EUROPEAN COMMISSION Brussels, 4.10.2018 SWD(2018) 430 final COMMISSION STAFF WORKING DOCUMENT Midterm Evaluation of the Generalised Scheme of Preferences Accompanying the document Report from the European Commission to the European Parliament and the Council on the application of Regulation (EU) No 978/2012 applying a Scheme of Generalised Tariff Preferences and repealing Council Regulation (EC) No 732/2008 {COM(2018) 665 final}



Table of Contents Glossary 1. Introduction 2. Background to the intervention 3. Implementation / state of play 4. Method 5. Analysis and answers to the evaluation questions 5.1 Are the objectives of the current GSP on track to be achieved? 5.1.1 2012 GSP reform objectives 5.1.2 Economic impact 5.1.3 Social and human rights impact 5.1.4 Environmental impact 5.2 What are the factors (positive and negative) influencing the achievements observed? 5.3 What unintended consequences, if any, can be linked to the design, implementation, or use of the current GSP? 5.4 Efficiency – to what extent is the current GSP efficient? 5.5 To what extent is the current GSP coherent with the EU’s relevant policies? 5.6 To what extent is the current GSP relevant to the development needs which it is intended to address?

6. Other aspects related to the application of GSP 6.1 Biofuels 6.2 Sanitary and phytosanitary measures 6.3 Fight against terrorism and money laundering 7. Conclusions Annex I – Procedural Information Annex II – Methods and analytical models used in preparing the evaluation Annex III – Synopsis report of stakeholder consultations



Glossary CBD Convention on Biological Diversity CITES Convention on International Trade in Endangered Species of Wild Fauna and Flora CPI Corruption Perception Index CPIA Country Policy and Institutional Assessment CRC Convention on the Rights of the Child DG TRADE The Directorate General for Trade EBA Everything but Arms EEAS European External Action Service FTA Free Trade Agreement GHG Greenhouse Gas GSP Generalised Scheme of Preferences GSP+ Special Incentive Arrangement for Sustainable Development and Good Governance NGO Non-governmental Organisation PUR Preference Utilisation Rate: GSP preferential imports as a percentage of eligible imports under the respective GSP arrangement SME Small and Medium Sized Enterprise SPS Sanitary and Phytosanitary Standards TFA Trade for All UN United Nations UNDP United Nations Development Programme WTO World Trade Organization





1. Introduction In 1971, the European Community introduced a Generalised Scheme of Preferences (GSP) following a resolution of the United Nations Conference on Trade and Development (UNCTAD) to create a system of trade preferences to support developing countries. The GSP is also based on the World Trade Organisation's enabling clause, which permits developed countries to grant unilateral and non-reciprocal tariff preferences to support developing countries. Since that time, the EU’s GSP has assisted developing countries in their efforts to reduce poverty, promote good governance and support sustainable development. By providing preferential access to the EU market, the GSP helps developing countries to generate additional income growth through international trade. Throughout the following decades, the GSP was amended with regards to product coverage, eligibility of beneficiary countries, as well as the introduction of special arrangements to support developing countries in their engagement concerning human and labour rights, environmental protection and good governance, including combatting drugs production and trafficking. The current legal framework for the GSP is Regulation (EU) No 978/2012 of the European Parliament and the Council of 25 October 2012 applying a Scheme of Generalised Tariff Preferences ('the GSP Regulation'). The tariff preferences provided under the GSP Regulation are applied from 1 January 2014 and remain in force for a period of ten years. According to Article 40 of the GSP Regulation the Commission “shall submit, to the European Parliament and to the Council a report on the application of this Regulation”. The Directorate General for Trade (DG Trade) contracted an external consultant to carry out a study to inform the Commission's report on the application of the GSP Regulation, as well as this Staff Working Document accompanying the Commission's report. The final report produced by the external consultant is made public alongside the Commission's report and the accompanying Staff Working Document. Recital 34 of the GSP Regulation states that the report on the application of the Regulation and the assessment of the need to review the GSP include the GSP+ arrangement and the temporary withdrawal provisions of tariff preferences, taking into consideration, inter alia, the fight against terrorism and the field of international standards on transparency and exchange of information in tax matters. The implications for development, trade and financial needs of beneficiaries should also be taken into account. A detailed analysis of the impact of the GSP Regulation both on trade and on the Union’s tariff income, with particular attention to the effects on beneficiary countries, should be included. Recital 34 also foresees that, where applicable, compliance with Union sanitary and phytosanitary legislation should be assessed. Furthermore, an analysis of the effects of the GSP with regard to imports of biofuels and sustainability aspect should be included. Aspects relating to biofuels, sanitary and phytosanitary measures, which were covered by the external consultant's study are addressed in a separate section. Aspects related to the fight against terrorism are also covered in that section and were reviewed by the Commission services. Issues related to the exchange of information in tax matters have not been addressed. The reason being that this issue is not part of the GSP Regulation and has therefore not been monitored in the context of its application. Consequently, there is no information or data on which an analysis can be based. The Commission Implementing Regulation (EU) No 1213/2012 of 17 December 2012 amending the list of graduated products, as well as several delegated acts from 2012 to 2015, which amended the lists of beneficiary countries, the graduation threshold, the vulnerability threshold, as well as the procedures for the temporary withdrawal of tariff preferences and adoption of general safeguard measures were also taken into consideration. The overall purpose of the midterm evaluation was to assess, on the basis of the results to date of the GSP, whether the objectives set by the GSP Regulation are on track to be achieved. In general terms, the midterm evaluation has sought to provide a detailed assessment of the following issues: ·the economic, social, human rights and environmental impacts of the GSP; ·the present GSP's effectiveness and efficiency in light of its objectives, including costs and benefits;

·possible unintended consequences associated with the implementation of the GSP; ·the relevance of the GSP with respect to the developmental and other needs of developing countries, and in particular, of Least Developed Countries; ·the GSP’s coherence with EU foreign, trade and development policy and other relevant policies; and ·the potential for regulatory simplification and burden reduction both for the EU and the beneficiary countries. The issues listed above are examined in accordance with the evaluation criteria established in the evaluation roadmap: effectiveness, efficiency, coherence and relevance. EU added value is not covered, since the scheme falls under the EU’s exclusive competence for the common commercial policy (TFEU Art. 3(1)(e)) . For comparison purposes, two separate time periods were analysed by the external consultant: the three-year period prior to the application of the GSP Regulation (referred to as the ‘pre-reform period’); as well as the three year period following entry into force of the GSP Regulation (referred to as the ‘post-reform period’), respectively 2011-2013 and 2014-2016. The following countries were examined under the three respective GSP arrangements: I.Standard GSP arrangement (23 countries) - Cameroon, Congo, the Cook Islands, Cote d’Ivoire, Fiji, Ghana, India, Indonesia, Iraq, Kenya, the Marshall Islands, Micronesia, Nauru, Nigeria, Niue, Sri Lanka , eSwatini (formerly Swaziland), Syria, Tajikistan, Tonga, Ukraine, Uzbekistan, and Vietnam. II.GSP+ arrangement (8 countries) - Armenia, Bolivia, Cape Verde, Kyrgyzstan, Mongolia, Pakistan, Paraguay, and the Philippines. III.Everything but Arms arrangement (49 countries) - Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Central African Republic, Chad, Comoros Islands, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, People’s Democratic Republic Lao, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar/Burma, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, South Sudan, Sudan, Tanzania, Timor-Leste, Togo, Tuvalu, Uganda, Vanuatu, Yemen, and Zambia. In total, 80 GSP beneficiary countries are covered across the three arrangements. These countries consistently traded under one or more of the EU’s GSP arrangements in both the pre-reform and post-reform periods. 2. Background to the intervention

Description of the intervention and its objectives The EU's GSP has undergone several transformations over the decades always with the objective to increasingly promote sustainable development. Most recently, Regulation (EU) No. 978/2012 introduced reforms to the scheme with the aim to better focus preferences on those countries most in need, in particular, least developed countries and other low and lower-middle income developing countries. The 2012 GSP reform significantly reduced the number of beneficiaries from 178 to 92 countries. Countries which were classified by the World Bank as in the upper middle income category and higher were excluded from GSP preferences, as well as countries benefitting from other preferential market access arrangements with the EU, which grant at least the same level of tariff preferences as the GSP for substantially all trade. The objectives of the 2012 GSP reform are threefold: (i) to contribute to poverty eradication by expanding exports from countries most in need; (ii) to promote sustainable development and good governance; and (iii) to ensure a better safeguard for the EU’s financial and economic interest. These general objectives were further translated into six specific operational objectives for Regulation 978/2012: 1.To better focus the preferences on the countries most in need; 2.To remove disincentives towards diversification for the countries most in need; 3.To enhance consistency with overall trade objectives, whether bilateral or multilateral; 4.To strengthen the support for sustainable development and good governance; 5.To improve the efficiency of safeguard mechanisms; and 6.To enhance legal certainty, stability and predictability of the scheme. The intervention hypothesis which underpins the GSP as implemented under Regulation 978/2012 was revised and reconstructed for the purpose of the mid-term evaluation and is shown in Figure 1 (overleaf). It highlights the linkages between the Regulation’s implementation activities, its operational objectives, the intermediate effects and the expected results for the beneficiaries as well as the expected short, medium and long-term impacts. The figure illustrates the channels through which the GSP achieves its objectives and impact. Figure 1: Intervention logic for the GSP Regulation

