COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT
Date: 2011-05-10
Institutions: European Commission
Subjects: common commercial policy, common tariff policy, generalised preferences, sustainable development, tariff preference

EUROPEAN COMMISSION 

Brussels, 10.5.2011 
SEC(2011) 537 final 

COMMISSION STAFF WORKING PAPER 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying the document 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on applying a scheme of generalised tariff preferences 

{COM(2011) 241 final} 
{SEC(2011) 536 final} 

 
 
 
 
  
 
 
1. Problem Definition 

1.1 Introduction 

The  Generalised  System  of  Preferences  ("the  scheme")  helps  developing  countries,  and 
particularly  Least  Developed  Countries  (LDCs),  to  reduce  poverty  by  offering  them  import 
preferences  in  order  to  generate  or  boost  revenue  from  international  trade.  In  addition,  the 
scheme  provides  incentives  in  the  form  of  additional  tariff  preferences,  to  countries  that 
commit themselves to sustainable development and good government. The scheme currently 
aims  to  achieve  the  objectives  set  out  in  the  Communication  from  the  Commission  to  the 
Council, the European Parliament and the Economic and Social Committee on the function 
of  the  Community’s  Generalised  System  of  Preferences  (GSP)  for  the  ten-year  period  from 
2006 to 2015. The scheme grants preferential access to EU markets on a generalised and non-
discriminatory basis to 176 eligible countries and territories. It has three arrangements: 

•  the general arrangement (often described simply as "GSP"); 

•  the  special  incentive  arrangement  for  sustainable  development  and  good 
governance  (described  as  "GSP+")  which  offers  additional  preferences  as 
incentives 
in  ratifying  and 
implementing  27  international  conventions  on  human  and  labour  rights, 
environment and good governance; 

to  support  vulnerable  developing  countries 

•  the  Everything  But  Arms  arrangement  (EBA),  which  provides  duty-free,  quota-

free access to LDCs. 

The  present  GSP  scheme  is  implemented  through  successive  regulations,  each  applying  for 
three years. The current GSP regulation will expire on 31 December 2011. On 26 May 2010 
the Commission adopted a proposal to extend the validity of the current regulation until 31 
December 2013, in order to allow time to prepare the revision of the GSP scheme in view of 
the longer legislative procedures introduced by the Lisbon Treaty. A recently completed mid-
term  review  provides  the  background  for  the  planned  Commission  proposal  for  a  revised 
regulation  to  replace  the  existing  scheme  upon  expiry  in  2013.  Both  the  EBA  arrangement 
and the rules of origin provisions fall outside the scope of this revision: the former, because it 
is not subject to  periodic  reviews;  and the latter,  because new legislation on rules of origin 
has entered into force in 2011. 

1.2 Consultation and expertise 

This  impact  assessment  has  been  prepared  following  extensive  consultations  with  Member 
States  and  other  stakeholders  (including  civil  society,  industry,  beneficiary  countries,  the 
European  Parliament,  and  WTO  members).  The  views  of  stakeholders  were  taken  into 
account,  as  is  highlighted  in  several  instances  in  the  main  report.  The  Commission's 
minimum  standards  for  consultations  were  met.  To  assess  the  extent  to  which  the  EU's 
scheme meets the needs of developing countries, a mid-term evaluation was conducted by an 
external consultant, the Centre for Analysis of Regional Integration at Sussex (CARIS). The 

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final report was published on 26 May 2010 on DG Trade's website1. The results of this study 
are reflected in the main impact assessment report where relevant. 

1.3 Strengths and weaknesses of the existing GSP scheme 

The CARIS evaluation of the existing GSP scheme (2010) concluded that: 

•  there  is  clear  evidence  that  the  EU's  GSP  preferences  can  be  effective  in 

increasing developing countries' exports and welfare; 

•  utilisation rates for the GSP scheme(s) are high, and positively correlated to the 

extent of the tariff and preference margin; 

•  the exporting countries capture about half of the rents derived from the preference 

margins; 

•  the  GSP+  regime  has  had  a  positive  impact  on  the  ratification  of  the  27 
international  conventions  required  for  eligibility,  but  progress  on  effective 
implementation of these is much less clear. 

Nevertheless, the scheme is subject to a number of structural and other constraints (detailed 
both in the CARIS study and in the main report). There are also a number of specific issues 
that need to be addressed in the review process; these are summarised in the problem tree on 
the following page. 

