EUROPEAN COMMISSION Brussels, 28.1.2016 COM(2016) 29 final REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Report on the Generalised Scheme of Preferences covering the period 2014-2015 {SWD(2016) 8 final}



REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Report on the Generalised Scheme of Preferences covering the period 2014-2015 1.Introduction 1.1.The Generalised Scheme of Preferences (GSP) Since 1971, the EU Generalised Scheme of Preferences ('GSP') has assisted developing countries in their efforts to reduce poverty, promote good governance and sustainable development. By providing preferential access to the EU market, the GSP helps developing countries generate additional revenue through international trade. Regulation (EU) No 978/2012 of the European Parliament and the Council of 25 October 2012 on applying a scheme of generalised tariff preferences ('the GSP Regulation') is the legal framework for the GSP. The scheme is in line with WTO law, having been introduced under the so-called 'Enabling Clause', which allows an exception to the WTO 'Most-Favoured Nation' principle. 1.2.Three arrangements within GSP The GSP Regulation reformed the GSP in order to better focus GSP preferences on those countries most in need, in particular, least developed countries ('LDCs') and other low and lower-middle income developing countries. The reforms to the GSP significantly reduced the number of beneficiaries from 178 to 92. Countries which are classified as upper-middle income and above by the World Bank are excluded from GSP preferences. Also excluded are countries that benefit from a preferential market access arrangement with the EU that grants at least the same level of tariff preferences for substantially all trade. To accommodate developing countries' trade, development and financial needs effectively, the GSP provides three different preference arrangements: a general GSP arrangement and two special arrangements. −The general arrangement ('Standard GSP') grants duty reductions for ca. 66% of all EU tariff lines to countries of low or lower-middle income, which do not benefit from other preferential trade access to the EU market. There are currently 30 Standard GSP beneficiaries. −The Special Incentive Arrangement for Sustainable Development and Good Governance, ('GSP+') grants complete duty suspension for essentially the same 66% tariff lines, as the Standard GSP, for countries especially vulnerable in terms of their economies' diversification and import volumes. In return, beneficiary countries must ratify and effectively implement 27 core international conventions, as listed in Annex VIII of the GSP Regulation. These conventions cover human and labour rights, environmental protection, and good governance. There are currently 13 GSP+ beneficiaries. −The special arrangement Everything But Arms ('EBA') grants full duty-free, quota-free access for all products except arms and ammunition, for countries classified by the UN as LDCs. There are currently 49 EBA beneficiaries. In 2014, almost EUR 50.8 billion of imports received GSP preferences as follows: EUR 27.3 billion of imports from countries under the Standard GSP, around EUR 6.5 billion of imports from GSP+ beneficiaries and EUR 17 billion of imports from EBA countries. Full details are given in Tables 1-4 of this Report. Figures 1 and 2 below provide an overview of imports under the three GSP arrangements. 1.3.The objective of this Report

The GSP Regulation requires the Commission to submit a report to the European Parliament and the Council on the functioning of the GSP scheme, once every two years, beginning from 1 January 2016. The report is required to cover the effects of all three preferential arrangements of the GSP over the previous two years . However, the GSP Regulation requires that the report take a particular focus on the GSP+. The report should detail beneficiary countries' ratification, reporting, and effective implementation of the relevant conventions . Thus, this report covers all three elements of the GSP: the Standard GSP scheme, the EBA scheme, with a particular focus on the GSP+ scheme. 2.the Standard GSP arrangement The list of GSP beneficiaries has been modified a number of times to reflect the exit of countries from the GSP, in accordance with the criteria of Article 4 of the GSP Regulation (i.e. countries which have been classified by the World Bank as upper-middle income countries for three consecutive years, or have started benefitting from EU preferential market access arrangements providing the same, or better, tariff preferences). The list of beneficiaries has also been modified to include countries newly meeting the eligibility conditions for the GSP. In particular: −Iran and Azerbaijan exited on 23 February 2014 −Croatia ceased to be an eligible country and so also a beneficiary upon its EU accession −South Sudan and Myanmar were included on 1 January 2014 −China, Ecuador, Thailand and Maldives graduated out on 1 January 2015 −Botswana, Cameroon, Cote d'Ivoire, Fiji, Ghana, Kenya, Namibia and Swaziland were included on 1 October 2014. The following 30 countries benefit from the Standard GSP: −Africa: Botswana*, Cameroon, Cote d'Ivoire, Republic of Congo, Kenya, Ghana, Namibia, Nauru, Nigeria, Swaziland −Asia: Kyrgyzstan, India, Indonesia, Sri Lanka, Vietnam, Tajikistan, Turkmenistan**, Uzbekistan −Australia and Pacific: Cook Islands, Fiji, Marshall Islands, Micronesia (Federate States of), Niue, Tonga −Europe: Ukraine −Middle East: Iraq, Syria −South America: Colombia**, Honduras**, Nicaragua** As Figures 3 and 4 below show, the exit of China had a major impact on the scope of the scheme. Both the product graduation thresholds in Annex VI and the vulnerability threshold in Annex VII were changed as a result.

