Newsletter: January 2011

EU Changes GSP Rules of Origin for

LDC Countries

The EC revised Rules of Origin (RoO) for products imported under generalised system of preferences (GSP) on 18 November 2010. Rules of Origin is used to determine whether imported goods really originate from the countries covered by preferential trade arrangements, thereby making eligible for a preferential customs tariff. The new rule will come into effect from January 1, 2011.

EU has made changes in the rules of origin from certain LDC countries which will simplify the procedure of granting the GSP benefits to the exporting countries and will also benefit other countries involved in supplying raw materials to the country exporting the final product.

The 49 Least Developed Countries (LDCs) are:

Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia , Cape Verde,  Central African Republic, Chad, Comoros Islands (Islands), Congo Democratic Republic of, Djibouti, East Timor, Equatorial Guinea,  Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Laos, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Nepal, Niger, Rwanda, Samoa,  São Tomé & Principe, Senegal, Sierra Leone, Solomon Islands, Somalia,  Sudan, Tanzania, Tuvalu, Togo, Uganda, Vanuatu, Yemen and  Zambia.

The new rules of origin are simpler, and as claimed it’s “more development-friendly.” All the above countries are going to benefit and can export duty free to EU even if only stage of processing (ie garment making in case of apparel) has happened in that country. Consequently, these countries will be able to import fabrics from any country in the world and export apparel duty free to the EU.  

Previously, most of the LDCs faced more restrictive rules, requiring double-stage processing and minimum local value content. It was virtually impossible for LDCs without textile base to enjoy the GSP facility unless they manufactured own fabric and make apparels, to qualify for the preferential treatment. 

In practice, many LDC exporters forego the preferential market access, either due to their ignorance or due to higher cost of compliance of the origin rules. As a result, the rate of preference utilization of many LDCs remained insignificant, revealing the preferential treatment meaningless to many of them.  

Who is going to Benefit ?

1. Apparel Exporters in LDCs : The main winners of this change would be the garment exporters in these LDC countries – specially Bangladesh, Cambodia, etc. 

2. Fabric Exporters in nearby countries : Fabric exporters to Cambodia and Bangladesh from countries like India, Pakistan, China, Thailand, Indonesia, Malaysia would be greatly benefitted.

3. EU Importers : The importers of apparel in EU would be benefitted due to reduced costs of apparel . Or rather, we should say that they would benefit from the costs of apparel which do not increase as much as they would normally due to the highly increased cotton costs.

Who can be the losers ?

1. Garment industry in Non-LDC countries : The impetus that the garment industry in LDCs like Cambodia receives, will be at the cost of the garment industry in the vicinity countries. As buyers flock to the LDC countries to source their goods. India, China, Indonesia, Vietnam and some other countries could be big losers in the garment export game.  

2. May negatively impact the existing spinners, weavers, knitters and the dyeing as well as finishing sectors in the LDC countries. 

Back to Index of January 2011