The central pillar of the multilateral rule-based trading system enshrined in the GATT/WTO is the acceptance and operation of the Most Favoured Nation principle. This means that every member of GATT/WTO should invariably accord the same, identical, equal and non-discriminatory treatment to all imports irrespective of the countries of origin.
However, the Generalized System of Preferences (GSP) is an officially agreed exception to the MFN principle which was proposed at the first meeting of the United Nation Conference on Trade and Development (UNCTAD) with a view to assisting the developing countries in their exports and development efforts. In 1964, the First United Nations Conference on Trade and Development (UNCTAD) started to look into ways and means of granting special trade preferences to developing countries.
Main objectives of granting trade preferences to developing countries were :
• to enhance export earnings of developing countries
• to promote industrialization, and
• to encourage the diversification of their economies.
In 1968, UNCTAD recommended the creation of a "Generalized System of Tariff Preferences" under which industrialized countries would grant autonomous trade preferences to all developing countries.
In order to implement the system a waiver was required from Article 1 of the GATT which prohibits discrimination. This waiver was granted in 1971 by adopting the "enabling clause" of the GATT to create the legal framework for the "Generalized System of Tariff Preferences" (GSP). Under this framework developed countries were authorized to establish individual Generalized Schemes of Tariff Preferences.
The enabling clause was adopted originally for ten years, and renewed in 1979, for an indefinite period of time thereafter.
The individual countries which have implemented their GSP schemes are;
EU , USA , Australia , Canada , Japan , Switzerland , Norway , New Zealand , Poland , Belarus , Bulgaria , Republic, Slovakia , Hungary and Russian Federation.
EC GSP Scheme
The European Community was the First to implement their GSP scheme in 1971.
Until 1995 the main features of the EC GSP Scheme were quotas and ceiling for individual countries and products. Since 1995, EU's GSP did away with any quantitative limitations.
The current EU's GSP scheme entered into force from 1 st July 2002 and will last until the end of 2005.
Beneficiary Countries
Duty Preferences under EU GSP scheme are received by 132 developing countries and 49 least developed countries (LDC's)
The objectives of the current EU's GSP scheme are promotion of sustainable economic and social development in developing countries by fostering environmental promotion and the respect of fundamental social rights.
The arrangements available under the EU's GSP are;
• General arrangements
• Special incentive arrangements for the protection of labour rights
• Special incentive arrangements for the protection of the environment.
• Special arrangements for LDC's
• Special arrangements to combat drugs production and trafficking.
Product Coverage under EU GSP
Products are classified under two categories.
• non-sensitive products (enjoy duty free access to EU)
• sensitive products (benefit from a duty reduction)
Total product coverage under EU's GSP general arrangements is approximately 7000 items.
Non-sensitive product 3300
Sensitive products 3700
Tariff preferences under the general arrangements.
Non-sensitive products - duty free
Sensitive products - flat rate reduction of 3.5 percentage
point of MFN rate, except textiles and clothing ( Sri Lanka receives different rates at present)
Textile and clothing - enjoy a reduction by 20% ( Sri Lanka receives a different rate)
The Rules of Origin
• The products have to originate in beneficiary countries according to EU GSP RoO.
• Proof of originating status.
• Goods must be transported direct from the beneficiary country to the EU. (Transportation via third country is only acceptable under restricted conditions and special circumstances)
Originating goods (origin criteria)
1. Wholly obtained goods:
Goods are entirely produced in the beneficiary country (e.g. mineral products, vegetable harvested there, live animal born and raised there)
2. Sufficiently worked or processed goods:
Products manufactured from inputs from other countries (industrial products)
Criteria that determine sufficient working/processing
i. The value added criterion :- percentage of the *ex-works price of the products is given which must be greater than the value of the non-originating inputs used in its production.
Eg.
HS No. Products Origin Criterion
2833 Aluminium sulphate Manufacture in which the value of all the materials used does not exceed 50% of the ex-works price of the product.
Product X
Value of imported inputs = US $ 2.00
Value added in the beneficiary country = US $ 4.00
Ex-works price ( ex-factory price) = US $ 6.00
The product is eligible for GSP benefits
ii. The change of heading criterion :- A product is considered to be "sufficiently" worked or processed when its 4 digit HS nomenclature is different from that of all of the non-originating inputs that it is manufactured from.
HS No Products Origin Criterion
Chapter 69 Ceramic products Manufacture in which all the materials used are classified within a heading other than that of the products.