Once every three years, the list of product sections originating in a Standard GSP country that becomes too competitive (and for which therefore preferences are suspended) is reviewed. The next list will apply from 1 January 2017. Table 2 below contains the value of total, eligible and preferential importsto the EU by Standard GSP country. The eligible imports have slightly decreased (from EUR 43.5 billion in 2013 to EUR 38.7 billion in 2014) despite the small increase in total imports. Moreover, the general utilisation rate in 2014 was 70.3%, slightly down from 71.5% a year earlier. Utilisation rate varies substantially from country to country. Figure 5 below shows that India is by far the biggest user of Standard GSP, followed by Vietnam and Indonesia. In 2014, these three beneficiaries together accounted for 87.8% of all imports where Standard GSP preferences have been used.



3.The EBA arrangement The following 49 countries currently benefit from the EBA arrangement: −Africa: Angola, Burkina Faso, Burundi, Benin, Chad, Democratic Republic of Congo, Central African (Republic), Djibouti, Eritrea, Ethiopia, Gambia, Guinea, Equatorial Guinea, Guinea-Bissau, Comoros Islands, Liberia, Lesotho, Madagascar, Mali, Mauritania, Malawi, Mozambique, Niger, Rwanda, Sierra Leone, Senegal, Somalia, South Sudan, Sudan, Sao Tome and Principe, Togo, Tanzania, Uganda, Zambia −Asia: Afghanistan, Bangladesh, Bhutan, Cambodia, Lao (People's Democratic Republic), Myanmar/Burma, Nepal, Timor-Leste, Yemen −Australia and Pacific: Kiribati, Samoa, Solomon Islands, Tuvalu, Vanuatu −Caribbean: Haiti. Table 3 belowcontains the value of total, eligible and preferential imports to the EU by EBA country. Both the eligible imports (from EUR 17.4 billion in 2013 to EUR 19.5 billion euros in 2014) and the utilisation rate have increased (from 83.1% to 87.1%). Again, utilisation rate varies substantially from country to country. Figure 6 below shows that Bangladesh is by far the biggest user of EBA, followed by Cambodia. In 2014, these two beneficiaries together accounted for 85.4% of all imports where EBA preferences have been used. 4.The GSP+ arrangement 4.1.GSP+ beneficiaries GSP+ provides additional tariff preferences to developing countries which are vulnerable due to a lack of diversification when exporting to the EU, and due to their insufficient integration within the international trading system. The arrangement supports these countries in effectively implementing the 27 core international conventions on human and labour rights, environmental protection, and good governance.