In order to fulfil its objectives, the GSP has three different preference arrangements: 1.A general arrangement (‘Standard GSP’), which grants duty reductions for around 66% of all EU tariff lines to low-income or lower-middle income countries that do not benefit from other preferential trade access to the EU market; 2.A Special Incentive Arrangement for Sustainable Development and Good Governance (‘GSP+’) for vulnerable countries, which grants full duty suspension for essentially the same 66% of tariff lines as Standard GSP to eligible countries vulnerable in terms of economic diversification and export volumes. In return, beneficiary countries must ratify and effectively implement 27 core international conventions, as listed in the GSP Regulation, which cover human and labour rights, environmental protection and good governance (hereafter referred to as 'GSP+ Conventions'); and 3.A Special Arrangement, the Everything But Arms (‘EBA’) for Least Developed Countries, which grants full duty-free, quota-free access for all products except arms and ammunition to countries classified by the UN as Least Developed Countries. Unlike the case for countries that benefit from Standard GSP and GSP+ preferences, countries do not lose EBA status by entering into a Free Trade Agreement (FTA) with the EU. Base line / point of comparison The point of comparison is the GSP applied before 1 January 2014, established by Council Regulation (EC) No. 732/2008. That GSP had the following main features: Eligibility to GSP was based on two negative principles: 1) high income countries as classified by the World Bank were not eligible unless their economies were not sufficiently diversified (as measured by the concentration of their imports to the EU); and 2) countries with a FTA with the EU were also not eligible. There were three preference arrangements: 1) a general arrangement with 111 beneficiaries, a product coverage of around 6200 tariff lines and in principle offering full duty suspension for non-sensitive products and duty reductions for sensitive products; 2) GSP+ with 15 beneficiaries), with essentially the same product coverage as the general arrangement but offering almost full duty suspension on all covered products; and 3) EBA with 49 beneficiaries offering full duty suspension for all products except arms and munitions. GSP+ eligibility criteria based on a countries import share to the EU and the concentration of those imports. GSP+ entry criteria were based on ratification and effective implementation of 27 international conventions related to human rights, labour rights, protection of the environment and good governance.

Product graduation, i.e. a set of criteria applied for removal of specific product sections for a given beneficiary country because the exports of those products are deemed as competitive and thus no longer in need of tariff preferences, which applies to both the general arrangement and GSP+. Several beneficiaries had been subject to product graduation, the majority of cases related to China. Mechanisms for the withdrawal of GSP in case of the serious and systematic violations of principles laid down in core human and labour rights conventions and other grounds such as unfair trading practices and shortcomings in customs controls. In addition, GSP+ may be temporarily with drawn in case a beneficiary no longer maintains ratification of a convention or it is not effectively implemented. GSP was withdrawn from Belarus in 2006 for serious and systematic violations of labour rights and GSP+ from Sri Lanka in 2010 for non-effective implementation of certain human rights conventions. Safeguard measures which may be applied where imports from beneficiary countries cause or threaten to cause "serious difficulty" to a Union producer. No safeguard measure was taken. The 2012 GSP reform introduced major changes to that baseline: 1.The eligibility criteria for countries to qualify as a GSP beneficiary were tightened to only include developing countries below upper-middle income status or that did not have a Free Trade Agreement with the EU. 2.Product graduation criteria were revised. 3.The product coverage was slightly expanded to offer more generous preference coverage, mainly for raw materials. 4.The GSP+ entry mechanism was simplified and the GSP+ monitoring mechanism enhanced. 5.The procedural requirements for temporary withdrawal and the safeguard mechanism have been amended, empowering the Commission to act rapidly in urgent cases. 6.The expiration period was extended from 3 to 10 years for the GSP and GSP+ schemes, while the EBA scheme has no expiration date. 3. Implementation / state of play The 2012 GSP reform came into effect on 1 January 2014, allowing for an important transition period from the moment the GSP Regulation was adopted on 25 October 2012. This transition period provided all relevant stakeholders, including beneficiary country governments and economic agents, the necessary time to adapt to the new provisions. The main goal of the 2012 GSP reform was to better focus the GSP’s tariff preferences on the countries most in need by graduating those countries and sectors which were competitive under the previous GSP. Through the tightening of the eligibility criteria of GSP, the total number of GSP beneficiaries decreased from 178 to 92.

Overall import value GSP imports as a share of all EU imports decreased from 6.1% in 2013 (the last year before the GSP Regulation came into force) to 4.9% in 2016, which fits with the lower number of beneficiaries. Three sets of regressions which were undertaken by the external consultant as part of the accompanying econometric analysis support the fact that these changes are indeed attributable to the 2012 GSP reform. Table 1: Pre- and post-reform EU imports by GSP arrangement Total GSP Standard GSP 23 countries GSP+ 8 countries EBA 49 countries EUR billion 2011 47.049 30.838 4.906 11.305 2012 47.542 29.963 4.599 12.980 2013 48.004 29.636 3.912 14.457 2014 50.797 27.685 6.071 17.042 2015 60.213 30.856 7.113 22.244 2016 62.564 31.588 7.453 23.524 Average pre-reform 47.532 30.146 4.472 12.914 Average post-reform 57.858 30.043 6.879 20.936 Percentage Added (post/pre) 21.7% -0.3% 53.8% 62.1% Source: external consultant's calculations based on trade and tariff data supplied by the European Commission. Nevertheless, the relevance of the GSP remained stable or increased for those countries that remained within the scheme. The table above shows the import values relating to the three different arrangements in the pre-reform period and the post-reform period. Most notably, the total import value from the 49 EBA beneficiaries increased by 62.1% on the average of the three years post-reform, compared to the average of the three pre-reform years. Similarly, the import value for GSP+ countries went up by 53.8%. Import value from Standard GSP countries remained mostly stable, falling by only 0.3%. GSP's share of overall imports Following the GSP reform, the share of imports into the EU under the GSP+ and EBA arrangements in relation to total imports into the EU from GSP and EBA countries increased substantially. Imports under EBA represented only 37.4% of total EU imports from the EBA countries in 2011. By 2016 that figure was up to 65.4%. Similarly for GSP+, their share of duty-free imports benefitting from the scheme went from 9.5% to 51.2% during the period.



Table 2: Share of EU imports from GSP beneficiary countries by tariff regime EBA Countries Most Favoured Nation = 0 Most Favoured Nation > 0 EBA = 0 EBA > 0 Others Total 2011 52.7% 3.4% 37.4% 0.0% 6.6% 100% 2012 50.8% 2.9% 40.3% 0.0% 5.9% 100% 2013 50.3% 2.7% 41.5% 0.0% 5.5% 100% 2014 47.6% 2.6% 45.5% 0.0% 4.3% 100% 2015 36.7% 2.4% 59.1% 0.0% 1.8% 100% 2016 28.8% 2.7% 65.4% 0.0% 3.1% 100% GSP+ Countries Most Favoured Nation = 0 Most Favoured Nation > 0 GSP+ = 0 GSP+ > 0 Others Total 2011 52.6% 8.1% 9.5% 29.5% 0.3% 100% 2012 47.8% 8.6% 11.3% 32.0% 0.3% 100% 2013 47.2% 8.4% 11.3% 24.1% 8.9% 100% 2014 43.7% 8.0% 43.2% 4.6% 0.5% 100% 2015 43.4% 7.7% 47.9% 0.2% 0.8% 100% 2016 40.6% 7.5% 51.2% 0.2% 0.6% 100% Standard GSP Countries Most Favoured Nation = 0 Most Favoured Nation > 0 GSP = 0 GSP > 0 Others Total 2011 62.9% 10.9% 11.3% 12.4% 2.5% 100% 2012 66.7% 9.9% 10.9% 10.3% 2.2% 100% 2013 65.4% 10.3% 11.1% 11.0% 2.3% 100% 2014 63.5% 13.0% 8.6% 11.8% 3.1% 100% 2015 59.7% 13.7% 9.3% 13.0% 4.3% 100% 2016 55.9% 15.0% 10.1% 14.2% 4.8% 100%

Source: external consultant’s calculations based on trade and tariff data supplied by the European Commission. Erosion of preference margins The erosion of preference margins refers to the value of GSP preferences being reduced, for example due to the conclusion of trade agreements. The degree of preference erosion after the implementation of the GSP Regulation is very limited, with most Harmonized System sections under analysis showing a 0% change throughout the period of analysis. According to the external consultant, this is mainly due to the fact that there were only minor changes in the Most Favoured Nation tariffs throughout the period. The table below shows the main Harmonized System Sections analysed in the study, as well as the percentage change in preference margin for each GSP arrangement. Table 3: Preference margins by Harmonized System section compared to Most Favoured Nation tariffs (2011 and 2016) Harmonized System Section Description Change in Preference Margin EBA GSP+ Standard GSP Section I Live Animals; animal products 0.7 -0.2 -0.7 Section II Vegetable products 0.1 0.0 -0.5 Section III Animal or Vegetable fats and oils -0.1 -0.1 -0.1 Section IV Prepared foodstuffs 0.4 0.3 -0.6 Section V Mineral products 1.7 1.7 1.1 Section VI Products of the chem. & allied industries -3.5 -3.5 -3.0 Section VII Plastics and Articles thereof -0.3 -0.5 -0.3 Section VIII Raw hides and skins, leather, fur skins 1.6 1.6 1.6 Section IX Wood and articles of wood 0.8 0.6 0.3 Section X Pulp of wood or other fibrous 0.0 0.0 0.0 Section XI Textiles 0.0 0.0 0.0 Section XII Footwear, headgear, umbrellas 0.2 0.2 0.0 Section XIII Articles of stone, plaster, cement 0.0 0.0 0.0 Section XIV Pearls, precious, semi-precious stones 0.0 0.0 0.0 Section XV Base metals and articles of base metal -1.8 -1.8 -1.5 Section XVI Machinery and mechanical appliances -0.6 -0.7 -0.7 Section XVII Vehicles, aircraft, vessels, transport -2.6 -2.6 -1.0 Section XVIII Optical, photographic instruments 2.4 2.4 0.8 Section XIX Arms and ammunition 0.2 0.2 0.1 Section XX Miscellaneous manufactured articles 0.0 0.0 0.0 Section XXI Works Of Art, collectors' pieces 0.0 0.0 0.0 Source: external consultant’s calculations on the basis of data provided by the European Commission. Preference utilisation rates Preference utilisation rates are defined as the percentage of GSP preferential imports out of all eligible imports under the respective GSP arrangement. GSP+ and EBA groups recorded overall increases in their utilisation rates, while Standard GSP countries saw a small decline.



