a broader Section classification. 2.3. How will the problems evolve? The identified problems will persist and increase if the EU does not act with an appropriate policy initiative. If no policy action is taken, upon expiry of the current GSP Regulation, exports from a number of developing countries (all those under Standard GSP and GSP+) will lose preferential treatment on the EU market. The GSP’s three-tier architecture, with its sliding scale of preferences, aims precisely at addressing the varying needs of different developing countries. No other instruments offer an adequate and timely response to the differing needs of different developing countries. Depending on how much a GSP beneficiary country exports to the EU, higher duties could negatively affect economic growth, employment, and investment. Often their export products compete mainly on price, making them especially vulnerable to tariff increases. GSP+, which offers the best incentives to work towards sustainable development, would be discontinued – reducing the EU’s ability to pursue its values agenda and development objectives. While some European producers would face less competition from developing countries in some sectors, EU businesses that currently rely on goods imported under the benefit of GSP tariff preferences would be negatively impacted, as would the consumers of those products. Moreover, maintaining GSP preferences with the three arrangements is seen as ensuring continuity and predictability for exporters and their trade partners and supporting economic recovery of the beneficiary countries, many of which have been severely impacted by COVID-19. 3.Why should the EU act? 3.1. Legal basis The legal basis for a new GSP Regulation lies in Article 207 of the Treaty on the Functioning of the European Union (TFEU), which sets out the EU’s common commercial policy. 3.2. Subsidiarity: necessity of EU action The common commercial policy is listed in Article 3 of the TFEU among the areas of exclusive competence of the Union. Pursuant to Article 5(3) of the Treaty on European Union (TEU), the subsidiarity principle does not apply in areas of exclusive EU competence. The principle of proportionality is satisfied since the Regulation is the only appropriate type of action that the Union can take to establish unilateral, non-reciprocal, preferential market access for developing countries. 4.General and specific objectives of GSP: What is to be achieved? The EU’s overarching objective of economic and trade relations derives from the TFEU, which in Article 3(1)(e) establishes the EU’s exclusive competence for the common commercial policy. Furthermore, Article 206 provides that the overall objective of EU policy on economic and trade relations is to ‘contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and on foreign direct investment, and the lowering of customs and other barriers’. As established by Article 205 of the TFEU, the common commercial policy also serves the more general objectives of the Union’s external action as described in Article 21 of the TEU. The three main objectives of the GSP are in line with the common commercial policy and the Union’s external action. The recent Trade Policy Review Communication confirmed the continued importance of and focus on these objectives. The current legal framework for GSP is largely effective and overall is delivering on the objectives pursued by the 2012 reform. However, Section 2 identified several problems to address, based inter alia on the recommendations of the MTE, the EP Resolution, the supporting External Study, the public consultation, and the associated discussions with stakeholders.

The overall task, therefore, is to identify, for each of the three main (general) objectives of the GSP, those changes that should be introduced to the new GSP regulation so as to further strengthen its effectiveness and efficiency. The objectives tree in Figure 6 reflects the general and specific objectives for the GSP Regulation as a whole. As explained above (p.11), options to address each of the specific problems and their underlying drivers have been considered and analysed. In some cases that analysis led to the conclusion that the options for specific new policy measures under consideration would be ineffective or inefficient. The Commission believes that overall, the present GSP scheme is functioning well – and that view has been corroborated in first the MTE and latterly the supporting Study for this impact assessment. New operational objectives (and specific measures by which to attain them) are, therefore, proposed only for some of the identified specific objectives. Once again, the distinction is marked by showing operational objectives where policy intervention is proposed in red; operational objective where no new intervention is propose are shown in black. Figure 6: GSP objectives tree Table 3: Problem drivers linked to the Specific and General Objectives of the GSP review Problem drivers Specific Objectives (SO) General Objectives (GO) Driver No 1 (D1) Diminishing number of Standard GSP beneficiary countries Specific Objective No 1 (SO 1) Expand exports from developing countries, particularly those most in need