To apply for GSP+ preferences, a country is required to have already ratified these 27 conventions. Moreover, GSP+ applicants must give a binding undertaking in writingto maintain the ratification of these conventions, and to effectively implement them. Applicants must also accept these conventions' reporting and monitoring requirements without reservation, and must agree to co-operate with the EU monitoring procedure led by the European Commission. The reporting period 2014-2015 covers a total of 14 GSP+ beneficiaries. Armenia, Bolivia, Cape Verde, Costa Rica, Ecuador, Georgia, Mongolia, Pakistan, Paraguay and Peru were granted GSP+ status on 1 January 2014. El Salvador, Guatemala and Panama were granted GSP+ status from 28 February 2014, and the Philippines from 25 December 2014. Costa Rica, Guatemala, El Salvador, Panama and Peru have ceased to be GSP/GSP+ beneficiaries from 1 January 2016, as they benefit from preferential market access under bilateral trade agreements. Similarly, Georgia will cease to be a GSP/GSP+ beneficiary from 1 January 2017. On 25 November 2015, the Commission decided to grant GSP+ status to Kyrgyzstan; the Decision is currently under review before the European Parliament and the Council. Table 4 below shows the value of total and preferential imports to the EU by GSP+ beneficiaries. Total GSP+ preferential imports have increased (from 5.99 billion euros in 2013 to 6.48 billion euros in 2014). As a result of several beneficiaries starting to apply new free trade agreements with the EU, the overall utilisation rate declined slightly (from 69.7% in 2013 to 66.1% in 2014). Given these newly available market access arrangements, utilisation rate varied significantly by country. As shown in Figure 7 below, in 2014, Pakistan and the Philippines together accounted for 87.8% of GSP+ preferential imports. 4.2.GSP+ monitoring 4.2.1.Purpose and objective of GSP+ monitoring The GSP+ scheme is an incentive-based tool that seeks to support beneficiaries to effectively implement the 27 international conventions. As set out in the GSP Regulation, the initial lifetime of the GSP+ is 10 years (i.e. it will apply until 31 December 2023). This is a long-term process. The shortcomings which hamper effective implementation of the conventions often relate to issues which require mid-to-long term solutions. GSP+ conventions cover a large field of issues such as human and labour rights, protection of the environment, climate change, and the fight against drugs and corruption. Moreover, shortcomings are often the result of a range of complex and interconnected issues, encompassing social, cultural, historical, security or economic developments. As developing countries, all beneficiaries are expected to experience challenges with implementation, especially in the short-to-medium term. In light of the above, the reformed GSP+ monitoring provides a strong incentive for GSP+ beneficiaries to improve their implementation and reporting. This requires commitment not just in the short-term, but in the medium- and long-term, which the GSP+ monitoring seeks to reflect in full. 4.2.2.Promoting international standards GSP+ fits the EU's commitment to upholding and strengthening the implementation of international law, as enshrined in the Treaty on European Union. It seeks to ensure that beneficiaries fulfil their commitments arising from their ratification of international conventions. The GSP+ scheme does not require beneficiaries to adopt or implement EU standards – rather, beneficiaries are required to meet obligations they have already agreed to under these international conventions. The Commission therefore aims to increasingly engage with the relevant international organisations (e.g. International Labour Organisation ('ILO') and the United Nations ('UN')) to ensure that GSP+ monitoring and evaluation by the EU continuously takes into account their views and experiences. Close contact with international organisations' local offices in the beneficiary countries is important. This engagement is especially important given the long reporting cycle of many of the conventions listed in Annex VIII of the GSP+ Regulation. For example, UN reports are issued every 4-5 years, which is a longer interval than the two-year GSP+ reporting cycle. Active engagement with the relevant international organisations is therefore particularly beneficial between reporting cycles. Furthermore, the expertise of these organisations can be very useful for cooperation projects in beneficiary countries. The Commission and the ILO are currently launching a GSP+ pilot project on capacity-building in Pakistan, Mongolia, Guatemala and El Salvador. The Commission will continue to work closely with international organisations over the lifetime of the GSP+, including through specific projects. Lastly, the GSP+ enables the EU to constructively discuss beneficiaries' commitments to these conventions within the relevant international organisations, such as the ILO Tripartite Committee on the Application of Standards or the ILO Governing Body. 4.2.3.The GSP+ monitoring process The GSP Regulation requires enhanced EU monitoring of GSP+ beneficiaries' compliance with their commitments. Together with the European External Action Service ('EEAS'), the Commission services have therefore set up a structured monitoring process: an ongoing 'GSP+ dialogue' with the beneficiary authorities, formalised through annual lists of issues ('scorecards'). As a beneficiary enters the GSP+, the Commission compiles an initial assessment of the beneficiary's compliance with its GSP+ commitments (the first formal scorecard). This formal scorecard notes the salient shortcomings identified by the international conventions' monitoring bodies. This begins the ongoing GSP+ dialogue, during which the Commission draws the beneficiary's attention to the areas listed in the scorecard. Whenever possible, the dialogue makes use of existing political and institutional links between the EU and beneficiaries. The list of issues is updated annually, and beneficiaries are expected to demonstrate serious efforts towards tackling the identified problems. In line with the GSP Regulation, the GSP+ monitoring process takes into account the views from a wide range of sources beyond the international conventions' monitoring bodies, including civil society, social partners, the European Parliament and the Council. A wide range of stakeholders are also involved in the beneficiary countries – not just the central government, but local or regional authorities, civil society (e.g. social partners, non-governmental organisations), business associations, and local offices of international organisations.