Figure 2: Utilisation rate per GSP arrangement

Within each group, however, results showed a large degree of variance. Under the Standard GSP group, 9 out of the 23 beneficiary countries recorded increases in their preference utilisation rates. It is noted that several of those countries had very low preference utilisation rates prior to the 2012 GSP reform because they were using the EU’s Market Access Regulation (MAR) programme for African countries instead of GSP. GSP+ beneficiaries show much higher preference utilisation rates both before and after the 2012 GSP reform. Most notably, the two countries which recorded the largest changes in preference utilisation were Kyrgyzstan and Pakistan, which transitioned from Standard GSP to GSP+ during the period (2016 and 2014 respectively); the former saw a 30.1% increase in its utilisation of preferences, while Pakistan increased by 10.8%. Within the EBA group, results were very mixed, with 21 countries under analysis recording increases and 26 recording declines in their preference utilisation rates. Nevertheless, utilisation of preferences remains highest amongst EBA countries compared to the other GSP arrangements, showing the continued importance of EBA.



Table 4: Utilisation rate per GSP+ beneficiary (2011-2016) Country a. Average (2011-2013) b. Average (2014 -2016) Change (b-a) Kyrgyz Republic 34.0% 64.1% 30.1 Pakistan 84.9% 95.8% 10.8 Paraguay 88.3% 91.9% 3.6 Philippines 66.3% 68.9% 2.6 Cape Verde 96.7% 96.9% 0.2 Bolivia 95.3% 95.4% 0.0 Armenia 94.0% 91.0% -3.0 Mongolia 92.7% 85.0% -7.7 Source: external consultant’s calculations based on trade data supplied by the European Commission Export diversification The external consultant’s analysis of export diversification consisted of two metrics: the number of tariff lines reporting actual trade ("non-zero trade") and the Herfindahl Index.

Similarly to the results found in the preference utilisation analysis, the results with regards to export diversification are mixed. The best results were obtained by EBA countries, which as a group recorded an increase of 19% in the number of tariff lines reporting positive levels of trade. Out of the 49 countries in that group, only 10 recorded declines in this figure. Herfindahl Index results on the other hand varied too much to yield a clear trend. In some cases (such as Cambodia and Bangladesh), diversification at the product level was not accompanied at the sectoral level, indicating that new tariff lines reporting trade came mostly in the same sectors. It is also noted that, whilst EBA countries saw the best results in terms of diversification of trade, they came from a much lower starting point compared to the Standard GSP and GSP+ groups. Standard GSP beneficiary countries recorded on the whole a 4% increase in the number of tariff lines reporting trade, with only three countries displaying negative results (one of which was Syria, whose sharp decline coincided with the intensification of conflict in the country). GSP+ also saw a modest 6% increase in this figure. The external consultant identified modest overall improvements in export diversification but could not establish a clear link with the GSP Regulation. Changes in export diversification could also largely be due to domestic level policies and supply-side constraints in the beneficiary countries, and not to the GSP Regulation itself. 4. Method The external consultant used three complementary approaches to analyse the functioning and impact of the GSP in the beneficiary countries and the EU, namely: (i) quantitative and qualitative desk research and data analyses; (ii) an inclusive and extensive stakeholder consultation process; and (iii) country and sector case studies. For the economic analyses of the GSP Regulation, the most up-to-date economic, trade and tariff data provided by Eurostat was used. Tabulation was undertaken to assess the evolution of trade for the EU’s trading partner in the post-reform period (2014-2016) as compared to the pre-reform period (2011-2014), as well as to assess to what extent eligible trading partners have utilised trade preferences throughout the period 2011-2016. Additionally, indicators were compiled to analyse the social, environmental and human rights impact in the beneficiary countries. This research was complemented by qualitative research based on literature sources as well as econometric estimation of the determinants of trade flows using gravity modelling. The analytical framework for the midterm evaluation is presented in Annex I. It outlines the approach to assess the application and impact of the current GSP scheme from economic, social, human rights, and environmental standpoints. The analytical framework includes six evaluation questions, the judgment criteria for each question, the required evidence and indicators for the analysis, and the sources of evidence and methodological tools to be utilised. It also specifically outlines the sections in the Final Report where the analytical questions have been addressed. The methodology used by the external consultant for the economic, social, human rights and environmental impact analyses is as follows. A similar approach was also taken to the four country case studies and the two sectoral case studies: ·Economic impact analysis: The extent to which the GSP could have positive economic impacts on developing countries depends on multiple factors, including the importance of the EU market in the country’s overall exports and level of preferential market access utilization. Additionally, the GSP’s effectiveness and efficiency will also depend on other factors including the domestic institutional environment and appropriate domestic policies to stimulate exports. Taking these factors into account, the external consultant conducted an analysis of the economic impacts of the different GSP arrangements on beneficiary countries using up-to-date economic, trade and tariff data from Eurostat. This analysis was complemented by qualitative analyses in the form of case studies, where more in-depth quantitative work focused on the determinants of preference non-utilisation as well as decomposing the economic and welfare effects of participation in the GSP. The empirical quantitative economic analysis consists of two main parts: (i) a diagnostic and descriptive analysis of data at the Combined Nomenclature 8-digit level from trade databases such as Eurostat, and UN ComTrade; and (ii) an econometric analysis of trade data from 2011 to 2016, at a Combined Nomenclature 8-digit level disaggregation, using the gravity model in various specifications. For effective econometric modelling, the trade data was cleaned and matched with tariff data by country and by product class at the Combined Nomenclature-8 digit level in order to analyse the impact of the 2012 GSP reform as precisely as possible. Trade data from three years before to three years after the 2012 GSP reform was analysed to obtain a ‘before’ and ‘after’ comparison. Any analysis over a longer period of time would create significant data distortions as a result of influences from different factors and changes in policy over the years. The comparative approach adopted allows an accurate assessment of the impact of the GSP Regulation. To ensure consistency of data, EU import data was used instead of export data from the different beneficiary countries as EU import data records are more reliable and accessible for all the beneficiary countries under assessment. This has enhanced the overall consistency and comparability of the findings. ·Social and human rights impact analyses: The external consultant examined the impact of the GSP on the following elements pertaining to social and human rights impacts using a wide range of indicators: employment; Decent Work Agenda (job creation, labour standards, social protection and social dialogue); working conditions; wage levels and their changes over time; poverty reduction; gender equality; human rights; and good governance.

·Environmental impact analysis: To carry out the environmental analysis section of the evaluation, extensive research was conducted on the pre-determined indicators and with substantial input from stakeholder engagement activities, to identify the most significant environmental issues that emanate from participation in the GSP. Additionally, the country-specific case studies provide a more in-depth overview of the impact of the scheme on the environment. A wide range of environmental impacts were examined, which include: air and water purity/pollution; waste; natural resources, including forests, wildlife and fisheries; biodiversity; and climate change. Limitations to the Methodology and Mitigation Measures Since the GSP Regulation has only been in force for three years as of the start of the mid-term evaluation process, the number of readily available and up-to-date social, human rights and environmental impact indicators is limited. The financial, institutional and human capacities necessary for monitoring and collecting such data are limited for developing countries. Moreover, it takes substantial time and resources for agencies to collect data on indicators and there are long time-lags before statistics become available. As a result, there is often only outdated or incomplete information available. Additionally, it can take considerable time before the effect of changes in trade become visible in these indicators. Furthermore, there are methodological difficulties to isolate the contribution of trade from a number of other factors affecting specific aspects measured in indicators related to, for example, poverty, employment and the environment. As a result, international databases and indices (such as the Social Progress Index and the ND-GAIN Index) were used to create cross-country comparative assessment. Also to account for these limitations and to reveal what is happening on the ground in the beneficiary countries, the external consultant conducted case studies to provide a more in-depth analysis of the environmental impact. The case studies rely heavily on literature review to account for the impact not covered by the abovementioned environmental indicators, national statistics and reports, and monitoring reports by international monitoring bodies, such as the UN. Additionally, the analysis in the case studies is based on a wide array of stakeholder consultations and concrete developments in the countries. The case studies incorporate analysis of locally produced data sources, comparing wherever possible with corresponding figures from the EU or international organisations. Transparency and reliability of domestic institutions are a consistent theme across case studies in this regard as improvement of domestic institutional capacity is closely aligned with the primary objectives of the EU’s external sustainable development platform. The analytical approach to the case studies takes into account country and sector-specific conditions, and it addresses common research questions using available indicators and methodologies. The case studies follow a similar outline to ensure comparability between the countries and sectors. The analysis focuses on the GSP’s economic, social, environmental and human rights impacts. Each case study further contains sections detailing any unanticipated effects of the GSP encountered during the course of research, and also characterises and disaggregates the reference country’s trade profile with the EU from the rest of the GSP group. According to the external consultant, consistency across the case studies allows for the constitution of a final qualitative dataset from which systemic conclusions can be drawn. The Commission notes, however, that it is sceptical of the extent to which four country case studies can be used to drawn systemic conclusions applicable to a group as large and diverse as that of the 80+ GSP beneficiary countries. Case studies can only give indications and are not necessarily representative. Therefore, the conclusions drawn on the basis of case studies at this point in time are only indicative. Moreover, the 2012 GSP reform revised certain elements of the GSP, which have not been used yet, such as the withdrawal mechanism and the safeguard mechanism. Therefore, no clear conclusions could be reached on their appropriateness yet. Likewise, there is insufficient data on the effects from leaving the GSP arrangements to enter into reciprocal preferential trade arrangements. 5. Analysis and answers to the evaluation questions

In order to guide the analysis of the performance of the GSP, the mid-term evaluation has sought to provide answers to six specific questions: 1.To what extent are the objectives of the current GSP on track to be achieved? What has been the impact of the present scheme on developing countries and Least Developed Countries? 2.What are the factors (positive and negative) influencing the achievements observed? 3.What unintended consequences, if any, can be linked to the design, implementation, or use of the current GSP? 4.To what extent is the current GSP efficient? 5.To what extent is the current GSP coherent with the EU’s relevant policies? 6.To what extent is the current GSP scheme relevant to the development needs which it intended to address?