Sub-optimal targeting of beneficiaries 

A  large  degree  of  competitive  pressure  on  LDCs  is  exerted  by  other  GSP  beneficiaries. 
Several high-income countries (HICs) continue to be beneficiaries, on the grounds that they 
are  not  sufficiently  diversified.  Such  countries  have  the  resources  to  attain  higher  levels  of 
diversification without the help of EU preferences. Much the same is true for so-called Upper 
Middle Income countries (UMIs). And countries that benefit from preferences derived from 
another bilateral preferential arrangement with the EU also continue to benefit from the GSP 
scheme. The use of GSP preferences by HICs, UMIs and countries that already benefit from 
other  bilateral  preference  arrangements  increases  the  competitive  pressure  on  exports  from 
poorer,  more  vulnerable  countries,  whose  needs  are  far  greater  and  thus  deserve  increased 
attention. 

Sub-optimal graduation mechanism 

Emerging  developing  economies  have  generated  very  successful  export-oriented 
manufacturing  sectors  that  are  highly  competitive  at  world  level.  These  sectors  receive 
benefits under the scheme, although arguably they no longer require preferences to achieve a 
substantial presence in the EU. They exert competitive pressure on EU industry; and raise the 
barriers  to  entry  for  poorer  countries  which  consequently  need  even  greater  efforts  to 
diversify  their  export  base.  The  GSP  scheme  has  a  mechanism  to  weed  out  competitive 
sectors  from  specific  countries  and  withdraw  preferences  –  the  graduation  mechanism.  Yet 
under the current scheme, it has been barely used. Out of a total of over 2400 country-sectors, 

1 

http://trade.ec.europa.eu/doclib/docs/2010/may/tradoc_146196.pdf 

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only  20  have  been  graduated  –  13  of  which  are  Chinese  sectors.  This  indicates  that  the 
current  graduation  mechanism  is  insufficiently  responsive  to  ensure  the  effectiveness  and 
efficiency  of  the  scheme.  Another  important weakness  of  the  graduation  mechanism  is  that 
graduation  is  based  on  sections  of  the  EU  Customs  Tariff  which  are  so  large  and 
heterogeneous, that products which are not necessarily competitive are excluded just because 
they  fall  within  a  category  where  products  from  a  totally  different,  highly  competitive 
industry predominate.  

Insufficient product coverage 

The GSP scheme has broad product coverage but it is not complete. Currently, 9% of all tariff 
lines  are  outside  the  scheme  and  are  subject  to  positive  tariffs.  Countries  most  in  need 
sometimes fail to gain access to the EU market because they would want to export some of 
these products. Another de facto limitation on product coverage results from the division of 
product  lines  into  sensitive  and  non-sensitive  ones:  non-sensitive  products  enjoy  duty-free 
access,  but  sensitive  products  obtain  only  a  tariff  reduction  of  3.5  percentage  points  on  ad 
valorem duties. 

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Insufficient support to diversification of exports 

The  original  goal  of  generalised  preferences  schemes  lent  support  to  diversification  by 
industrialisation. Yet the 2010 evaluation found that when all beneficiaries and products are 
taken  together,  the  evidence  for  diversification  is  largely  limited  to  products  with  low 
preference margins exported by emerging economies. The inclusion in the current scheme of 
GSP  countries  that  scarcely  qualify  as  countries  most  in  need  (HICs  and  UMIs)  and  which 
exert significant pressure on competing EBA and GSP+ products in the scheme – as well as 
the relatively weak graduation mechanism – makes diversification by poorer and vulnerable 
countries more difficult, because the GSP countries capture much of the preferences. 

Inconsistency with overall trade objectives 

The  existence  of  GSP  benefits  might  weaken  the  incentives  for  beneficiary  countries  to 
negotiate  bilateral  or  multilateral  trade  agreements.  By  contrast,  the  objective  of  focusing 
GSP benefits on countries most in need might have the unintended consequence of providing 
more  advanced  developing  countries  with  a  greater  incentive  to  enter  into  and  conclude 
reciprocal trade negotiations with the EU. 

Low utilization of preferences by some countries 

The competitive pressure exerted by GSP beneficiaries can reduce GSP+ countries and LDCs 
to  the  status  of  residual  and  irregular  suppliers  to  the  EU  market.  Given  the  low  value  of 
transactions concluded under such conditions, importers have less incentive to bear the costs 
entailed in claiming preferences (e.g., to obtain or administer origin certificates). As a result, 
many preferences are simply not utilised.  