General Objective No 1 (GO 1) Contribute to poverty eradication in countries most in need Driver No 2 (D2) Large and industrialised beneficiary countries with diversified export structure also benefit from GSP Driver No 3 (D3) Unprecedented number of EBA beneficiary countries expected to graduate from LDC status and thus exit EBA Driver No 4 (D4) Product graduation mechanism is not targeted enough on competitive products and covers only Standard GSP Driver No 5 (D5) GSP product coverage does not adequately reflect the export potential of beneficiary countries Specific Objective No 2 (SO2) Contribute to export diversification of developing countries Driver No 6 (D6) Negative conditionality (Article 19) for all GSP arrangements is restricted to the core international conventions (human and labour rights) listed in Part A of Annex VIII to the GSP Regulation Specific Objective No 3 (SO 3) Improve and strengthen GSP support for sustainable development, good governance, and human and labour rights in beneficiary countries General Objective No 2 (GO 2) Contribute to sustainable development and good governance in beneficiary countries Driver No 7 (D7) Positive conditionality (Art. 15) is only provided for GSP+. Standard GSP and EBA beneficiaries are not required to ratify the conventions listed in Part A and B of Annex VIII to the Regulation Driver No 8 (D8) The list of international conventions in Annex VIII to the Regulation is not up to date Driver No 9 (D9) Inefficient and insufficient response – through the GSP withdrawal mechanism – to “serious and systematic violations” Driver No 10 (D10) Insufficient information and transparency and lack of indicators for monitoring and evaluation of GSP impact Specific Objective No 4 (SO4) Ensure that adequate information available on the GSP+ monitoring process is available to stakeholders Driver No 11 (D11) Safeguard mechanism not responsive enough, in particular on sensitive products Specific Objective No 5 (SO5) Further protect EU industries competing with imports from GSP beneficiary countries General Objective No 3 (GO 3) Ensure protection of EU economic interests in the functioning of the scheme 4.1. General Objective No 1: Further contribute to poverty eradication in countries most in need Following entry into force of the reform in 2014, a significant decline in the value of imports under Standard GSP was observed because a large number of beneficiary countries were no longer eligible for GSP. The introduction of income classification and vulnerability criteria caused this reduction, and also resulted in benefits being better targeted towards the least developed countries. Overall, the positive economic impact of the GSP reform is significant. Specific Objective 1 (Expand exports from developing countries, particularly those most in need): The objective to support beneficiary countries in their potential for expanding exports is already built into the GSP instrument through the graduation of upper-middle income countries and globally competitive sectors. However, more can be done, notably by: ·Ensuring that the graduation of EBA beneficiaries from LDC status is followed by a move to another GSP arrangement (D3); and/or ·Ensuring that tariff preferences under GSP are withdrawn (i.e., product graduation) from competitive products in order to provide further opportunities in the EU market for the exports of countries most in need (D4). As regards the graduation of EBA beneficiaries, several LDCs currently benefitting from the EBA arrangement are expected to graduate from LDC status over the next ten years. Accordingly, these countries will be removed from the list of EBA beneficiary countries “following a transitional period of three years.” Although the standard transition period between the UN General Assembly decision on graduation and graduation itself is three years, recent practice has been to grant longer preparatory periods. Considering the economic impact of Covid-19, it some the scheduled decisions for 2021 have been deferred. Following graduation from LDC status and exit from the EBA, these countries could move to other preferential arrangements: notably to the Standard GSP, or, in case of compliance with the vulnerability conditions and the ratification and implementation of international conventions listed in Annex VIII of the Regulation, to GSP+. The expiry of a country’s eligibility for the EBA arrangement raises two issues. First, what would be the economic, social, human rights and environmental consequences for EBA countries moving to the Standard GSP arrangement or GSP+? Second, what should be the appropriate transition period for moving from EBA to Standard GSP or to GSP+ upon graduation from LDC status? The operational objective would be to ensure a smooth transition in EU market access for the large number of EBA beneficiaries expected to graduate from LDC status. Product graduation (defined under Article 8 of the GSP Regulation) provides for the suspension of preferences for products the exports of which exceed certain thresholds in total EU imports from all GSP beneficiaries. This mechanism currently applies only to the GSP Standard arrangement, but not to the GSP+ or EBA.