As part of its monitoring, the Commission may participate in local workshops, or field visits to industries. Reaching out to local stakeholders, particularly during GSP+ monitoring visits, is important not only to gather first-hand information, but also to improve understanding of how the GSP+ works, and of the EU's expectations of beneficiaries. This helps local stakeholders to play a constructive role in assisting local, regional and central authorities to meet their commitments under the conventions. In particular, as direct beneficiaries of tariff preferences, economic operators are expected to play a key role in supporting implementation of the conventions. During this first reporting period, interaction with civil society in beneficiary countries has been very positive. Civil society has generally expressed strong support for the participation of their country in the GSP+ scheme. On several occasions, it has specifically welcomed GSP+ monitoring, and the enhanced possibility it offers to raise key human and labour rights issues with authorities. The Commission will therefore continue engagement with local stakeholders during monitoring, and seek to expand it where possible. 4.2.4.Assistance and development projects International monitoring body reports – the key source for the scorecards – identify not only shortcomings and elements of progress, but also the constraints which may impede or prevent a beneficiary from implementing a convention. This is important, as a number of these constraints may not be within the control or direct sphere of influence of public authorities, which may explain some of the shortcomings. While it is clear that a state has the responsibility to fully meet its international commitments, Commission monitoring should take into account factors such as lack of resources, poverty, natural disasters, or lack of control over certain areas in situations of armed conflict. In 2015, the Commission has launched joint projects with the ILO to support GSP+ countries administrative capacity to effectively implement and report on the fundamental ILO conventions. Over the next reporting period, the Commission will continue to consider ways of supporting beneficiaries to address such constraints through expertise, technical assistance and specific projects on capacity-building. 4.2.5.Beneficiaries' internal organisation on GSP+ The way beneficiaries organised themselves to address the issues covered by the GSP+ conventions provided a first indication of political commitment to the GSP+ process. The conventions often span the competences of different government departments and agencies, which may have varying levels of resources and leverage. Beneficiaries must therefore coordinate at both the central and local government level. Some beneficiaries opted to set up specific GSP+ task forces led by high-level officials (e.g. Pakistan), while others preferred to coordinate on an ad hoc basis under the Ministry of Trade or Foreign Affairs (e.g. Philippines, Guatemala). It is anticipated that over time this coordination will become more efficient. GSP+ monitoring visits by the Commission, with the help of EU Delegations, have proven to be beneficial in this respect. Beneficiaries' coordination efforts on the GSP+ and the relevant conventions are an important and necessary tool for improving implementation on the ground. The Commission will therefore continue to pay close attention to coordination. 4.2.6.Conclusions on first GSP+ monitoring period (2014-2015) As outlined above, monitoring begins upon each beneficiary's entry to the GSP+ scheme. An overview of shortcomings for each of the GSP+ conventions, as presented by the international monitoring bodies, sets the baseline for the on-going monitoring of each beneficiary. Beneficiaries are expected to demonstrate serious efforts in improving implementation of the 27 core conventions and in addressing those shortcomings. Monitoring covers all aspects of the implementation of the 27 conventions, including discussions on capacity constraints or on progress. Furthermore, GSP+ monitoring takes into account the pre-existing legal and administrative framework in beneficiary countries, as part of the baseline. The first monitoring period was a learning process for all beneficiaries, and for the Commission. Nevertheless, all beneficiaries have shown strong commitment to the GSP+ process, both in terms of political will and in introducing institutional and legislative reforms. In particular, beneficiaries have demonstrated a genuine level of engagement