Insufficient support for sustainability and good governance 

The  current  vulnerability  criteria  that  determine  eligibility  for  GSP+  are  excessively 
restrictive.  This  limits  the  extent  to  which  GSP+  can  promote  sustainable  development  and 
good governance, in the sense that a less restrictive eligibility requirement can be an incentive 
for a greater number of countries to ratify and implement international rules and standards and 
engage in internal reforms. The condition for access to GSP+ (that the country has not only 
ratified, but also 'effectively implemented' the conventions) is unnecessarily limiting; it does 
not  support  the  incentive  based  nature  of  the  scheme.  The  existence  of  entry  windows  for 
GSP+  (open  only  once  every  18  months)  prevents  potential  beneficiaries  from  entering  the 
scheme  as  soon  as  they  have  fulfilled  all  entry  requirements.  Under  the  current  scheme  the 
Commission  must  monitor  the  status  of  ratification  and  effective  implementation  of  the  27 
specified  conventions  by  examining  available  information  from  the  relevant  monitoring 
bodies. Yet the monitoring mechanism for implementing the conventions presents a number 
of significant weaknesses.  

Inadequate safeguard mechanism 

Several  weaknesses  have  been  identified  in  the  current  GSP  safeguard  mechanism,  notably 
the lack of definition of key legal concepts; the lack of definition of the rights and obligations 
of parties to an investigation; and the ill-defined procedural framework. 

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2. Analysis of Subsidiarity 

The  legal  basis  for  Community  action  in  this  matter  is  Article  207  of  the  Treaty  on  the 
Functioning of the European Union (hereinafter TFEU). The principle of subsidiarity does not 
apply in this case. The principle of proportionality is satisfied inasmuch as the regulation is 
the only appropriate type of action that the European Union can take to establish unilateral, 
non-reciprocal, preferential market access for developing countries. 

3. Objectives 

3.1 General objectives  

The scheme has three general objectives: 

1. 

2. 

3. 

Contribute to poverty eradication by expanding exports from countries most in need 
(G-1); 

Promote sustainable development and good governance (G-2); 

Ensure a better safeguard for the EU's financial and economic interests (G-3).  

3.2 Specific and operational objectives  

For  the  period  from  2006  to  2015  the  Commission  GSP  Communication  established  the 
following objectives for the scheme: 

1. 

2. 

3. 

4. 

5. 

To  maintain  generous  tariff  preferences  that  continue  to  provide  real  incentives  for 
developing countries to expand their exports in a sustainable manner; 

To  target  the  preference  on  the  countries  that  most  need  it,  in  particular  by 
terminating preferential access for countries that no longer need it, and by ensuring 
that GSP preferential rates are withdrawn from competitive products; 

To offer a simple, predictable and easily accessible preference scheme; 

³To further encourage sustainable development and good governance;  

To provide withdrawal mechanisms and safeguard instruments in order to ensure that 
the sustainable development and good governance aspects of the GSP as well as the 
EU's financial and economic interests are protected. 

In  order  to  ensure  that  policy  options  considered  are  the  most  appropriate  for  reaching  the 
scheme’s  general  objectives  in  a  changing  global  economic  environment,  these  objectives 
have been translated into specific and operational objectives:  

The specific objectives are as follows: 

1. 

2. 

3. 

4. 

To better focus the preferences on the countries most in need (S-1); 

To remove disincentives for diversification for countries most in need (S-2); 

To enhance consistency with overall trade objectives (bilateral and multilateral, S-3); 

To strengthen support for sustainable development and good governance (S-4); 

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5. 

6. 

To improve the efficiency of safeguard mechanisms ensuring that the EU's financial 
and economic interests are protected (S-5); 

To enhance legal certainty, stability and predictability of the scheme (S-6). 

The operational objectives are as follows: 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

To revise the beneficiary country list by deferring benefits to those countries, which 
based  on  their  development,  financial  and  trade  needs,  no  longer  need  the 
preferences; 

To target graduation on the prime beneficiaries ensuring that GSP preferential rates 
are withdrawn from competitive products; 

To redefine product sections to reflect more homogeneous product categories; 

To simplify GSP+ entry mechanism; 

To  develop  a  more  effective  and  transparent  mechanism  for  monitoring  and 
evaluating  the  GSP+  countries'  commitment  and  progress  in  the  implementation  of 
GSP+ conventions; 

To  develop  credible  and  efficient  procedures  for  temporary  withdrawal  of  the 
preferences and procedures for renewal of the preferences; 

To improve the administrative procedures of safeguard mechanisms.  

