The European Union executive is set to prune back the number of countries to whom it gives preferential trade treatment, according to a draft law seen by Reuters on Monday. More than 60 countries including economic powerhouses such as Brazil, Argentina and Russia but also much poorer countries such as Ghana, Kenya and Zimbabwe will lose low-tariff access to EU markets, according to the document.
The proposal is a first step in the EU’s attempts to revamp tariffs designed to help poor countries while protecting its own industrial interests and formalise ties with trading partners. This reform is expected to take until late 2013. Due to be unveiled Tuesday by EU trade chief Karel De Gucht, the reform plan for the so-called Generalised System of Preferences has already drawn criticism – from Europe’s protectionist camp for extending tariff cuts but also from foreign producers and EU importers.
“If adopted, this will cost Saudi, Malaysian, Argentine, Brazilian and Russian exporters millions, as it will their customers in the EU,” said Nikolay Mizulin, trade lawyer at international law firm Hogan Lovells. Countries, including many poorer ones, which have already agreed trade agreements with the EU will be excluded from duty breaks. So too will states “classified by the World Bank as a high-income or an upper-middle income country during three consecutive years,” according to the draft.
For about 85 countries that do qualify – including India and Pakistan – lower duties will be extended. The plan raises the limit for how much a country can export to the EU while still receiving low tariffs – from 15 percent of EU market share under the scheme to 17.5 percent. For textiles – a sensitive sector given EU production – the ceiling will rise from 12.5 to 14.5 percent. This benefits India in particular. The plan foresees an emergency brake triggered by sudden import surges, but it is unclear if this will appease EU industry.
Last week, senior EU officials called on De Gucht to lower the threshold of imports that would trigger the brake – a demand that has been only partially met in the proposal seen by Reuters. Most controversially, De Gucht is set to announce wider access to a scheme that grants further tariff cuts to vulnerable countries in exchange for a commitment to international social and environmental laws. Under the proposal, imports from Pakistan and Ukraine would both qualify for extensive tariff cuts, raising concerns among EU textile and ethanol producers who compete directly with producers in both countries.
If approved, tariff cuts will cost the EU about 2.97 billion euros in lost customs revenue, according to the draft.