5.1 Are the objectives of the current GSP on track to be achieved? 5.1.1 2012 GSP reform objectives The operational objectives of the GSP Regulation as presented in the intervention logic are the following: I.to revise the beneficiary country list; II.to target the graduation of competitive beneficiaries; III.to redefine product sections; IV.to simplify the GSP+ entry mechanism;

V.to develop a more effective and transparent monitoring mechanism for GSP+; VI.to develop a credible and efficient temporary withdrawal procedure; VII.to improve the administrative procedures of safeguard mechanism. The point of comparison of the current GSP Regulation is the GSP applied before 1 January 2014, established by Council Regulation (EC) No. 732/2008. Revised beneficiary country list and more targeted graduation The GSP Regulation tightened the eligibility criteria for a country to qualify as a beneficiary and improved the functioning of the mechanism by which, in the case of Standard GSP countries only, an individual product section can graduate from the GSP if it has become highly competitive. GSP participation was restricted to countries classified below upper-middle income status by the World Bank (in the previous GSP regulation only high income status countries were not eligible for GSP). Also excluded were countries that benefit from a preferential market access arrangement with the EU, which grants at least the same level of tariff preferences for substantially all trade. The tightening of the eligibility criteria was aimed to reduce the number of GSP beneficiaries in order to better focus the preferences on those countries most in need. And indeed, the 2012 GSP reform lowered the total number of GSP beneficiaries from 178 countries to 92 countries. With regard to product graduation, which applies to Standard GSP countries only, individual product sections which have achieved a high level of competitiveness are graduated (i.e. removed) from the GSP, whilst the country remains on the list of beneficiaries for all other product sections for which it is eligible. To reflect the smaller number of beneficiaries on the list, the threshold for product graduation was increased from 15% to 17.5% (except for textiles, for which it went from 12.5% to 14.5%). Currently, four beneficiaries are graduated for 12 product sections , thus out of 736 country-sectors 12 are graduated. This can be compared to the 2,400 country-sectors and 20 graduated under the previous GSP Regulation. In relative terms the revised product graduation criteria has led to more product sections being graduated for specific beneficiaries. The revision of the eligibility criteria and the reformed product graduation has led to the graduation of countries and sectors which were competitive beneficiaries under the previous GSP, such as China and Thailand, as well as India with regards to the textiles sector, from the current GSP. By removing more advanced developing countries and more competitive exporters from GSP, their strong positions are no longer enhanced through the preferential EU market access and thus the competitive pressures faced by other developing countries are reduced. In turn, the remaining GSP beneficiary countries have been able to take more advantage of preferential market access opportunities under the GSP. As shown in Section 3 of this Staff Working Document, the scheme’s relevance for the countries that remain beneficiaries has increased substantially. This is reflected in the increasing overall import value relating to GSP and the role of GSP in the export share of beneficiary countries – particularly those in the EBA and GSP+ groups. The total import value from the EBA and the GSP+ beneficiaries increased by 62.1% and 53.8% respectively on the average of the three years post-reform, compared to the average of the three pre-reform years, while the import value of Standard GSP countries remained mostly stable. The share of GSP imports in overall imports into the EU has increased from 37.4% for EBA and 9.5% for GSP+ in 2011 to 65.4% and 51.2% respectively in 2014. These findings are in line with the 2012 GSP reform’s goal of focusing preferences on a narrower set of countries, which are more in need of development, especially the Least Developed Countries. Moreover, the increase in value of GSP+ imports into the EU may provide further incentive for countries to apply for GSP+ status in the future. While some stakeholders who participated in the interview process highlighted the risk of the value of GSP preferences being reduced due to the conclusion of trade agreements, the external consultant found that the extent of preference erosion following the 2012 GSP reform is very small. As a result, there are significant preferential market access benefits to be derived for countries most in need, particularly Least Developed Countries.

Redefined product sections With the exception of the EBA arrangement – which already covered all products except arms and ammunition – product coverage under the reformed GSP has been slightly expanded. At the same time, the GSP reform expanded the number of product sections from 21 to 32 to create more homogeneous product categories. The product sections under the previous GSP Regulation of contained some cases heterogeneous products, for example, umbrella and footwear industry were treated as one, and so were rubbers and plastics, fish and meat, edible and non-edible vegetables. This could lead to a situation where products that are not necessarily competitive are excluded just because they fall in a category where products from a totally different, highly competitive industry predominate. While the larger coverage of product sections is largely uncontested, provided adequate safeguard mechanisms are in place, the redefined product sections are criticised by representatives from some industrial sectors for potentially undermining the product graduation mechanism. For example, stakeholders from the EU tyre industry argue that the graduation mechanism does not sufficiently protect their interests because the graduation mechanism is only applied at the product section level and, as such, does not target product-specific graduation. Business representatives therefore propose a review of the graduation mechanism whereby graduation should be carried out at a more disaggregated product level, rather than at the much more aggregated level of product sections. In this respect, the Commission notes that product graduation by sections that are neither too wide nor too narrow provide a good balance between providing predictable trade preferences (imports under individual tariff lines are more likely to fluctuate than broader categories) and reasonably addressing the concerns of particular industries. Simplified GSP+ entry mechanism The GSP+ entry mechanism and eligibility criteria were simplified with the aim to make the arrangement more attractive for Standard GSP beneficiary countries. Firstly, GSP+ countries are no longer subject to product graduation – a particularly important provision given that, by definition, GSP+ countries must be considered “vulnerable” in terms export diversification, relying excessively on a small number of competitive products. Secondly, the threshold of the vulnerability criterion for beneficiaries to be eligible for GSP+ was increased so that a beneficiary's GSP covered imports can now represent up to 6.5% in value of the total GSP imports to the EU, rather than 1% under the previous GSP Regulation. Additionally, the GSP Regulation accepts applications for GSP+ at any time, as opposed to only every 1.5 years in the past. At the same time, the condition to ratify and implement 27 international conventions related to human and labour rights, the environment and good governance (the 'GSP+ Conventions'), as well as to fully cooperate with international monitoring bodies and to fulfil the reporting requirements, in order to qualify for the GSP+ arrangement, has triggered a number of candidate countries to ratify those conventions leading up to their GSP+ admission. For example Pakistan, in its efforts to obtain GSP+ status, ratified the Convention against Torture and the International Covenant on Civil and Political Rights in 2010. Furthermore, Pakistan removed reservations to certain human rights conventions in October 2011, reservations which were regarded as incompatible with the objectives of the conventions and if maintained would have disqualified Pakistan from GSP+. Pakistan gained GSP+ status as of 2014. This illustrates that the EU, through conditionality, can have a positive impact on the promotion of labour and human rights, good governance and environmental protection in the beneficiary and candidate countries. GSP+ has had a total of 16 beneficiary countries (compared to 15 under the previous GSP Regulation). On 1 January 2018 there were 9 beneficiaries (this includes Sri Lanka which became a GSP+ beneficiary in May 2017, but for the purposes of in particular the economic analysis of this evaluation was considered a Standard GSP country). Six GSP+ countries have been removed from GSP altogether since they concluded FTAs with the EU (Costa Rica, Ecuador, El Salvador, Georgia, Guatemala and Panama). Paraguay will be removed from GSP altogether from 1 January 2019 since it has been classified by the World Bank as an upper-middle income country during three consecutive years. Most countries applied for GSP+ status in the run-up to the entry into force of the GSP Regulation. The Philippines and Kyrgyzstan applied for GSP+ in 2014 and Sri Lanka in 2016.