4.Policy options 

The following summary table presents a set of core policy options that have been identified as 
being representative of the main avenues that can be selected. 

Option  

Main features 

Option 
Discon-
tinuation 

A: 

Preferences  are  abandoned  for  GSP  and  GSP+  beneficiaries.  EBA  arrangement  would 
remain. 

Option  B:  No 
policy change 

BASE-LINE 

The current policy continues without change. This option has two baseline scenarios: 

B1  (short  run)  –  the  continuation  of  the  scheme  taking  into  account  the  current  status  of 
multilateral and bilateral agreements. 

B2 (long run) – the continuation of the scheme based on the assumption that all on-going 
but unfinished multilateral and bilateral negotiations have been concluded successfully 

C: 

This  comprises  two  sub-options.  They  have  certain  common  elements,  and  certain 
differences—C1's changes being less extensive than C2's. 

Option 
Partial 
redesign 

Elements common to the 2 sub-options: 

1. Preferences are deferred for certain eligible countries: 
overseas countries and territories; 
high and upper middle income countries; 
countries with a preferential trade agreement covering substantially all preferences. 

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2. Graduation principles are revised: 
product sections are redefined; 
graduation does not apply to GSP+ countries. 

3. GSP+ entry mechanism is simplified and made more flexible: 
countries  must  ratify,  not  fully  implement,  conventions,  while  providing  binding 
commitments to guarantee their implementation; 
countries can apply for GSP+ at any time. 

4.  GSP+  monitoring  mechanism  is  redesigned  to  enhance  implementation  of  the 
conventions. 

5. More transparent and efficient procedures for temporary withdrawal of preferences are 
introduced. 

6. The administrative procedures of safeguard mechanisms are improved. 

Elements that differ between the 2 sub-options: 

1. Graduation threshold 

Option C1 
Graduation threshold remains unchanged. 

Option C2 
Graduation threshold is reduced to 7.5% and 50% safety net is eliminated. 

2. GSP+ vulnerability criteria 

Option C1 
The import-share threshold is relaxed (increased from 1% to 2%). 

Option C2 
Vulnerability criteria are eliminated. 

3. List of GSP+ conventions 

Option C1 
The list of GSP+ conventions remains unchanged. 

Option C2 
The list of GSP+ conventions is expanded. 

Option D:  

This option includes and builds upon the features of option C. 

Full redesign 

In particular, the product coverage of the scheme is redesigned, with 3 sub-options: 

Option D1 

All  beneficiary  countries  receive  full  product  coverage  and  all  products  are  deemed  non-
sensitive No graduation takes place. 

Option D2 

A  number  of  industrial  and  agricultural  products  move  from  the  sensitive  to  the  non-
sensitive list. 

Option D3 

The list of products covered by the scheme is expanded to include a number of industrial 
and agricultural products. 

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5. Analysis of impacts  

5.1 General 

Imports  benefiting  from  preferences  account  for  less  than  5%  of  total  EU  imports.  This 
implies that, while impacts on beneficiaries may be large, the general impacts on the EU are 
likely to be of a limited nature. Impacts have been assessed using the analysis performed by 
CARIS,  additional  analysis  via  a  SMART  model2,  and  the  examination  of  official  EU 
imports,  production,  consumption  and  employment  statistics.  The  main  variable  used  to 
analyse social impacts has been employment. Environmental impacts are invariably low, and 
have been analysed separately. 

5.2 Comments on the baselines (B1 and B2) 

There is a natural reduction in the level of import duties (and, therefore, preferences) due to 
preference  erosion  under  the  impact  of  further  bilateral  and  multilateral  trade  deals. 
Preference erosion reduces imports from GSP beneficiaries; this is the reality against which 
this assessment takes place. In the long run, when all multilateral and bilateral agreements are 
fully implemented, duties are likely to be so low that the idea of preferences becomes largely 
irrelevant  –  and  so  would  a  generalised  system  of  preferences.  Other  totally  different  tools 
may have to be designed. Until then, the question is what can be done for the countries most 
in need of preferences. 

5.3.Option A: discontinuation 

Option A ends the GSP scheme while retaining the EBA scheme which benefits LDCs. Total 
EU imports fall, but by an insignificant amount (about €6 billion, or less than 1%). 