Product graduation is applied at the level of GSP product sections. This is a relatively aggregated level, which combines fairly different products within sections. Various options to amend the product graduation mechanism have been tested as part of this impact assessment (see §6.2 below); but none was found to have a significant positive impact on exports to the EU by countries most in need. No operational objective has therefore been taken up – instead, the Commission proposes to make technical adjustments to the existing framework. Specific Objective 2 (Contribute to export diversification of developing countries): Both the MTE and the 2020 supporting study found that for the Standard GSP, the GSP+ and EBA country groups, the GSP contributed in only a limited way to diversification of production and trade in the developing countries. Various options to further encourage export diversification among beneficiary countries were tested as part of this impact assessment (see §6.2 below); but none was found to be effective. No operational objective has therefore been taken up – instead, the Commission proposes to make technical adjustments to the existing framework. 4.2. General Objective No 2: Contribute to sustainable development and good governance in beneficiary countries The Trade Policy Review (TPR) communication of 18 February 2021 confirmed that the promotion of sustainable development is an integral part of the EU’s trade policy, since trade is one of the essential instruments that can support economic and social development through better access to the EU market. The TPR also underlined the specific role of GSP as an instrument creating trade opportunities that contribute to economic growth and jobs creation, as well as sustainable development in beneficiary countries. This function of the GSP has several limitations, as many of the problem drivers are influenced by factors outside the remit of the scheme. For instance, implementation of international conventions is costly. The chances of a successful outcome also depend on domestic political dynamics within the countries concerned. Government priorities, budgetary constraints, availability of appropriate development and technical assistance are powerful determinants of actual progress, irrespective of the contribution made by the EU’s tariff preferences. Ambition in this regard must, therefore, be tempered with realism: the scheme will help but it cannot alone ensure sustainable development and good governance. Specific Objective 3 (Improve and strengthen GSP support for sustainable development, good governance, and human and labour rights in beneficiary countries): Conditionality remains one of the main mechanisms that the EU uses to promote respect for human rights and good governance in GSP beneficiary countries: a country should not benefit from preferential trade arrangements while it is acting in a way that is contrary to its own developmental needs. Overall, GSP can be considered to have made a positive contribution to the improvement of social and human rights in the beneficiary countries. Nevertheless, the conditionality mechanisms built into the GSP have shown some limitations. In particular, with respect to environmental protection, the MTE concluded that the EU currently has very limited leverage through Standard GSP and EBA to directly contribute to environmental sustainability in the beneficiary countries. The operational objective would be to extend negative conditionality to all conventions listed in Annex VIII of the GSP Regulation. Moreover – as confirmed by the MTE study – the list of international conventions in Annex VIII is outdated and incomplete. The operational objective would therefore be to revise and update the list of international conventions in Annex VIII. GSP benefits have been suspended in only a limited number of cases and have been triggered by criteria established in the Regulation. Better use of the withdrawal mechanism could reinforce the positive impact of GSP on the promotion of sustainable development. The withdrawal mechanism could be made more flexible, to provide the EU with a tool that can be used to react faster to exceptionally grave situations in beneficiary countries. The withdrawal mechanism could also be made more targeted and flexible, if it allowed the EU to target the withdrawal of preferences against specific individual operators or to exempt individual operators from a country-level withdrawal. The revision of GSP should be used to promote sustainable development objectives linked to migration. The withdrawal mechanism can be used to underline the interlinkages between trade and migration by adding the possibility to withdraw tariff preferences for violations of the principles of international migration conventions. The operational objective would be to ensure an effective response to serious and systematic violations and greater flexibility through specific improvements to the GSP withdrawal mechanism. Specific Objective 4 (Ensure that adequate information is available to stakeholders on the GSP+ monitoring process):

In line with feedback from stakeholders during the MTE, the Commission has already started to put in place tools to improve knowledge and awareness about the role played by GSP in supporting sustainable development in beneficiary countries. However, there is a need to further enhance the transparency of the current GSP monitoring system, so as to make the monitoring system more robust and, therefore, to contribute towards a more effective dialogue with and support for beneficiary countries, as well as to enhance the buy-in of European stakeholders in the GSP scheme. The operational objective would be to improve transparency for stakeholders by publishing a detailed description of the monitoring process, the actors involved and interaction with civil society. 