( imported inputs which are classified under HS No. 69 should not be used to manufacture the ceramic products to be qualified for GSP)
There is a relaxation to the change of HS heading rule :
Imported inputs under the same heading can be used, provided that their total value does not exceed 10% of the ex-works price.
Eg. A doll ( classified HS No. 9502) will qualifies change of HS heading origin criteria if it is manufactured from any imported materials which are classified in different heading.
Doll's eyes are classified under HS heading 9502. It is allowed to use the imported doll's eyes if the value of eyes does not exceed 10% of the doll's value.
iii. The specific process criterion (Double process origin criterion) :- A specific operation or stages in the production process of the final product have to be carried out in the beneficiary country.
HS No Products Origin Criterion
6205 Men's or boy's shirts ( woven) Manufacture from yarn
6105 Men's or boys shirts, knitted or crocheted Manufacture from yarn
Imported yarn - knitted/woven fabric - shirt
(stage 1) (stage 2)
Knitted gloves, socks, tights etc. should be manufactured from fibre.
3. Cumulation of origin :- Inputs from other countries are considered as originating in the exporting country.
Bilateral Cumulation ( Donor country contents) :- Inputs originating in the EU, Norway or Switzerland which are further worked or processed in the beneficiary country claiming the GSP benefit are considered to be originating in that particular country.
The import of inputs from a Donor country has to be proved by producing EUR 1 form which is issued by the authorities in above respective countries, when the inputs are imported to the beneficiary country.
Regional Cumulation :- This is an instrument which is designed to encourage regional co-operation amongst those countries which are both GSP - beneficiaries and members of a regional grouping recognized by the EU.
EU has recognized four regional grouping
T he Association of South-East Asian Nations - ASEAN ( Brunei Darussalam , Cambodia , Indonesia , Laos , Malaysia , the Philippines , Singapore , Thailand , Vietnam ),
The Central American Common Market - CACM ( Costa Rica , Honduras , ` Guatemala , Nicaragua , Panama , El Salvador ),
The Andean Community ( Bolivia , Colombia , Ecuador , Peru , Venezuela ),
The South Asian Association for Regional Co-operation - SAARC ( Bangladesh , Bhutan , India , Maldives , Nepal , Pakistan , Sri Lanka ).
SAARC was recognized by EU with effect from 31 st October 2000 as a regional grouping to enjoy the benefits of regional cumulation of origin.
Member countries :- Bangladesh , India , Bhutan , Nepal , Maldives Islands , Pakistan , Sri Lanka )
How SAARC cumulation works
Inputs originating in any of the other SAARC Member States, that are further worked or processed will also count as originating in that particular beneficiary country.
Value added in the beneficiary country claiming the GSP benefits should be greater than the highest customs value of the inputs originating in any one of the other SAARC countries, and also that the working or processing in the beneficiary country claiming the GSP benefit is greater than the ** insufficient working or processing.
Value added = (ex-works price) - (highest customs value of imported inputs)
Eg.
HS No. 6205 a shirt produced in Sri Lanka
Ex- works price of the shirt US $ 10
Value of fabric imported from India US $ 04
Value added in Sri Lanka US $ 06
The product qualifies for GSP as originating in Sri Lanka .
In a given situation where the two conditions are not both fulfilled, (value added and insufficient working or processing), will the above product qualify for GSP ?
Yes !
Under what conditions ?
The product will be considered to have originated in the SAARC country which account for the highest customs value of the originating products coming from SAARC.
Eg;
HS No. 6205 a shirt which is produced in Sri Lanka
Ex -factory cost of the shirt US $ 10
Value of fabric imported from India US $ 07
Value added in Sri Lanka US $ 03
The shirt is considered originating in India and the origin should be mentioned as India in box 12 of the GSP form A certificate which is issued in Sri Lanka .
Modalities of operation
In order for exporters in developing countries to become eligible to receive the preferences and benefits under the Generalized Systems of Preferences system the preference granting countries have officially recognized appropriate State agencies/Trade Chambers and Trade Associations as GSP issuing authorities in beneficiary countries. The status of issuing authorities in Sri Lanka is vested in the Department of Commerce under the Ministry of Commerce and Consumer Affairs from the inception of the GSP system.