General assessment of economic, social and environmental effects 

Relative  to  B1,  the  general  effects  are  as  follows.  The  economic  and  social  effects  for 
countries most in need are expected to be negative. LDCs would benefit, but the many other 
developing  countries  and  economic  sectors  which  are  also  most  in  need  would  suffer  as 
preferential  access  disappears.  Within  the  EU,  three  elements  will  impact  upon  general 
economic and social effects: producer surplus, consumer surplus, and tariff income. Negative 
impacts  for  consumers  are  likely  to  be  compensated  by  higher  tariff  revenues,  which  are  of 
the  same  order  of  magnitude.  The  net  impact  would  thus  be  generated  by  benefits  to 
producers.  As  explained  above,  these  benefits  would  on  the  whole  not  be  significant,  but 
would  nonetheless  have  significant  positive  effects  on  important  sectors  (sugar,  fruits  and 
vegetables,  textiles  and  apparel)  –  and  on  the  EU  Member  States  where  those  sectors  are 
important. Therefore, these impacts would be positive as a whole. Environmental impacts in 
the  EU  would  be  (at  best)  marginally  positive,  given  that  the  drop  of  imports  would  be 
marginal. As for the countries most in need, it is possible those countries losing GSP+ would 
deviate from environmentally sustainable practices. Thus, on the whole, a marginally negative 
impact may be felt. 

A vs. B1. Effects on: 

economic 

social  

environmental 

Countries most in need 

EU 

-- 

+ 

-- 

+ 

0/- 

0/+ 

2 

A model developed by the World Bank in collaboration with various international organisations. 

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Relative to baseline B2, the changes would be expected to go in the same direction, but they 
would be significantly smaller – to the point of not being noticeable. 

5.4 Option C: partial redesign 

Option C has many building blocks. To explore the different angles of these building blocks, 
two sub-options were explored. The main differences between them concern the graduation of 
competitive sectors and the vulnerability criteria under GSP+. With regard to graduation, the 
sectors which will actually be graduated are not known at this stage – they will depend on the 
calculations of imports on the basis of the latest available figures prior entry into force of the 
new regulation. Current figures have been used as a proxy. With regard to vulnerability, C1 
relaxes the 'economic' criterion from 1% to 2%. The actual list of countries which will meet 
the relaxed criterion is not known at this stage – again, these calculations will be made on the 
basis  of  the  latest  available  figures  prior  to  entry  into  force  of  the  new  regulation.  The 
additional  countries  that  would  currently  meet  the  test  (Pakistan,  Philippines  and  Ukraine) 
have been considered as a proxy. 

C2  eliminates  the  vulnerability  criteria  while  it  adds  additional  requirements  regarding 
conventions. Again, the actual list of countries meeting the relevant conventions criterion will 
be  determined  as  close  as  possible  to  the  time  of  entry  into  force  of  the  new  regulation. 
Currently, we would expect these to be the three C1 countries plus Namibia and Nigeria (all 
of them having already ratified the relevant conventions), and these have been used as a proxy 
for the purpose of this exercise. The assessment starts with an analysis of option C1 and then 
describes the main differences that arise under option C2.  

5.4.1 Option C1 

General assessment of economic, social and environmental effects 

When compared with baseline B1, the general effects of option C1 are as follows. Total EU 
imports  fall  by  about  €4  billion  (a  €1  billion  in crease  in  imports  from  countries  that  have 
never belonged to the scheme, offset by a €5 bill ion fall in imports from countries that cease 
to be members of the scheme. The economic and social effects on countries most in need are 
expected to be positive, as exports increase and welfare gains accrue.  

As under option A, negative impacts on EU consumers are likely to be compensated by higher 
tariff  revenues,  which  are  of  the  same  order  of  magnitude.  The  net  impact  would  thus  be 
generated  by  impacts  on  producers.  As  explained  above,  these  benefits  would  on  the  whole 
not  be  significant,  but  would  have  significant  negative  effects  on  important  sectors  (rice, 
arable crops, oils and fats, sugar, fruit and vegetables, textiles and apparel, and leather) – and 
on the EU Member States where those sectors are important. Therefore, these impacts would 
be  negative  as  a  whole.  Environmental  impacts  in  the  EU  would  be  (at  best)  marginally 
positive, given that the drop of imports would be marginal. As to the countries most in need, 
the  impact  of  expanded  GSP+  membership  would  lead  overall  to  a  marginally  positive 
impact. 

C1 vs. B1. Effects on: 

economic 

social 

environmental 

Countries most in need 

EU 

++ 

- 

++ 

- 

0/+ 

0/+ 

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When comparing the effects of options C1 with baseline B2, the changes would be expected 
to go in the same direction, but they would become significantly smaller – once again, to the 
point of not being noticeable. 