4.3. General Objective No 3: Ensure protection of EU economic interests in the functioning of the scheme Specific Objective 5 (Further protect EU industries competing with imports from GSP beneficiary countries). Many stakeholders that participated in the open public consultation called for the review of the safeguard mechanism, in light of a perception of inadequate protection of sensitive sectors, particularly the rice sector. They called for the creation of an automatic safeguard (as is the case for other sensitive products), as well as arguing that the automatic safeguard should apply to EBA countries as well. The 2018 MTE recommended that the Commission should more effectively use the safeguard mechanism in the application of the Regulation. It also called to launch investigations in accordance with its mandate, and to provide notice of its procedural decisions, deadlines, and findings. The EP in its Resolution noted that the GSP safeguard mechanisms should be more responsive, in particular in the case of sensitive products. The Commission considers the current safeguard mechanisms to be effective. Nonetheless, various options to amend the automatic safeguard mechanism have been tested as part of this impact assessment (see §6.2 below); but none was found to have a significant positive impact in terms of protecting competing EU producers. No operational objective has, therefore, been taken up – instead, the Commission proposes to make technical adjustments to the existing framework. 5.What are the available policy options? This section describes the available policy options and the corresponding actions and measures considered for inclusion in the new GSP regulation. Options are bundled and described per cluster on the basis of the problem to address. 5.1.What is the baseline from which options are assessed? As already mentioned, the current GSP Regulation expires on 31 December 2023. A positive decision of the Commission and of the co-legislators will be necessary to put in place a new Standard GSP and GSP+ arrangement, while the open-ended EBA arrangement will continue irrespectively of the GSP review. Taking into account that the MTE, the public consultation, and the supporting External Study showed that the scheme was overall effective, a continuation of the current GSP approach without any changes was used as the baseline. Baselines are bundled and presented in Table 4 in clusters, based on the various parts of the GSP Regulation they refer to. A detailed description of baseline scenarios is presented in Annex 7. The main drivers for future development of the impacts of the GSP are annual increases of trade flows as well as countries dropping out of the scheme due to graduations at large or in specific product groups or by joining an FTA with the EU. The current regulation entered into force in 2014. 2020 has been a very unusual year. It makes thus most sense to determine the growth of trade flows looking at the period of 2014-2019. Over this time horizon, EU 27 imports from current GSP beneficiaries increased by about 4.5% per year. However, over the same period, countries have dropped out of the scheme. Looking at the evolution of trade without correcting for country coverage results in an annual growth rate of only 3.7%. In terms of country graduations, the most impactful would be Vietnam (accounting for 14% of trade in 2019 under GSP preferences) having signed an FTA with the EU as well as Bangladesh (25%) being scheduled to graduate from LDC status. Recent developments also strongly point towards Indonesia (10%) leaving the scheme due to graduation to upper-middle-income country status in the next years, but raise doubts about the timeline of Bangladesh's transition from EBA to standard GSP (or GSP+). Table 4: Clusters of baseline scenarios and their descriptions Clusters Baseline scenario Description Arrangements and beneficiary countries Baseline Scenario 1A (BS 1A) No change to the GSP three-tier structure (Standard, GSP+ and EBA) Baseline Scenario 2A (BS 2A) No change to the criteria defining eligibility for Standard GSP Baseline Scenario 3A (BS 3A) No change to the vulnerability criteria to be met for enjoying GSP+ Product coverage and graduation mechanism Baseline Scenario 4A (BS 4A) No change to the product graduation mechanism Baseline Scenario 5A (BS 5A) No change to the product coverage Conditionality Baseline Scenario 6A (BS 6A) No change to negative conditionality (Art. 19) i.e., it remains restricted to the core conventions listed in Part A of Annex VIII to the Regulation Baseline Scenario 7A (BS 7A) No change to positive conditionality i.e., it continues to apply only to GSP+ and it is not extended to Standard GSP or EBA Baseline Scenario 8A (BS 8A) No change in the list of international conventions in Annex VIII to the Regulation Baseline Scenario 9A (BS 9A) No change to the mechanism for temporary withdrawal of preferences Transparency Baseline Scenario 10A (BS 10A) No change to the GSP+ monitoring mechanism Safeguards Baseline Scenario 11A (BS 11A) No change to the automatic safeguard mechanism 5.2.Description of the policy options The policy options are grouped in clusters: (1) arrangements and beneficiary countries, (2) products coverage and graduation mechanism, (3) conditionality, (4) transparency and (5) safeguards. These clusters correspond to the problems the options aim to address (see Table 5).

The policy options highlighted in red are the most important options to be pursued and further analysed. They also correspond to the key drivers that, as described in Chapter 2, would have the most significant negative impact if not properly addressed. The remaining options would be less effective in addressing the GSP’s main problems and objectives. Table 5: Clusters of policy options and their sub-options, and the problem drivers they address Clusters Drivers Policy Options Cluster 1 Arrangements and beneficiary countries Driver 1 (D1) Diminishing number of Standard GSP beneficiary countries Option 1B (O. 1B) Amend the three-tier structure of the GSP üSub-option 1Ba: Discontinue all but EBA üSub-option 1Bb: Discontinue the Standard GSP only Driver 2 (D2) Large and industrialised beneficiary countries with diversified export structure also benefit from GSP Option 2B (O. 2B) Graduation from GSP of large and industrialised developing countries Driver 3 (D3) Unprecedented number of EBA beneficiary countries expected to graduate from LDC status and thus exit EBA Option 3B (O. 3B) Ensure all EBA countries expected to graduate from LDC can transition to GSP+ by: üSub-option 3Ba: changing the vulnerability criteria*; or üSub-option 3Bb: granting a longer transition period for meeting the criteria Cluster 2 Product coverage and graduation mechanism Driver 4 (D4) Product graduation mechanism is not targeted enough on competitive products and covers only Standard GSP Option 4B (O. 4B) Expand the application of the product graduation