with the Commission by responding in time to the annual scorecard documents, by allowing specific GSP+ monitoring visits, and by setting up specific GSP+ governance structures. Moreover, all beneficiaries have taken steps – albeit sometimes incremental – towards improving implementation of their commitments under the GSP+ conventions on the ground, including by submitting several overdue country reports. The attached Staff Working Document provides a comprehensive assessment of individual beneficiaries including positive developments and domestic constraints, which may limit beneficiaries' ability to achieve effective implementation. An assessment is made for each convention individually, with an overall assessment per convention cluster (human rights, labour rights, environment, good governance). At this stage, given the diverse nature of the 27 GSP+ core conventions and the short timeframe of the first reporting period (18 months), it was not considered appropriate or realistic to quantify progress beyond obvious benchmarks (e.g. timely submission of national reports). Trying to attach a standardised, quantifiable value to beneficiaries’ performance could be misleading and, to some extent, arbitrary. Monitoring tools will, however, continue to be refined. In particular, over the next reporting period it will be important that beneficiaries take ownership of the process and are more proactive in addressing the issues in the scorecards. The Commission will pay more attention to beneficiaries' own priorities for action, their timelines for addressing shortcomings, and to the resources made available for implementation. In this respect, the Commission will enhance its engagement with beneficiaries, with a view to identifying priorities for action. Indeed, here lies the main rationale of the reformed GSP+. After ensuring full compliance with the entry criteria, the GSP+ accompanies beneficiaries with trade incentives, through a progressive improvement of their implementation of the relevant conventions. GSP+ beneficiaries are, therefore, expected to continuously improve their track record. Nonetheless the individual circumstances and constraints of beneficiaries will be taken into account. In this respect, the GSP Regulation provides that if a beneficiary does not respect its binding undertaking, preferences may be temporarily withdrawn. Over the next reporting period (2016-2017), the Commission will continue to monitor beneficiaries in a structured way. By the next review, it will consider response actions, if required, including the possibility to open an investigation should a beneficiary fail to comply with its GSP+ undertaking. 4.2.7.Accompanying this Report: Staff Working Document on the GSP+ The GSP Regulation requires that this report takes a particular focus on the functioning of the GSP+. This report is therefore accompanied by a Staff Working Document ('SWD') on The EU Special Incentive Arrangement for Sustainable Development and Good Governance ('GSP+') covering the period 2014 – 2015, which has been jointly prepared by the Commission services and the European External Action Service ('EEAS'). The SWD provides greater detail on the functioning of the GSP+ since the GSP Regulation 978/2012 came into force on 1 January 2014. The SWD also includes a detailed assessment of individual GSP+ beneficiaries under the GSP+ conventions and reports on the utilisation of the GSP+ among the beneficiary countries. 5.Future commission reports The GSP Regulation requires the Commission to submit a report to the European Parliament and to the Council on the application of the GSP Regulation five years after the entry into force of the GSP Regulation, i.e. by November 2017. This will reflect on the whole GSP scheme over the five-year period, from 2012 to 2017. It will take into account the implications of the scheme for the development, trade and financial needs of its beneficiaries. The Commission will also assess the need to review the scheme, including the GSP+ and temporary withdrawal provisions of tariff preferences, where appropriate accompanied by a legislative proposal. Furthermore, the report will also include a detailed analysis of the impact of the GSP Regulation on trade and on the EU’s tariff income, with particular attention to the effects on beneficiary countries. Lastly, this report, published by November 2017, will also cover specific developments during the second GSP+ reporting cycle (2016-2017). 6.Tables with statistical information covering countries benefiting from GSP on 1 December 2015