Improved GSP+ monitoring mechanism Significant changes were made to the GSP+ monitoring mechanism. Firstly, the reporting cycle was shortened: status reports to the European Parliament and the Council on the compliance of GSP+ countries are now required every two rather than every three years. Furthermore, GSP+ beneficiaries must sign a binding undertaking to, inter alia, maintain ratification of the GSP+ Conventions, respect the reporting obligations under the conventions and fully cooperate with the Commission in GSP+ monitoring. The new monitoring process also instructs the Commission to use other reliable sources of information (such as civil society, including social partners, the European Parliament and the EU Council). Finally, the GSP Regulation reversed the burden of proof, requiring GSP+ beneficiaries to demonstrate compliance with the 'binding undertakings' set out in Article 9(1) of the GSP Regulation. On the basis of the new provisions, the Commission has developed a practice of GSP+ monitoring which is based on two interrelated tools: (i) a list of issues (also called ‘scorecard’) covering shortcomings in implementation of the international conventions that the beneficiary country must respond to; and (ii) the GSP+ dialogue, whereby the EU engages with the respective beneficiary countries, focusing on the beneficiary’s shortcomings in implementing the GSP Conventions, achieving progress on these shortcomings and on overcoming challenges. This dialogue process also involves and complements existing bilateral human rights dialogues. It also comprises regular on-site monitoring missions to each GSP+ beneficiary (at least once during each monitoring cycle). The GSP+ monitoring mechanism supports – through the enhanced and constructive interaction and dialogue – the development of a close partnership between the EU and the GSP+ beneficiaries and allows for the better tracking of progress on the effective implementation the GSP+ Conventions. As indicated by the latest biennial GSP+ report, covering the period 2016-2017, the GSP+ beneficiaries overall made progress on the implementation of the GSP+ Conventions. This in turn can be considered to have contributed overall to sustainable development and good governance in the GSP+ countries (see sections on Economic Impact, Social and Human Rights Impact and Environmental Impact below). For example, Pakistani stakeholders expressed their appreciation for the partnership between the EU and the Government of Pakistan on sustainable development and confirmed that the ratification and implementation of the GSP+ Conventions was not considered as onerous or intrusive, but rather seen as a driver of the country’s development processes. It is also noteworthy that the GSP+ arrangement has led to the establishment of Treaty Implementation Cells in Pakistan, which serve as a mechanism to ensure the effective implementation of the GSP+ Conventions. Notably, this mechanism helps in bridging the divide between Federal and Provincial level actors, as well as inter-ministerial, in the effective implementation of the GSP+ Conventions. The transparency, inclusiveness and accountability of the monitoring mechanism have also been improved following the 2012 GSP reform. Regular and broad stakeholder consultations are held in order to allow all relevant civil society to engage in the process. This is complemented by meetings with civil society actors in the beneficiary countries during GSP+ monitoring missions, which have the goal of giving the Commission broad and diverse views on the state-of-play of implementation of the GSP+ Conventions on the ground. Furthermore, the Commission has invited civil society organisations to a meeting to solicit their views in preparing the second biennial GSP+ implementation report. Despite the new measures in place to ensure transparency and inclusiveness in the GSP+ monitoring process, civil society stakeholders across beneficiary countries called for more information and transparency in the GSP+ monitoring process and criticised in particular the written communication between the Commission and the beneficiary countries . They argued that greater transparency, accountability and standardization of the scorecard mechanism could lead to improved effectiveness of the monitoring process. Indeed, based on input from the stakeholder consultations, the external consultant recommended that transparency in the GSP+ monitoring process could be improved. The Commission highlights the necessity to preserve a certain degree of confidentiality in conducting international relations with GSP beneficiary countries. This is crucial to foster a process built on mutual trust. This can also be seen as contributing to the efficiency of the monitoring process by giving space for open and frank discussion on many sensitive issues. At the same time transparency, inclusiveness and accountability in the monitoring process is ensured through, inter alia, regular stakeholder consultations and the public biennial report to the European Parliament and the EU Council. Nevertheless, transparency is a key tenet of the Commission's Trade for All strategy and the Commission will examine what practical measures could be taken to further improve transparency and inclusiveness of the GSP+ monitoring process. As part of the 2012 GSP reform, reducing the GSP+ monitoring cycle from three to two years had the objective of improving the efficiency of the process. While this has led to a more intensified monitoring process, the Commission agrees with the findings of the external consultant that the two-year monitoring cycle has some limitations. This period does not always suffice for beneficiary countries to implement meaningful changes. There may therefore be scope to extend the monitoring cycle from two years to three or four years, in order to better reflect progress in beneficiary countries, and also as a measure to reduce the administrative burden on the EU and beneficiary countries. The responsibility for implementing the rights and obligations emanating from conventions lies with the ratifying State party. This also includes enforcement of those rights and obligations, including in relation to the private sector where appropriate. Nevertheless, some stakeholders in local workshops, particularly in Pakistan which gathered 66 participants from government, industry and civil society, noted that there was a need to focus more on the private sector and on compliance at the company level, rather than primarily focusing on public institutions. However, focusing compliance reviews by the Commission on the company level would not only be resource-inefficient, but more importantly could be seen as duplicating or even prejudicing the enforcement responsibilities of the ratifying State party.





Credible and efficient temporary withdrawal mechanism Any of the three GSP arrangements may be temporarily withdrawn for all or certain products for serious and systematic violations of principles laid down in core human and labour rights conventions, and on a number of other grounds such as unfair trading practices and serious shortcomings in customs controls. These provisions existed already in the previous GSP regulation. The 2012 GSP reform introduced specific withdrawal procedures for GSP+. This arrangement can be withdrawn where a beneficiary no longer satisfies the GSP+ conditions, for example, the vulnerability criteria are no longer met or the beneficiary does not maintain ratification of one of the GSP+ Conventions. Furthermore, GSP+ can be withdrawn for all or certain products where a beneficiary country in practice no longer respects the binding undertaking to, for example, ensure effective implementation of the GSP+ Conventions or introduces reservations to the GSP+ Conventions that are prohibited or incompatible with the Conventions. The impact of the revised withdrawal mechanism remains unclear, as it has not yet been triggered under this GSP Regulation. This is not evidence of the mechanism not working efficiently. The two biennial reports the Commission so far submitted to the European Parliament and the Council on the implementation of GSP+ (covering the periods 2014-2015 and 2016-2017) indicate that all GSP+ beneficiaries overall made progress on the implementation of the GSP+ Conventions. Of course, this does not mean that problematic implementation issues do not remain. In this respect, it should not be forgotten that GSP+ acts as an incentive for beneficiaries to make continuous progress in achieving effective implementation of the GSP+ Conventions. In contrast, serious shortcomings in respecting fundamental human and labour rights were identified in three EBA beneficiary countries: Bangladesh, Cambodia and Myanmar/Burma. Consequently, the EU has enhanced its engagement with them. GSP+, but also Standard GSP and EBA, give the Commission leverage vis-à-vis beneficiary countries in pushing for the promotion and protection of fundamental rights. In this respect, the study also found that GSP had an overall positive impact on social development and human rights in beneficiary countries. In order to further facilitate the launching of the withdrawal procedure and thereby make it more efficient, some stakeholders from civil society organisations proposed that withdrawal of preferences is triggered as soon as evidence is brought forward by third actors/stakeholders and monitoring bodies on systematic human rights and labour rights violations, as well as regarding environmentally harmful practices in a beneficiary country. In order to ensure that such withdrawal of GSP benefits is targeted to the sectors concerned, they recommend that withdrawal of preferences is confined to non-compliant sectors only. As noted above, GSP and in particular GSP+ has as the objective of promoting sustainable economic development in beneficiary countries. Not every problem in implementation, even if sometimes serious, should lead to the withdrawal of GSP, as long as there is a concrete commitment and actions from the country to improve the situation. It is for the Commission to conduct a case-by-case analysis and it is at the discretion of the Commission to assess whether the conditions for withdrawal are met. If the dialogue and enhanced engagement fail to produce results, the EU is ready to launch the GSP withdrawal procedure with due consideration for the economic and social impact. However, the Commission is always open to receiving information on countries and issues from civil society and other stakeholders. Improved Safeguard Mechanism The aim of the safeguard mechanism is to prevent serious difficulties for EU producers as a result of GSP by allowing for the re-introduction of normal Common Customs Tariff duties. The process for applying safeguard measures may be initiated independently by the Commission or after a request by an EU Member State, any legal person or any association. The 2012 GSP reform introduced procedural improvements to tackle issues that were seen as hindering the use of the safeguard mechanism. For example, certain key legal concepts were clarified (e.g. 'serious difficulty'), as well as rights and obligations of parties in the context of the opening of investigations and more detailed rules to enhance transparency and predictability were introduced.