mechanism to GSP+ and EBA üSub-option 4Ba: to rice and sugar üSub-option 4Bb: to all agricultural products in Annex V and IX of the GSP Regulation Driver 5 (D5) GSP product coverage does not adequately reflect the export potential of beneficiary countries Option 5B (O. 5B) Expand the product coverage for standard GSP and GSP+ üSub-option 5Ba: to products that can help achieve environmental and climate protection goals üSub-option 5Bb: to a number of industrial and agricultural semi-finished and finished products Cluster 3 Conditionality Driver 6 (D6) Negative conditionality (Article 19) for all GSP arrangements is restricted to the core international conventions (human and labour rights) listed in Part A of Annex VIII to the GSP Regulation Option 6B (O. 6B) Expand negative conditionality to all conventions listed in Annex VIII to the Regulation* Driver No 7 (D7) Positive conditionality (Art. 15) is only provided for GSP+. Standard GSP and EBA beneficiaries are not required to ratify the conventions listed in Part A and B of Annex VIII to the Regulation Option 7B (O. 7B) Expand positive conditionality to the Standard GSP arrangement and EBA beneficiary countries Driver No 8 (D8) The list of international conventions in Annex VIII to the Regulation is not up to date Option 8B (O. 8B) Amend the list of international conventions in Annex VIII to the Regulation üSub-option 8Ba: Remove conventions deemed no longer/less relevant üSub-option 8Bb: Expand the list of conventions in Annex VIII to the Regulation üSub-option 8Bc: Combine 8Ba and 8Bb* Driver 9 (D9) Inefficient and insufficient response – through the GSP withdrawal mechanism Option 9B (O. 9B) Amend the mechanism for temporary withdrawal of preferences üSub-option 9Ba: Introduce additional steps prior to the formal launch of a withdrawal procedure üSub-option 9Bb: Introduce additional steps after the formal launch of a withdrawal procedure* üSub-option 9Bc: Introduce withdrawal for specific economic operators, and/or for violation of migration conventions* üSub-option 9Bd: Shorter urgency procedure in well qualified circumstances* Cluster 4 Transparency Driver 10 (D10) Insufficient information and transparency and lack of indicators for monitoring and evaluation of GSP impact Option 10B (O. 10B) Adopt further practical measures to improve transparency* Option 10 C (O. 10C) Extend and align the GSP monitoring cycle* Cluster 5 Safeguards Driver 11 (D11) Safeguard mechanism not responsive enough, in particular on sensitive products [ and Driver No 4 (D4) Product graduation mechanism is not targeted enough on competitive products and covers only Standard GSP ] Option 11 B (O.11B)

Expand the application of the automatic safeguard mechanism (Art. 29) to all agricultural products Option 11 C (O. 11C) Expand the application of the automatic safeguard mechanism (Article 29) to EBA beneficiary countries for different lists of products üSub-option 11Ca: current list of products (Art.29) üSub-option 11Cb: expand list to rice and sugar üSub-option 11Cc: expand list to all agricultural products 5.2.1.Options regarding Cluster 1: arrangements and beneficiary countries This set of options looks at different ways to adjust the structure and country coverage of the scheme, in order to expand exports from developing countries most in need (SO1), and, therefore, contribute to the general objective of poverty eradication (GO1). The starting point of the External Study was whether to amend to not the three-tier structure of the GSP (O.1B): either by discontinuing both the Standard GSP and the GSP+ (1Ba) or discontinuing only Standard GSP (1Bb). To address the concern that some large, industrialised countries continue to benefit from the preferences (D2), the External Study also looked at their possible graduation from GSP (O.2B). However the most concerning driver is that a significant number of EBA beneficiary countries are expected to graduate from LDC status over the next years and would cease to be eligible for EBA. Options O.1B will aggravate even further the status of those LDCs. The total effect current LDCs expected to graduate in the coming years would be the combined effect of losing EBA preferences and then losing Standard GSP preferences. Under option O.2B, large developing countries, defined as all countries that individually account for 0.5% or more of world GDP, are removed from the GSP. In practice, this option would apply in a very narrow manner only to India and Indonesia. Furthermore, if current trend of economic development is confirmed, Indonesia may lose GSP access by 2024. Option O3.B looks at ways of ensuring all EBA countries expected to graduate from LDC status can transition to GSP+, and attempt to mitigate the negative economic, social, human rights and environmental effect of several EBA beneficiaries’ graduation from LDC status (D3), In practice, Bangladesh is the only country not meeting the vulnerability criteria required to obtain GSP+ (in particular the export competitiveness criterion). Two different means to ensure graduating LDCs have access to GSP+ can be suggested: üChange the economic vulnerability criteria for GSP+ i.e., by abolishing the ‘limited export competitiveness’ and only keeping the ‘lack of export diversification’ criterion (Sub-option 3Ba). üExtend the current three-year transition period for ex-LDC countries i.e., on a case-by-case basis to up to 5 years, to make it easier for them to meet the criteria for GSP+ (Sub-option 3Bb). The export competitiveness criterion was inserted in the current GSP Regulation to ensure that very large industrialised middle income countries did not become eligible for GSP+. The additional GSP+ preferences for these large economies would negatively affect the most vulnerable economies, and would bring competitive pressure to EU industry. Furthermore, extending GSP+ to all Standard GSP countries (including at the time China, India, Vietnam, Indonesia, Thailand, etc.) would undermine EU policy of entering into bilateral agreements with major trade partners. The criteria were relaxed in the past to allow less competitive low and lower-middle income countries (Pakistan, Philippines) to join GSP+. While the reasons for keeping out large industrialised countries are still valid, the export competitiveness criterion is no longer useful as it could prevent LDCs from joining GSP+. The risk of large industrial countries