Overcoming the development trap: how the GSP can lift millions out of poverty

Almost 50 years ago the United Nations Conference on Trade and Development asked developed countries to help developing countries integrate into the world economy. At that moment, the ‘Generalised System of Preferences’ (GSP) was born. While, today, about a dozen countries have similar trade mechanisms in place, the European Union’s GSP – with over 70 beneficiaries – is widely recognised as the most progressive and generous of them all.

Under the GSP, the EU offers developing countries a reduction in tariffs for two-thirds of product categories. Vulnerable countries that ratify and implement 27 international conventions on human and labour rights, as well as Multilateral Environmental Agreements, and that follow good governance standards graduate into the so-called ‘GSP+.’ What does this mean in practice? They have these tariffs slashed to zero.

Moreover, least developed countries receive duty and quota-free access for all products, except arms and ammunition under the Everything But Arms (EBA) arrangement. Respecting the principles of 15 core United Nations (UN) and International Labour Organisation (ILO) Conventions on human rights and labour rights is a condition for all beneficiaries.

A recent evaluation shows that the EU’s GSP is delivering. From 2011 to 2017, EU imports from the beneficiary countries increased by 44%. EBA countries saw their exports to the EU increase by 125% and GSP+ beneficiaries by 82%. The evaluation also indicates that countries increasingly use the available trade preferences and diversify their exports. Moreover, GSP+ beneficiaries saw an economic incentive for making progress in ratifying and implementing the 27 international conventions required under GSP+.

The GSP helps beneficiary countries develop in a sustainable way. By making it easier to export to the large EU market, GSP generates investments that create jobs in partner nations and support their integration into global value chains. For instance, since 2011, Bangladesh has almost doubled its exports to the EU from €9bn to approximately €18bn in 2018.

The GSP, and GSP+ by extension, also supports EU foreign policy objectives, beyond creating economic opportunities. It serves as a tool to foster human and labour rights, as well as environment and good governance objectives. And it is delivering on that front.

For instance, Ecuador has ratified several human rights conventions required to be admitted into the GSP+. In the Philippines, GSP+ was a strong argument against both re-introducing the death penalty and reducing the age for criminal responsibility to nine years of age. The Philippines Senate understood that adopting such laws would have economic ramifications. European trade mechanisms helped turn the ongoing debate by injecting a dose of pragmatism into highly politicised and emotive discussions. In Bolivia, the EU’s GSP+ dialogue led to an amended Child Labour Law that brought the country in line with international standards. Additionally, Armenia strengthened its labour inspection capacity. These countries would not have taken such steps without the incentive of GSP+.

The GSP also encourages companies to be more responsible global actors. The scheme has encouraged investment in beneficiary countries, while also incentivising companies to link business considerations with fundamental values and sustainable development objectives. In the garment industry – the largest sector benefiting from GSP – European companies are introducing new business models replete with higher environmental and labour standards. Therefore, the GSP demonstrably strengthens respect for international values and principles, making our companies more responsible global actors.

However, as with all such initiatives, the GSP needs to remain relevant for developing countries. Privileged market access alone is not enough to reduce poverty. Moreover, tariff advantages are eroded as the EU signs more trade agreements. Therefore, coherence with other policies has become more important so that beneficiaries can make the most of the preferences offered. This includes support for diversifying their economies, attracting new investors, facilitating trade and raising awareness of the GSP locally and within the EU.

The GSP needs stronger partnerships, especially among civil society. It is essential for beneficiary countries and EU stakeholders to remain deeply engaged in these projects. These partners, including the European Parliament, EU Member States and civil society, can reinforce the importance of human and labour rights, the environment and good governance.

EU industry should also play a more active role. When EU countries import products at reduced tariffs from GSP countries, they are integrating their industrial sectors into value chains. In this way, they also promote decent working conditions, sustainable production practices and respect for the environment. Industry can do more to consider GSP countries in longer-term business plans and support their economic growth based on an uptake of values underpinning sustainable development as a business model.

Lastly, the EU needs to ensure that the GSP remains a credible and effective unilateral trade instrument. With privileges come responsibilities. The European Commission has a legal responsibility to act if there is a systemic violation of human rights in a partner country. For example, following reports of serious and systematic violations of human and labour rights, the European Commission for Trade launched a period of enhanced engagement with Bangladesh, Cambodia and Myanmar, in addition to the systematic monitoring of GSP+ countries already in place.

Of course, this is a delicate process, but it is necessary for the EU to encourage compliance with international conventions. It can result, as was the case recently for Cambodia, in a launch of a procedure to withdraw tariff preferences temporarily. This is a good example of the EU using its clout in trade to stand up for the values it holds dear, while continuing to engage with the relevant authorities and civil society representatives.

The EU’s aim is not simply to enable developing countries to trade their way out of poverty. Rather, it is to help them do this by creating economies and societies based on core international values and principles. This is indispensable for their citizens, for the world and for the generations to come.