Following the 2012 GSP reform, the Commission can issue delegated acts to immediately reinstate Common Customs Tariff duties in urgent cases. In addition, specific safeguard clauses were introduced by the GSP Regulation for textile, agriculture and fishery products (Article 29 of the GSP Regulation). These are additional to the surveillance mechanism for agriculture and fishery products, which already existed in the previous Regulation. The Commission has regularly monitored imports as called for under the specific safeguard mechanism, but so far the criteria identified for triggering this safeguard have not been fulfilled. Many of the stakeholders that participated in the Online Public Consultation called for a review of the safeguard mechanism, in light of perceptions of inadequate coverage of sensitive sectors, particularly the rice sector. Stakeholders associated with the rice industry claim that rice imports under the EBA regime cause disruptions in the European rice industry due to the large import volumes of cheap rice from some EBA beneficiaries, such as Cambodia and Myanmar/Burma. They therefore argued that the current design of the safeguard clause does not allow for adequate protection of EU interests in sensitive sectors and called for the need to institute an automatic safeguard as is the case for other sensitive products. The Commission notes that the safeguard provisions were revised under the GSP Regulation for a more efficient use in duly justified cases. While it is true that the safeguard mechanism has not yet been triggered under the GSP Regulation, it cannot be concluded from this that the safeguard mechanism is inadequate, since the GSP Regulation has only been in force for three years as of the start of the mid-term evaluation process. It should also be noted that in March 2018, the European Commission, upon the request from Italy, initiated a GSP-related safeguard investigation on imports of Indica rice from Cambodia and Myanmar/Burma. The investigation will be concluded by March 2019 and will determine whether the product under investigation is imported in volumes and/or at prices which cause serious difficulties to the Union producers of like or directly competing products and thus justifies the triggering of the safeguard mechanism. The ongoing investigations and its findings will be important for assessing the functioning of the reformed safeguard mechanism in the future, as well as its appropriateness for the rice sector or other sectors that can be considered as sensitive. 5.1.2 Economic impact As already indicated in section 3 of this Staff Working Document, the 2012 GSP reform had an overall positive economic impact on GSP beneficiaries. The full extent in terms of coverage, utilisation and export diversification differs per beneficiary country and per arrangement. There has been a significant increase of imports from the GSP beneficiaries into the EU on the average of the three years post-reform compared to the average of the three pre-reform years. This has been especially the case for the 49 EBA countries (+62.1%) and the 8 GSP+ countries (+53.8%). There has been a small decrease in imports from the 23 Standard GSP countries which remained eligible (-0.3%). In relation to export diversification, overall improvements could be identified when comparing the post-reform period with the pre-reform period. Export diversification is measured by number of tariff lines for which actual trade has been recorded. The Standard GSP and GSP+ countries in the aggregate experienced an increase in diversification, with Standard GSP recording a 4% and GSP+ a 6% increase in the number of tariff lines. The EBA countries in the aggregate also experienced an increase of 19%, from a very low initial base, but it was also found that diversification of trade originating from 29 EBA countries did not improve. It must be noted that important determinants of diversification are macro- and micro-economic policies in the exporting countries, relating to investment and business climate and support to innovation at the enterprise level. These domestic policy determinants are beyond the scope of the GSP Regulation and were not affected by the 2012 GSP reform. The GSP Regulation provides market access, but cannot determine the domestic policies to be put in place to realise market entry. Preference utilisation is one of the most important indicators of a trade arrangement’s efficiency, as it indicates to what extent a country is taking advantage of the tariff preferences for which it is eligible. Regarding preference utilisation, progress has been witnessed for the EBA countries. On average, EBA countries have higher utilisation rates than the other GSP beneficiaries. In the pre-reform period, the average utilisation rate was slightly over 80%. During the post-reform period, the average utilisation rate increased by around 10 percentage points for the EBA countries. This was primarily due to an increase in preferential imports from the EBA beneficiaries Bangladesh, Cambodia and Mozambique during this period. EBA countries have also increased their utilisation of duty-free preferences compared to the other GSP arrangements. The extent of the increase in the usage of preferential duty-free rates for EBA countries reveals the growing importance of such preferences in their overall exports to the EU. Several challenges have been noted by the external consultant that can have prevented the full utilisation of preferential access under the GSP in the case study countries. For example, in Ethiopia non-tariff barriers and increased competition from other GSP beneficiary countries in the EU market have negatively impacted exports. Stakeholders have noted that the obstacles to the full utilisation of EBA preferences are technical barriers to trade (TBTs) and rules of origin requirements, compounded by other supply-side constraints, which include limited production capacity, a lack of diversification, low industrial development and severe logistics barriers facing the land-locked country. Ethiopia also faces increased competition from Latin American and Asian agricultural exports in the EU market. Furthermore, the section below related to sanitary and phytosanitary (SPS) measures indicate that they can act as barriers to trade and can thus inhibit the full utilisation of GSP, in particular for agricultural products.

EU product regulations in the form of technical regulations or SPS measures, serve legitimate public policy objectives to protect consumer safety and protect human, animal and plant life. While they can be seen as affecting trade (so called non-tariff barriers to trade), the policy response is not remove them but to assist developing countries to meet such requirements. This has also been the approach of the EU. The exact relevance of the current GSP on poverty eradication is difficult to establish. While increased exports and subsequent economic growth could contribute to social development and poverty reduction, the positive impact depends on whether the beneficiary countries have policies in place to effectively channel the extra resources to social and distribution-improving policies as well as adaptation and mitigation measures to limit the potential detrimental effects of increased production on the environment. A comprehensive analysis of the impact on poverty eradication is hampered by an overall lack of data on indicators, as well as long time-lags before statistics become available. Additionally, it can take considerable time before the effect of changes in trade become visible in these indicators. In the case studies conducted by the external consultant in the midterm evaluation, it could be shown that the four countries (Pakistan, Bangladesh, Bolivia and Ethiopia) have been successful in their poverty reduction efforts, due to the increased economic growth and the subsequent improved employment opportunities. The external consultant also assessed the possible economic impact of GSP on EU industry through two case studies, one related to the textile and clothing industry and another on the machinery sector . Imports into the EU of textiles and clothing under GSP accounted for 50% of total GSP imports and 36.6% of total imports of textiles and clothing into the EU in 2016. The external consultant found that as the textile and clothing industry is diverse and the production chain is varied, the impact of GSP on producers in the EU differs. EU clothing industry generally benefits from low-cost import of textiles through the global value chain and incorporates textiles as inputs in the production process, while the textile industry is negatively affected by increasing competitive pressure as a result of increased imports. This was also confirmed by stakeholder consultations. European Union producers are both competing with and benefiting from imports under the GSP. Among the instruments GSP has to safeguard the EU's economic interests are product graduation (i.e. removing product sections from GSP for specific beneficiaries when they are deemed to be competitive) and the safeguard mechanisms (a general safeguard and a special safeguard mechanism under Articles 22 and 29 respectively of the GSP Regulation. While the safeguard mechanisms have not been initiated, India, as a competitive supplier of textiles, was graduated for this product section in 2014. In this respect, one of the reforms introduced in the GSP Regulations was to remove GSP+ beneficiaries from product graduation. Among the main reasons for this reform was to increase the incentive of applying for GSP+ status and thus increasing the potential impact of GSP on sustainable development. Furthermore, there was a wish to ensure equal treatment between EBA and GSP+ countries, which share a similar economic profile (i.e. vulnerability because of low and non-diversified export base). Five GSP beneficiaries (Bangladesh, India, Pakistan, Cambodia and Vietnam) are among the top ten global exporters of textiles and clothing to the EU. In this respect, it should be noted that China, despite being removed from GSP in 2014 due to its income level, remains the top supplier to the EU. Imports of textiles from India continued to increase even after the sector was graduated from GSP in 2014. This indicates that while tariff preferences certainly play an important market access role (as is shown by the increase of imports from Pakistan when it changed from Standard GSP to GSP+ status in 2014), other competitive factors (e.g. wage levels and productivity) also play an important role. Imports of machinery into the EU under GSP were relatively small and accounted for 7.6% of total EU machinery imports in 2016. They have also seen a declining trend and their composition is different from those imported from the rest of the world. The external consultant found that the negative impact of GSP on EU producers is expected to be relatively small for a number of reasons. These reasons relate to the small and decreasing share of machinery imports under GSP, relatively low preference margins and the low utilisation rate by GSP beneficiaries, in particular for GSP+ and EBA beneficiaries. On the other hand, GSP also provides benefits to EU industry, which relies on imports of machinery parts for its own production process. 5.1.3 Social and human rights impact The GSP Regulation aims to strengthen the support for social development and good governance in the beneficiary countries. International trade and economic growth can contribute to social development if the beneficiary countries have policies in place to effectively direct their resources to support social development for all layers of society. The social and human rights impact of the GSP will differ per beneficiary country, depending on its national policies and priorities. In most instances, GSP can be considered to have made, overall, a positive contribution to the furtherance of social and human rights in the beneficiary countries, while noting the possibility that in some countries it may unintendedly have had also some negative impacts. There are indications that the increase in exports has supported economic growth, employment and social development in the beneficiary countries.