de-diversifying their economy to become eligible for GSP+ is limited. In the consultations carried out for the supporting Study, some respondents, mostly from beneficiary countries and the public sector, were in favour of granting the graduating LDCs a longer transition period between the point of meeting criteria for graduation and the actual departure from the EBA arrangement. Suggestions varied from five to ten years, to ensure predictability and to take account of a timeline related to investment and sourcing decisions. Additionally, respondents pointed out the adverse impacts of COVID-19 on graduating EBA beneficiaries might warrant longer transition periods to help countries to recover economically after the pandemic. Other respondents, mostly EU citizens, believed that the current transition period of three years was long enough or that it should even be shortened given that, in the run up to graduation from LDC status, countries would have been aware of that milestone and – at least theoretically – would have had a chance to prepare. There were also suggestions of a flexible approach under which the Commission would evaluate each case separately, with a possibility to extend the transition period in certain circumstances. Those respondents believed that an excessively long transition period applying for each graduating country, irrespective of its situation, would discourage necessary reforms. 5.2.2.Options regarding Cluster 2: product coverage and graduation Option O.4B expands the application of the product graduation mechanism to all GSP+ and EBA countries: for two specific products: rice and sugar (sub-option 4Ba) or for all agricultural products as listed in Annex V and IX of the GSP Regulation (sub-option 4Bb). The supporting study concluded this option has no impact – no countries would reach the required threshold to trigger the graduation rules for rice, sugar or other agricultural products.

Option O.5B expands the product coverage for Standard GSP and GSP+ and attempts to address the limited impact of the GSP on export diversification. Sub-option 5Ba looks at expanding product coverage to products that can help achieve environmental and climate protection goals. Sub-option 5Bb looks at expanding product coverage to a number of industrial and agricultural semi-finished and finished products currently excluded from the GSP as “sensitive” products. The supporting study found minor economic impact of both sub-options; the additional export gains would be captured by the large and already well-diversified economies. The supporting study looks at a list of 34 “environmental goods”, that are presently considered as sensitive under the GSP and which, therefore, are still subject to preferential tariffs (as opposed to being tariff-free) in the case of Standard GSP countries. In the public consultations, respondents from GSP beneficiary countries generally supported the extension of product coverage under the GSP, including to sustainably produced goods; EU respondents, with the exception of civil society, were more sceptical. Some noted also that the extension of product coverage to include sustainably produced or environmental (green) goods would support credibility and consistency of EU policy, including the European Green Deal. However, others raised questions about the feasibility practical application of such an extension. 5.2.3.Options regarding Cluster 3: conditionality Scope of conditionality Option 6B expands negative conditionality for all GSP arrangements to cover also the conventions on environment and governance (Part B of Annex VIII). Option 7B extends to all GSP beneficiaries the obligation to ratify and effectively implement the conventions listed in Annex VIII (including any potential changes in the list - policy Option 8B). List of international conventions Option 8B proposes to update of the current list of 27 international conventions (Annex VIII of the Regulation). The supporting Study analysed to what extent these international conventions are still relevant for attaining the objectives of the GSP i.e., supporting sustainable development, good governance and poverty eradication in beneficiary countries while also considering administrative cost issues. The following criteria were used to assess the conventions listed thereafter: §The level of contribution to and coherence with the objectives of the GSP; §The extent to which new conventions overlap with the conventions already listed in Annex VIII; §Legal recognition as a convention; §The ratification status of conventions globally and among GSP countries (only conventions that are open to ratification by all members of the international community are considered); §Coherence with EU Member State commitments (ratification by all EU Member States); §The conventions’ decision-making and governance systems and institutional structures; §The system of regular implementation and/or compliance mechanisms and associated reporting by monitoring bodies under the convention; and §Reporting obligations on ratifying countries. In the consultations for the supporting study, respondents across stakeholder groups mostly agreed with the idea of including international conventions on environment and governance into GSP conditionality, thus enabling withdrawal of preferences in the case of serious and systematic violations of these conventions as well. If environmental conventions are enforced, including through a threat to withdraw preferences, this would provide an incentive for beneficiary countries to respect them and would also contribute to attaining the SDGs. Some respondents, however, noted the challenge that implementation of those conventions represented for GSP beneficiaries. In particular, LDCs needed to make progress in awareness, knowledge and technical capacity to be able to comply with environmental conventions, before the related conditionality could be introduced. Regarding climate change, respondents generally agreed that the Paris Agreement’s principles should be respected by all countries and that addressing climate change should be a common objective for all. Some specific comments opined, however, that withdrawal of preferences was not the right measure to address such a problem in LDCs, as many of them are already confronted with consequences of climate change and losing preferences would further weaken their economic capacity to act.