The GSP rules of origin under different schemes of all preferences granting countries require that our exporters should furnish together with other documents, the " Certificate of Origin Form A " which is to be duly perfected by the exporter and certified by the Department of Commerce. The process of the issuance of the GSP form has now been greatly facilitated and the certificate is issued within half an hour after it is handed over to the counter by the exporter. Although the issuance process has been facilitated in terms of time taken, the details technical verification process is carried out immediately after the issuance to enable the Department to fully satisfied that all the origin criteria stipulated by the preference granting countries have been entirely complied with and no departures what so ever have been made.
Does your product qualify for GSP ?
The eligibility of your products for GSP treatments could be ascertained by providing the HS Nos. of the export products in six digit level and providing details of the manufacturing process of the products carried out in Sri Lanka . The requirements of information relating to the manufacturing process are essential.
If you need to apply for GSP for the first time for your product/s you could contact the officers of the Department of Commerce to know whether your product/s qualify for GSP treatments. The exact HS No. in six digit level is required to ascertain the origin criteria of respective product and the other information relating to manufacturing process carried out in Sri Lanka has to be provided by the exporter.
As an exporter in a beneficiary country, why is it important that you understand the origin rules and the documentary procedures ?
Before a Form A is issued the authorities in beneficiary country should verify that every thing is in order and that the goods concerned are originating ones. But there are also regulations governing the EC GSP which require the customs authorities in the importing member States of the Community to ask the authorities in exporting countries to carry out further checks from time to time on goods which have already been exported to the Community under the GSP. If these post-exportation or subsequent verification checks show that your goods did not satisfy the rules of origin, then your customer in the Community will have to pay customs duty at the full rate. If this happens you could be faced with claims for compensation or even with non-payment for the goods supplied. You may even lose future business, as customer will not want to run the risk of receiving further unexpected duty levied on goods they have purchased from you.
Documentary requirements
Proof of Origin
There are three principal forms of proof used in the context of the EU GSP.
• GSP certificate of origin Form A
• The invoice declaration: This may be used in place of Form A by SAARC exporters when the goods they are exporting to member SAARC countries have a total value of less than Euro 6000. Invoice declaration may also be used by approved exporters from EC supplying inputs to exporters in beneficiary countries.
• The movement Certificate (EUR 1) : Which may be used as many an invoice declaration, when goods are exported to beneficiary countries from the EC in the context of bi- lateral cumulation.
For how long is proof of origin valid:
Certificate of Origin Form A
Invoice declaration
Movement Certificate
Valid for 10 months only from the date of issue in the exporting country.
Completing Form A
• Box 1 - the exporter's full name and business address
• Box 2 - the name and address of the consignee
• Box 3 - the details of the transport to be used
• Box 4 - this box is reserved for the use of certifying authorities
• Box 5 - Item Numbers
• Box 6 - the identifying marks and numbers that appear on the packages
• Box 7 - description of goods
• Box 8 - it is essential that this box is filled correctly
Wholly Obtained products - " P "
Industrial products manufactured using imported inputs - the letter " W " should be indicated with the HS heading of the finished product.
Eg
" W " 6302.60
• Box 9 - the gross weigh or other measures
• Box 10 - the date and serial No. of the invoice
• Box 11 - the signature and the stamp of the certifying authorities
• Box 12 - the name of the country where the goods originated and the name of the country to which they are being exported.
*Ex-works ( ex-factory) price:
01. Customs value of imported (direct or indirect) inputs (internal taxes paid, which are refunded when exported should be deducted from the customs value) XX
02. Local raw-material (excluding indirect imports) see note 1 XX
03. Labour XX
04. Other direct costs XX
05. Overheads XX
---------
Ex-works costs XXX
Add:
Factory profit margin XX
---------
Ex-works price / value XXX
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Note 1: If intermediate products or components are included they should comply with relevant Rules of Origin Criteria applicable on such items.
** The following is a list of what constitutes Insufficiently Worked or Processed Goods
• Operation to ensure the preservation of products
• Simple operations consisting of the removal of dust, shifting or screening, sorting, classifying, matching.
• Changing packing and the breaking up and assembly of packages
• Simple placing in bottles, flasks, bags, cases, fixing on cards or boards etc..
• Simple mixing of products
• Simple assembly of parts of products to constitute a complete product.
• A combination of two or more operations specified in a) to f)
• The slaughter of animal
Contact for further information
Department of Commerce
4 th Floor, Insurance Building
Vauxhall Street
Colombo 2
Tel: 2329733
Fax: 2430233
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