5.4.2 Option C2 

There is one important difference between C2 and C1. Lower graduation thresholds increase 
the  level  of  graduation  significantly  for  certain  countries  and  sectors,  particularly  for  India. 
This  leads  to  a  number  of  effects.  The  first  one  is  a  larger  decrease  in  exports  by  GSP 
participants as a whole. The second is an increase in EBA exports, as the negative impacts on 
Bangladesh  (foreseen  under  C1)  diminish.  The  result  is  that,  while  the  positive  effects  on 
EBA and GSP+ beneficiaries can not be underestimated, GSP exports by many beneficiaries 
will suffer. Dynamic effects are expected to more than compensate for this static loss, so the 
impact as a whole is considered to be positive, but certainly less so than C1. Given that the 
remaining  impacts  are  largely  similar  to  C1,  the  general  assessment  table  for  C2  would 
therefore read as follows: 

C2 vs. B1. Effects on: 

economic 

social 

environmental 

Countries most in need 

EU 

+ 

- 

+ 

- 

0/+ 

0/+ 

5.5 Option D: full redesign 

Most of the building blocks of the scheme have been re-defined under option C. However, a 
number of respondents to the consultation suggested a broad expansion of the two other key 
building blocks of the scheme: the range of products covered and the preference margins. We 
have therefore also examined a comprehensive re-design that includes the proposed changes 
under option C, and in addition changes to these two building blocks. In order to simplify the 
analysis,  D  sub-options  are  calculated  as  increments  to  C2  only.  Three  sub-options  are 
assessed.  D1  is  a  far  reaching  option.  It  provides  full  product  coverage  expansion  and 
elimination of all sensitive products (eg, extending the duty-free, quota-free treatment of EBA 
countries)  to  all  countries  most  in  need  (whether  GSP  or  GSP+).  This  implies  that  the 
remaining beneficiaries are no longer subject to graduation. D2 and D3 are less far-reaching. 
They take all the parameters of C2 (graduation included) and add partial de-sensitisation (D2) 
and partial expansion in product coverage (D3). 

5.5.1 Option D1: full product coverage, full de-sensitisation 

General assessment of economic, social and environmental effects 

When compared to baseline B1, the general effects of option D1 are as follows. Although the 
economic and social effects on countries most in need are expected to be positive as a whole, 
these  gains  accrue  mainly  to  sectors  which  are already  competitive,  at  the  expense  of  those 
which are less advanced. There would be large distributional effects, with the additional share 
of  EU  imports  captured  by  China,  India  and  other  countries  that  were  previously  subject  to 
graduation having a negative impact on many other countries most in need. EBA beneficiaries 
in particular would  suffer (Bangladesh being the  prime  example),  as  would  GSP+  countries 
such  as  Pakistan.  The  overall  positive  assessment  ("+")  must  therefore  be  nuanced.  The 
positive impact for EU consumers is likely to be compensated by lower tariff revenues, which 
are of the same order of magnitude. The net impact would thus be generated by impacts on 
producers.  As  explained  above,  these  impacts  on  the  whole  would  not  be  significant,  but 
would have significant negative effects for important sectors – and for the EU Member States 

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where  they  are  important.  As  a  result,  these  impacts  would  be  negative  overall.  Although 
larger  than  under  option  C,  they  would  probably  be  of  a  similar  order  of  magnitude. 
Environmental impacts in the EU would be marginally negative, given the overall increase in 
imports. The large increase in imports particularly from China or India can lead to negative 
impacts  in  those  countries  also.  The  impact  on  GSP+  countries  would  be  positive  overall 
because,  although  their  exports  would  increase,  the  environmental  protection  framework 
under  which  (all)  businesses  operate  would  be  improved  by  adherence  to  the  relevant 
environmental  conventions.  The  overall  balance  of  these  effects  would  be  marginally 
negative. 

D1 vs. B1. Effects on: 

economic 

social  

environmental 

Countries most in need* 

EU 

+ 

- 

+ 

- 

0/- 

0/- 

*Positive economic and social impacts for countries most in need as a whole hide significant negative impacts 
on EBA and GSP+ beneficiaries. 

When comparing the effects of option D1 to baseline B2, the changes would be expected to 
go in the same direction, only that they would become smaller – but still noticeable. 