According to the external study, the attainment of GSP objectives, notably on sustainable development could be advanced by adding the following conventions: §The Paris Agreement on Climate Change (2015); §The Convention on the Rights of Persons with Disabilities (CRPD); §The Optional Protocol to the Convention on the Rights of the Child on the Involvement of Children in Armed Conflict (OP-CRC-AC); §ILO Convention No 81 on Labour Inspection; §ILO Convention No 144 on Tripartite Consultation; §The UN Convention against Transnational Organized Crime (UNTOC). Given the above considerations, a combination of removals and additions is needed to ensure that the list remain relevant (Sub-option 8Bc: Combine 8Ba and 8Bb). Temporary withdrawal mechanism Sub-option 9Ba introduces additional steps in the so-called enhanced engagement undertaken by the Commission prior to the formal launch of a withdrawal procedure. Examples of such steps could be consultations with the beneficiary country and other stakeholders that can support the Commission’s considerations on whether there are sufficient grounds justifying the launch of the temporary withdrawal procedure. Sub-option 9Bb proposes additional steps after the formal launch of a withdrawal procedure. Any decision should also consider the specific situation in the country and potential links between withdrawing the benefits stemming from GSP and the improved living or working conditions or respect for rights of certain groups. The supporting study analysed some elements which could be considered before taking a decision on the scope of withdrawal, such as the impact analysis to ensure that the withdrawal is proportional and well balanced with the key GSP objectives. Stakeholders consulted for the study, in particular international trade unions and NGOs, suggested that the introduction of a complaint mechanism (now set up to be overseen by the Chief Trade Enforcement Officer and include public hearings) might improve the monitoring of the situation in GSP beneficiary countries going beyond GSP+. Some respondents also emphasised that the enhanced engagement stage should be communicated to the country in an appropriate way, taking into account existing sensitivities, as some beneficiaries may perceive it as a patronising act and choose not to engage. Sub-option 9Bc introduces a withdrawal of preferences, or exemption from such a withdrawal, for specific economic operators, or for violations of the obligation to readmit own nationals under international customary law, and multilateral international conventions such as the Convention on International Civil Aviation signed in Chicago on 7 December 1944. The current temporary withdrawal mechanism applies to “all or certain products originating in a beneficiary country”. An alternative approach could be to target or exempt certain economic operators (where violations are especially acute or not a pressing issue, respectively). Migration constitutes an element of the SDGs. In particular, target 10.7 calls for the facilitation of orderly, safe, regular, and responsible migration and mobility of people. The Commission is, therefore, considering the option of introducing a separate and distinctive legal ground for withdrawing preferences in cases of violations of the obligation of readmission of own nationals within Article 19 of the GSP Regulation. While this was not assessed in the study, it is considered as an option as it raises the visibility of migration issues and promoting key EU policy on sustainable development involving the movement of people globally. Sub-option 9Bd introduces flexibility in the withdrawal of preferences, by introducing a faster procedure in well-defined exceptional circumstances. While a shorter urgency procedure in well qualified circumstances (Option 9Bd) was not examined by the Study and it has not been raised previously, the Commission is considering options for reacting more quickly to blatant violation of human rights and increasing the pressure on the beneficiary country to respond. 5.2.4.Options regarding Cluster 4: transparency of the GSP+ monitoring process

Option 10B consists of putting into place, beyond existing GSP+ monitoring practices by the Commission and the EEAS, further practical measures to improve transparency and involvement of civil society. Option 10C considers extending the duration of current GSP+ monitoring cycle and aligning it to those of international monitoring bodies. Whereas the authors of the MTE believed that the current shorter two-year cycle introduced by the 2012 reforms is beneficial, as it puts pressure on beneficiary countries to implement the conventions, other studies note that a three- or four-year cycle would allow more time for beneficiaries to make meaningful progress in aligning with the conventions, both at the legislative level and in practice. The analysis in the supporting Study shows that it is not possible to align a GSP+ reporting cycle with the reporting cycles of the international conventions since there is too much variation. Hence, the study recommends that GSP+ reporting cycle should not be determined by the reporting cycles of the international conventions: GSP+ can set its own reporting cycle. Thus, this option is not practical and is not explored in detail. 