The external consultant examined social progress by using the Social Progress Index (SPI) which measures changes in social rights and entitlements across a wide range of countries (does not cover all GSP beneficiaries), enabling comparisons across countries and over time . The external consultant acknowledges that it is challenging to formulate direct linkages between GSP and social progress. However, several GSP beneficiaries are making slow but steady progress. The overall development among GSP+ countries is positive, with 5 out of 7 countries improving their rankings with an average of 5.4 places when comparing 2017 and 2014 rankings. However, it should be noted that, for example, Pakistan which improved its SPI ranking still faces considerable challenges in social progress and underperforms in certain areas measured by the SPI (e.g. personal safety issues, inclusion and tolerance for immigrants, LGBTI people and minorities and inadequate access to basic knowledge, as well as poor environmental quality). Of all Standard GSP beneficiaries included in the rankings, 9 out of 13 improved their rankings, 3 decreased in ranking and 1 did not move in ranking. Among EBA beneficiaries, of the 28 countries that were ranked, 18 countries improved their ranking, while 6 declined in ranking and the remaining 4 performed according to expectations. Furthermore, the country case studies (Pakistan, Bangladesh, Bolivia and Ethiopia) suggest that all four beneficiary countries have made progress on a number of social and human rights indicators. However, the case studies also reported that GSP+ beneficiaries are not necessarily improving at a faster rate than EBA beneficiaries, although they are already further ahead in the development process. GSP can contribute to the ratification and effective implementation of fundamental international conventions on labour and human rights. In particular the GSP+ arrangement provides an incentive to Standard GSP beneficiaries to ratify and effectively implement the conventions on labour and human rights in exchange for a better access to the EU market. For example, GSP contributed to Sri Lanka's implementation of UN Human Rights Conventions. Sri Lanka was temporarily removed from GSP+ in February 2010 due to serious shortcomings in implementing certain UN Human Rights Conventions. The loss of GSP+ had a certain negative impact on the Sri Lankan economy with the loss of jobs, especially in the clothing industry. A new Sri Lankan government was elected in January 2015 with a stated commitment to promote reconciliation, democracy, human rights and good governance. The new government applied for GSP+ in July 2016. The Commission assessed that Sri Lanka's application met all GSP+ entry conditions and after scrutiny by the European Parliament and the Council, Sri Lanka was granted GSP+ in May 2017. In its monitoring of Sri Lanka's implementation of its GSP+ obligations, the Commission has found that overall the human rights situation has improved through concrete actions by the new government. Nevertheless, a number of important reforms remain to be completed, which will continue to be subject to the GSP+ monitoring process. Similarly for Pakistan, the prospect of gaining GSP+ status led the country to ratify the Convention against Torture and the International Covenant on Civil and Political Rights in 2010 and remove a number of reservations to those conventions in 2011. The EU may decide to withdraw trade preferences in case of serious and systematic violations of fundamental rights, which is an incentive for all GSP beneficiary governments to better guarantee these rights for their people. The EU withdrew EBA preferences from Myanmar/Burma in 1997 as a result of the country's serious and systematic violations of core international conventions on forced labour. When the International Labour Organisation recognised progress in the labour rights situation in Myanmar/Burma, the Commission reinstated EBA preference in July 2013, applied retroactively as of June 2012. Similarly, the EU withdrew GSP trade preference from Belarus due to its non-compliance with the obligations under the International Labour Organisation's Conventions on freedom of assembly and collective bargaining. As mentioned above, some stakeholders argue that EU should more readily apply the temporary withdrawal mechanism to address instances of severe and systematic violations. But not every problem in implementation, even if sometimes serious, should lead to the withdrawal of GSP, as long as there is a concrete commitment from the country to improve the situation. Therefore, the Commission considers that in a first instance, the EU should push for concrete actions and sustainable solutions to human rights and labour rights violations through dialogue and enhanced engagement. The increase in exports and economic opportunities can have unintended negative impacts on fundamental rights and social development, such as land grabbing for the purpose of industrial development. For example in Ethiopia, there have been reported cases of land grabbing or inadequate compensation for granting land to companies in the floriculture industry. In Cambodia there have been many reports of human rights abuses in relation to the granting of sugar land concessions, which were supposed to be used to export sugar to the EU under EBA. As described elsewhere in this document, the Commission has taken action in this respect in the context of its enhanced engagement with certain GSP and EBA beneficiaries. This engagement has led to some results with a process (albeit still in the need of improvement) that has resulted in compensation being made to some land right holders. At the same time, land grabbing is something that can occur in relation to the expansion of economic activities and which is not necessarily always related to trade or GSP. 5.1.4 Environmental impact The GSP Regulation aims to strengthen the support for sustainable development in the beneficiary countries, including protection of the environment. International trade and economic growth can contribute to sustainable development if the beneficiary countries have policies in place to effectively mitigate the negative effects of intensification of economic activities and to allocate part of their additional resources to support and promote environmental protection and address environmental degradation. Overall, the external consultant argues that the GSP Regulation has had only a limited and tangential impact on environmental aspects of sustainable development in the beneficiary countries. Under the Standard GSP and EBA arrangements, there is no conditionality for beneficiary countries to comply with international conventions on climate change and environmental protection. The external consultant concludes that the EU has very limited leverage through Standard GSP and EBA to directly contribute to environmental sustainability in the beneficiary countries. Under the GSP+ arrangement, beneficiary countries need to effectively implement eight UN conventions on climate change and environmental protection. Out of these eight United Nations Conventions, only three directly regulate the international trade of products (the CITES, Montreal, and Basel Conventions). Stakeholders at the national workshop in Pakistan observed that traders and industrialists are not aware about the link between GSP+ preferences and the implementation of the environmental conventions. Therefore, the external consultant found that there was a need for more awareness amongst relevant stakeholders about the relationship between the GSP+ and implementation of essential UN conventions. The case studies suggest a difference in the level of adherence and implementation, depending on the country’s reliance on the EU market. Furthermore, through the additional tariff preferences provided under the GSP+ arrangement, the EU can motivate Standard GSP beneficiaries to ratify and effectively implement the conventions on climate change and environmental protection. This has led, for example, to the ratification and implementation of environmental conventions by Tajikistan in view of possibly applying for GSP+ status.

The case studies and national stakeholder workshops indicate that the theme of sustainable development has become increasingly important in the national policy dialogue. There seems to be increased awareness about the need to find the right balance between economic development and environmental protection, especially because most of these countries are dependent on their natural resources for economic growth. An important indicator of political commitment is the strong focus on sustainable development in the case study countries’ development strategies and the recent establishment of responsible ministries and agencies. 5.2 What are the factors (positive and negative) influencing the achievements observed? The external consultant found from the case studies they conducted that the conditionality associated with participation in GSP+ as well as the resulting export expansion have contributed to increased adherence to fundamental labour and human rights conventions. This is also shown by the latest biennial GSP report, covering the period 2016-1-2017, which indicated that GSP+ beneficiaries overall made progress on the implementation of the 27 GSP+ conventions. It is also suggested from the case studies carried out by the external consultant, as well as the biennial GSP report that the conditionality for the GSP+ countries, including the requirement to adhere to reporting obligations under the conventions, and the reformed GSP+ monitoring mechanisms has – through the better informed and deeper structural dialogues with the EU – contributed to improving the implementation of and compliance with the conventions, which has in turn improved the associated positive impacts in the country concerned. Thus, the external consultant concluded that the GSP Regulation has positively influenced the achievements and contributed to sustainable development and good governance. The external consultant highlighted that the GSP has been lauded by many stakeholders as an engine for growth in several beneficiary countries, creating dynamism in the corporate sector and resulting in the increased employment for different categories of workers. A notable example is Bangladesh, the largest beneficiary of the EBA arrangement, where significant export revenues have been generated by the ready-made garment industry, as recognised by government and industry representatives during the workshop organised by the consultant. This has in turn led to the employment of a significant number of women in the sector (of the around 4 million people directly employed in Bangladesh's clothing industry, 60-80% are estimated to be women). Hence the scaling up and expansion of exports has been a factor positively influencing the prevalent gender inequality and the lack of access of women to paid employment. However, as noted elsewhere in this document, there are serious issues related to labour rights that still need to be addressed in Bangladesh. Based on the available evidence, largely from case studies, the external consultant concluded that trade has had some positive effects on the environment in beneficiary countries through changes in production technologies and supply chain sustainability. These changes were attributed to initiatives of private corporations to adopt cleaner and safer technologies. The external evaluation found this to have directly benefitted workers through better occupational safety and health provisions. The external consultant also noted that the changes in production technologies and supply chain sustainability had an indirect impact on the environment. However, the external consultant remarked that the positive impact of technology (greater energy efficiency and sustainable use of natural resources) was often offset by the negative impact of the scale factors (more pollution and emissions of greenhouse gases) and thus did not allow for a conclusion that the GSP has had significant positive impacts on the environment in beneficiary countries, even in countries which have ratified and implemented environmental conventions in order to qualify for GSP+ status. The impact of GSP on the environment is more difficult to assess for a number of reasons, e.g. lack of relevant and up-to-date data and indicators, and isolating the effect of GSP from other factors affecting the environment. In practice, the environmental impact of any new economic activity will depend on the policies in place in beneficiary countries to limit any potentially detrimental effects. Textiles and clothing are the main import products under the GSP. There is evidence to suggest that their production can have a detrimental effect on the environment in the absence of adequate environmental and waste management mechanisms. The difficulty in establishing a clear link between GSP and its impact on the environment is recognised by the external consultant. The Commission therefore considers it could be useful to examine what methodologies, indicators and data could better underpin analysis related to the environment. One avenue could be to look at specific indicators, such as CO2 emissions or levels of pollution, per unit of production in key economic sectors (especially those responsible for high environmental impact, such as textiles). 5.3 What unintended consequences, if any, can be linked to the design, implementation, or use of the current GSP? In the case studies performed by the external consultant, there is an indication that GSP had contributed to reducing poverty in the four countries (Pakistan, Bangladesh, Bolivia and Ethiopia), due to the increased economic growth and the subsequent enlarged employment opportunities. This in turn had an important impact on the role of women in society through an increase in female employment, in particular in the textile and clothing sectors, amongst others, in the case study countries Bangladesh and Pakistan. Improved female participation in the labour force, albeit not one of the direct objectives of the GSP, contributes to poverty eradication and sustainable development. This is an unintended positive consequence of the GSP, to be welcomed.