5.5.2 Options D2 and D3 

These options build on option C. In order to simplify the analysis, only one of the options, in 
this  case  C2,  has  been  used  as  a  basis  for  D2  and  D3.  There  is  no  reason  to  believe  that 
significant differences would exist if C1 were taken as a basis instead. Given that D2 and D3 
change  only  one  building  block  at  a  time  with  respect  to  C,  only  the  salient  novelties  are 
mentioned here. 

D2 and D3 generate preference erosion to the disadvantage of LDCs 

D2  explores  de-sensitisation.  As  expected,  the  immediate  impact  is  preference  erosion  for 
EBAs,  particularly  vis-à-vis  GSP  competitors,  which  are  the  net  winners.  Given  that  the 
CARIS  evaluation  made  clear  that  significant  competitive  pressure  is  exerted  by  GSP 
countries on their EBA counterparts, this was to be expected. India, Indonesia, Vietnam and 
Thailand absorb almost all the gains, while EBA countries capture almost none. D3 explores 
product  expansion.  A  similar  impact  as  that  described  for  D2  is  foreseen:  benefits  to  GSP 
beneficiaries at the cost of preference erosion and export losses for EBA countries. Both D2 
and D3 thus confirm that product expansion and desensitisation have a price, a price which is 
paid by the poorest and which compounds the preference erosion they suffer. 

D2 and D3 may place obstacles to negotiation of bilateral and multilateral agreements 

Compared to option C, these options would arguably send a false signal to our trade partners, 
by creating the expectation that concessions regarding products which have been introduced 
into  the  GSP  scheme  or  which  have  been  desensitised  can  be  obtained  from  the  EU 
automatically in bilateral or multilateral negotiations. The size of the changes introduced by 
D2 and D3 are not sufficiently large as to vary the order of magnitude of the rest of the results 
of  option  C.  However,  EU  producers  of  new  products  that  are  introduced  into  the  GSP 
scheme,  and  of  those  goods  which  receive  higher  preference  margins  via  desensitisation, 
would suffer additional pressure. 

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6. Comparing the options 

6.1 Review of different options by objectives and impacts 

The  following  table  compares  how  well  the  different  options  examined  above  meet  the 
objectives  sought  by  a  review  of  the  scheme.  This  comparison  is  based  on  three  criteria: 
effectiveness  (number  of  objectives  met,  to  what  degree);  efficiency  (use  of  resources 
necessary  to  meet  the  objectives,  unintended  spill-over  effects);  and  consistency  with 
overarching EU objectives. 

Options 

Effectiveness 

Efficiency 

A 

- 

-- 

C1 

C2 

D1 

D2 

++++ 

+++ 

+++ 

++ 

++ 

-- 

-- 

--- 

++ 

+ 

+ 

D3 

++ 

+ 

+ 

Consistency 

++++ 

++ 

A detailed analysis follows, based on the relative efficiency and effectiveness of each of the 
options in achieving the general policy objectives. 

6.2 Effectiveness of the policy options in achieving the general and specific objectives 

Option A 

Option  A  meets  general  objective  G-1  (contributing  to  poverty  eradication  by  expanding 
exports  of  countries  most  in  need)  only  partly.  By  focusing  preferences  on  LDCs,  it  leaves 
many other countries with similar trade, development and financial needs without preferences 
(specific  objective  S-1)  –  with  adverse  economic  and  social  impacts  as  a  consequence. 
Moreover,  removing  preferences  from  some  countries  that  are  most  in  need  will  expose 
export  sectors  in  those  countries  to  competition  from  developed  countries.  Option  A  runs 
directly  contrary  to  specific  objective  S-4 and  general  objective  G-2  (promoting  sustainable 
development and good governance). And it does nothing to ensure better safeguards for the 
EU's financial and economic interests (general objective G-3 and specific objective S-5). By 
contrast,  option  A  can  strengthen  the  EU's  hand  in  bilateral  and  multilateral  negotiations 
(specific  objective  S-3).  It  would  have  positive  economic  and  social  impacts  for  certain 
sectors  in  certain  Member  States  at  a  time  when  so  much  emphasis  is  on  boosting 
competitiveness, growth and job creation. And last, at a time of extreme pressure on public 
finances, it boosts tariff revenues. 