5.2.5.Options regarding Cluster 5: safeguards The general safeguard mechanism (Article 22) has functioned well. The policy reform options, therefore, focus on an expansion of the automatic safeguard mechanism established in Article 29 of the GSP Regulation. Two options (O.11B and O.11C) have been identified. Under Option 11B, the automatic safeguard mechanism in Article 29 is expanded to cover all agricultural products listed in Annex V and Annex IX of the GSP Regulation, while still applying only to Standard GSP and GSP+ beneficiaries (i.e., no extension to EBA beneficiaries). Since the supporting Study found virtually no impact of this option, it is not explored in detail in this impact assessment report. In option 11C, the application of the safeguard mechanism in Article 29 is expanded to EBA beneficiary countries. The supporting Study shows that this option has no effect. No EBA country would meet the 6% import threshold for any of the products currently covered. Similarly, the extension of automatic safeguards to rice, sugar or to all agricultural goods to EBA beneficiary countries would have limited effects. Therefore, this option is not explored in detail in this impact assessment report. This issue is one of the topics where stakeholders consulted for the study disagreed most. Although a majority of respondents were in favour of an extension of safeguard mechanism to all GSP countries, views significantly differed between EU and GSP country respondents: among EU respondents 54% considered that LDCs should not be exempted from safeguards, whereas 71% of GSP country respondents believed that they should. In the EU, public sector and civil society were rather in favour of keeping exemptions for LDCs from measures to protect EU industry (i.e., keep the status quo), whereas a majority of businesses and citizens thought that exemptions should be ended. In GSP countries, the majority for keeping exemptions was found across all respondent types. 5.2.6.Option discarded at an early stage - extension of GSP coverage to trade in services Trade in services has become increasingly relevant to economic growth of developing countries. There is a recurrent request from stakeholders to explore the possibility of including trade of certain services within the scope of the GSP. Most services are provided under Mode 1 which covers cross border supply i.e., services supplied from the territory of one WTO Member into the territory of another WTO Member. These types of services do not trigger typical market access barriers that could be removed through preferences. Moreover, service provision is intrinsically linked to supply. The EU already provides preferential treatment to services and service suppliers from LDCs. Thus, the inclusion of services in the context of GSP would only benefit Standard GSP and GSP+ beneficiaries. However, unlike the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), does not include an Enabling Clause. This means that the EU would have to apply for a waiver at the WTO to include services in its GSP. In addition, it is unclear whether LDCs are actually benefiting from the existing services waiver for LDCs, given supply-side issues in developing countries. 6.What are the impacts of the policy options? Like in Chapter 5, the analysis of the impact of the policy options will be conducted at the level of clusters, which group options based on the problem to address. Overall, continuing GSP with the targeted changes proposed will be a key encouraging signal from the EU to developing partners, maintaining a key platform to engage with beneficiary countries to bring about change that is consistent with the EU’s values agenda and policy coherence for development. We expect the choice of continuity of the current GSP architecture to be welcomed by beneficiary countries and by developed WTO partners. This is in line with the long-standing principle of the GATT Enabling Clause, which grants a permanent exemption from the Most Favoured Nation (MFN) principle (non-discrimination) for developed countries to unilaterally grant elimination or reductions of the tariffs paid on imports from developing countries. The continuation of GSP is in line with EU’s Policy Coherence for Development (embedded in Article 208 of the Treaty on the Functioning of the EU) which constitutes a key pillar of EU efforts to enhance the positive impact and increase effectiveness of development cooperation. Moreover, it is part of the EU’s political commitment to support sustainable development globally, as reflected in the implementation of the UN Agenda 2030 for Sustainable Development and Sustainable Development Goals (SDGs) – to which all WTO Members have committed. 6.1.Impact of the options under Cluster 1: arrangements and beneficiary countries 6.1.1.Analysis of economic impact

Macroeconomic and sectoral effects, impact on government revenue The overall economic and non-economic impact (social, environmental, human rights) of policy options is limited as the current GSP three-tier structur