Another positive spill-over effect is technology transfer. While the extent of this effect is not clear, there are indications in the external study which suggest that EU GSP has facilitated the development of manufacturing sectors, including ready-made garments, leather products, light engineering etc. Due to the strong demand for high-quality products in the EU market, these sectors have adopted the latest technologies to ensure consumer safety in order to remain competitive in the global market. Systems of quality assurance, good manufacturing practices as well as voluntary and mandatory certification, backed up by ISO-certified laboratory facilities, are being developed in GSP beneficiary countries. Furthermore, automated production techniques and new machinery imported in beneficiary countries have contributed to technological development in these countries. Negative unintended consequences have also been observed by the external consultant. During stakeholder consultations, the external consultant found that EU industries face increased competition from imports that benefit from GSP, thereby threatening the stability of certain sectors in the EU (namely the tyre industry and rice production, see above). Land grabbing, for example in Cambodia (see above), can be seen as a negative unintended effect of GSP when directly associated with economic activity associated to trade under GSP. One of the finding from the open public consultation conducted by the external consultant was that many respondents were of the view that the current GSP does not fulfil the objective of reducing poverty in the beneficiary countries since it mainly benefits large industries and not small business. It is not clear on what basis this view is expressed, but the country case studies revealed that there was a lack of awareness of GSP among a broader segment of businesses that could benefit from it. It was mainly the larger and traditional export sectors that mainly made use of GSP. Continued efforts to create awareness seem called for. From a conceptual point of view, the external consultant assesses that the negative environmental impacts of the GSP due to scale effects can be considered as unintended. Nevertheless, the external consultant assesses that these impacts could be reduced and better managed through initiatives supporting beneficiary countries in monitoring and mitigating adverse environmental effects. The external consultant notes that, although not linked to the GSP Regulation, technical assistance and greater involvement of the private sector (e.g. building on positive examples of environmentally beneficial technology transfer and supply chain sustainability initiatives) could be further used to improve environmental protection in the implementation of each of the three GSP arrangements. 5.4 Efficiency – to what extent is the current GSP efficient? The 2012 GSP reform aimed to improve the efficiency and effectiveness of the scheme through a number of changes. The reformed eligibility and product graduation criteria has allowed to better target the preferences to the countries and sectors most in need, while reducing the overall costs for the EU in terms of duties lost because of the GSP. Indeed, GSP imports as a share of all EU imports decreased from 6.1% in 2013 to 4.9% in 2016, reflecting the lower number of GSP beneficiaries. The 2012 GSP reform reduced the total number of GSP beneficiaries and thereby removed competitive beneficiaries under the previous GSP. In turn, the remaining GSP beneficiary countries can take better advantage of preferential market access opportunities under the GSP. As described in Sections 3 and 5.a the following trends can be associated to the reformed GSP: 1) a significant increase in imports from remaining GSP beneficiaries into the EU, in particular for the EBA and GSP+ countries; 2) overall improvements in export diversification under all the three arrangements; and 3) preference utilization rates and preference margins have overall increased or remained largely unchanged. Taken together, these indicators point to a greater efficiency of the GSP Regulation in terms of generating more diversified preferential exports to the EU at a lower cost to the EU budget. The improved GSP+ monitoring mechanism has increased the effectiveness of the scheme. Indeed, the monitoring of the implementation of the GSP+ Conventions in the beneficiary countries has been substantially upgraded and intensified in terms of frequency and scope. Most notably, the GSP Regulation shortened the monitoring cycle from three to two years, with the status reports from the Commission to the European Parliament and the Council now covering all three preferential arrangements. The report is accompanied by country-specific analyses for the GSP+ beneficiaries. GSP+ monitoring implies regular dialogues and visits to the beneficiary countries. The external consultant also found that EU monitoring of GSP+ countries has positively contributed to social and human rights impact in the countries under that arrangement. In this respect, the present GSP should be considered more effective as compared with its predecessors. One of the recommendations made by the external consultant is that the EU monitoring should be enhanced beyond the present GSP+ arrangement, in view of the positive impact of the EU monitoring could have on social and human rights in EBA and Standard GSP beneficiary countries. This would inevitably require considerably more human resources and have significant cost implications. With that in mind, the external consultant suggests that the feasibility of this recommendation needs to be reviewed with regards to benefits (in terms of effectiveness and impact) as well as its cost (in terms of efficiency and financial expenditure). The external consultant noted that the costs of such enhanced monitoring, undertaken by dedicated Commission staff in cooperation with the EEAS and EU Delegations, were not negligible and extending monitoring to EBA countries could even be considered as inefficient and unduly burdensome. Having said that the Commission is carrying out targeted enhanced monitoring in certain cases, e.g. Bangladesh and Cambodia. This is however under tight resource constraints. The Commission considers that besides the vast human resource implications, in particular in a situation of budgetary cuts in EU institutions, such extended monitoring also raises questions related to international obligations (e.g. limitations under the WTO Enabling Clause) and consistency with the role of the multilateral supervisory system under the UN and ILO.

At the same time the external consultant noted that the two-year monitoring cycle (to the European Parliament and the Council) was often too short for beneficiary countries to implement meaningful changes and that it might be therefore more efficient to extend the monitoring cycle from two years to three or four years, in order to better reflect progress in beneficiary countries and also as a measure to reduce the administrative burden on the EU and beneficiary countries. This is a proposal that should be considered in view of simplifying the GSP Regulation. Another pertinent indicator of the efficiency of the GSP is how decisions on changes in the implementation of the GSP Regulation are made. The GSP Regulation, similarly to its predecessor, relies very extensively on assessments carried out by relevant monitoring bodies, independent of the EU. For example, whether a particular convention on labour rights has been ratified and is effectively implemented will be assessed by the International Labour Organisation. Similarly, whether a country qualifies to graduate from the Least Developed Country category and loses its EBA eligibility is assessed by the UN Committee for Development Policy, an expert committee appointed by the Secretary-General of the UN. Whether a country is to be regarded as an upper middle income country, without GSP eligibility, is determined by data from the World Bank Group on an annual basis. As these GSP implementation modalities have not changed, the external consultant argues that the efficiency of the GSP has therefore has also remained unchanged. Certain stakeholders have noted that there is a lack of awareness of the GSP in the beneficiary countries. Even in cases where there is considerable knowledge, this tends to be concentrated to the main sector that utilise preferences to export to the EU market. This lack of awareness decreases the efficiency of the GSP, for example, GSP preferences may not be utilised or civil society organisation may be unable to cooperate to/contribute in the monitoring process. The Commission observes that there are already actions and programmes financed or undertaken by the EU that have the objective of raising awareness of the GSP (for example in the trade-related technical assistance programmes of the EU in Pakistan and in Sri Lanka, as well as support to local civil society organisations under a programme funded under the European Instrument for Democracy and Human Rights). However, there is scope for more action by the EU to raise awareness of GSP not just for businesses, but also for civil society organisations as they play an important role in the implementation of the international conventions. The EU cooperates closely with civil society organisations in the beneficiary countries to tackle shortcomings and to discuss achieved progress in the implementation of the conventions. The Commission does note, however, that the beneficiary countries have a primary role and responsibility in promoting awareness of GSP and that any actions undertaken by the EU require the engagement and cooperation from beneficiary countries in order to generate maximum impact. While noting the desirability of further detailed cost-estimates, the preliminary conclusions that can be drawn from the above is that the efficiency of the scheme has improved, or at least remained stable during the period of application of the GSP Regulation. 5.5 To what extent is the current GSP coherent with the EU’s relevant policies? The external consultant finds the current GSP to be largely coherent with and complementary to the EU’s trade, development and foreign policies. The Commission shares this assessment as the GSP scheme is precisely designed as a key tool to ensure that trade policy contributes to promoting the social and environmental pillars of sustainable development. In the trade field first, as set out in EU's Trade for All Strategy, trade policy can be a powerful tool to further the advancement of human rights in third countries in conjunction with other EU policies, in particular foreign policy and development cooperation. The GSP plays a key role in this regard. Unilateral trade arrangements such as the GSP can assist countries most in need while the GSP+ scheme is an innovative tool that offers incentives and support for human rights, sustainable development and good governance in countries committed to implementing core international conventions in those areas. This is seen as essential to encourage fairness in global trade. On this, it is important to recall that one of the main objectives of the 2012 GSP reform was to focus on the countries most in need. The graduation of competitive beneficiary countries with effect of 2014 has led to an increased focus on the most vulnerable developing countries as well as the Least Developed Countries. Human rights breaches that may be found in global supply chains such as the worst forms of child labour, forced prison labour, forced labour as a result of trafficking in human beings and land grabbing deserve particular attention. Human rights considerations have increasingly been incorporated into unilateral preferences (especially in the GSP+ scheme) there has been for example cases of serious and systematic violations of human rights, beneficiary countries have lost their preferences under the GSP scheme (e.g. Sri Lanka, Belarus, Myanmar/Burma) until the situation improved sufficiently. In addition, the Commission has also developed guidelines to help examine the impact of trade policy initiatives on human rights in both the EU and partner countries. The Trade for All Strategy also highlights the needs of consumers, workers and SMEs as priorities in the formulation of trade policy in the EU. It recognises that trade openness can result in major economic benefits for them. However, according to the consultants, it has been noted that the GSP may not in all cases benefit consumers, workers or small companies. For instance, tariff reductions under the GSP may result in highly competitive imports that are sold on the EU market at very competitive prices. Whereas EU consumers may benefit from a wide range of products that are available at relatively more affordable prices, this intensification of competition may negatively impact some EU small businesses in the affected sectors. Over the course of consultations, stakeholders from the EU textile, rice and tyres industries have articulated such concerns. Here is should be noted that the graduation system of the GSP is aimed precisely at countering these potential negative effects.

Finally, with regards to the European Union's policy to move towards concluding an increasing number of free trade agreements, the external consultant noted that countries leaving the GSP arrangements to enter into reciprocal preferential trade arrangements did not necessarily experience an increased value of EU imports as they already enjoyed preferential access to the EU market. With regard to the coherence of EU’s policies in the area of development, the external consultant found that the EU actively incorporates development objectives in all of its policies, including GSP, that are likely to impact developing countries. This is done primarily through the Policy Coherence for Development Initiative, where the aim is to minimise contradictions and build synergies between different EU policies to benefit developing countries and increase the effectiveness of development cooperation. The EU’s GSP has been found to be coherent with the overall EU development policies in the following ways: ·It ensures alignment with poverty reduction initiatives through trade and sustainable development; ·It provides appropriate treatment for Least Developed Countries by responding to their specific development needs through the EBA arrangement; and ·It uses trade as an instrument to promote development, especially through the incentive-based GSP+ programme, which promotes compliance with core human rights and international labour and environmental conventions. Furthermore, one of the main objectives of the 2012 GSP reform was to focus preferences on developing countries most in need, which in turn was expected to further boost exports from these developing countries and promote export diversification. This objective has been achieved to a great extent, especially for the EBA beneficiary countries. The 2012 GSP reform is also coherent with the EU’s foreign and security policies, especially as it relates to respect for human rights and fundamental freedoms. The promotion and protection of human rights have been actively pursued under the GSP, especially under the GSP+ arrangement where beneficiary countries are obliged to ratify and effectively implement several human rights conventions. In the case of serious and systematic violations of human rights, beneficiary countries may also be withdrawn altogether from the GSP. In this sense, the GSP seeks to promote an important objective of the EU’s Common Foreign and Security Policy (CFSP), placing emphasis on human rights and fundamental freedoms. 5.6 To what extent is the current GSP relevant to the development needs which it is intended to address? The Commission agrees with the findings of the exte