Option C1 

Option  C1  contributes  well  to  general  objective G-1  (contributing  to  poverty  eradication  by 
expanding  exports  of  countries  most  in  need).  In  particular,  it  ensures  that  preferences  are 
properly  targeted  on  countries  most  in  need  (S-1)  and  it  reduces  the  disincentive  to 
diversification  (S-2)  that  arises  from  the  competitive  pressure  exerted  by  more  developed 
beneficiaries  of  the  current  system.  Option  C1's  combination  of  a  more  flexible  entry 
mechanism  for  GSP+,  more  flexible  trade  criteria  for  eligibility,  and  no  graduation,  would 
boost the scheme's contribution to promoting sustainable development and good governance 
(G-2 and S-4). It improves the efficiency of the safeguard instrument (S-5) and the withdrawal 
mechanism, which both would contribute to G-3. It also boosts tariff revenue. It would have 
the  unintended  effects  of  strengthening  the  EU's  hand  in  bilateral  and  multilateral  trade 
negotiations (but in respect of fewer countries than under option A). There would, however, 
be negative economic and social impacts for certain sectors in certain Member States. 

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Option C2 

The main difference between C2 and C1 is that the lower graduation thresholds of C2 reduce 
total  exports  by  countries  most  in  need.  In  addition,  the  more  GSP+  beneficiary  countries 
enter  the  scheme,  the  greater  the  competitive  pressure  on  LDCs  –  the  neediest  of  all 
developing countries. These effects make C2 a less effective way to achieve general objective 
G-1 (contribute to poverty eradication). However, it ranks superior to C1 in terms of its likely 
effectiveness for achieving G-2 (promoting sustainable development) because it provides for a 
revision of the required conventions. 

Option D (only D1 is discussed in the executive summary) 

Option  D1  targets  those  most  in  need  by  deferring  preferences  for  sufficiently  rich 
beneficiaries  and  for  those  that  enjoy  preferential  access  via  a  bilateral  agreement.  Yet  it 
eliminates  graduation  entirely,  and  extends  EBA-equivalent  treatment  to  all  beneficiaries 
(which  would  accelerate  preference  erosion  for  the  poorest).  Overall  therefore,  it  cannot  be 
said  to  be  meeting  objective  G-1.  Equally  the  G-2  objective  (promoting  sustainable 
development via the incentives of GSP+) is totally undermined by granting EBA- equivalent 
treatment to all beneficiaries. Option D1 improves the efficiency of the safeguard mechanism 
(S-5) and of the withdrawal mechanism (S-6), and thus contributes positively to safeguarding 
the EU's financial and economic interests (general objective G-3). However, D1 is expected to 
decrease tariff revenues at a time of extreme pressure on public finances. Also, it gives rise to 
negative economic and social impacts in certain industrial sectors and Member States. And it 
would  significantly  weaken  the  EU's  negotiating  position  in  the  bilateral  and  multilateral 
context (specific objective S-3). 

6.3 Preferred option 

The  option  which  meets  the  objectives  of  the  scheme  in  the  most  effective,  efficient  and 
coherent  manner  is  C,  and  in  particular  C1.  This  does  not  negate  that  C2  contain  positive 
aspects (review of the list of conventions) which can also be considered. 

7. Monitoring and Evaluation 

The table below includes suggestions for indicators that can be used to assess the progress and 
effectiveness of the preferred option in achieving general policy objectives. 

General Objectives 

Indicators 

Sources 
information 

of 

To  contribute  to  poverty 
eradication  by  expanding 
exports 
from  countries 
most in need 

- expansion of developing countries exports to EU 

- Eurostat data 

-  increased  share  of  imports  from  countries  most  in 
need 

- increased utilization of the preferences 

- effective graduation of the competitive sectors 

-increasing diversification 

To  promote  sustainable 
development  and  good 
governance 

-  increased  number  of  countries  committing  to 
sustainable  development  and  good  governance 
principles within GSP+ arrangement 

-  reports  of  relevant 
international 
monitoring bodies 

-  overall  improvement  of  implementation  of  GSP+ 
conventions by GSP+ beneficiaries 

-DG TRADE 

-number of withdrawals 

To 

ensure 

a 

better 

-number of safeguard requests 

-Safeguard requests 

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safeguard  for 
the  EU's 
financial  and  economic 
interests. 

-number of safeguard measures  

-revenue foregone due to the scheme 

-Eurostat data 

-number of preferential trade agreements signed with 
beneficiaries  

-  number  of  preferential  trade  agreements  signed 
with non-beneficiaries  

-DG TRADE 

The effectiveness of the GSP scheme should be subject to formal and independent evaluation 
prior  to  any  subsequent  revision.  To  be  effective,  such  evaluation  is  likely  to  require  a 
minimum of 3 years' post-implementation data, which implies that the evaluation cannot take 
place before the end of 2017 at the earliest. 

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