Reviewing the GSP: bringing in the lens of producers and the pandemic

The COVID-19 pandemic has laid bare the reliance of the European Union on global supply chains. Disruptions have resulted in a shortage of machine parts in factories all over the EU and the obvious shortages in medical supplies so dearly needed by health care providers.

Simultaneously, a drop in demands for consumer goods, including textiles and garments, in the EU and elsewhere led to order cancellations by clothing brands, leaving many completed or in-process orders unpaid. This has had a disastrous impact on suppliers and workers. The shuttering of factories pushed workers into ever more vulnerable situations in countries where social safety nets are inadequate or non-existent. In many countries the pandemic has set back economic development for a generation and plunged millions of workers into poverty.

Of all the tools the European Commission has at its disposal to promote sustainable development around the globe, its trade policy is playing a more important role than ever before. The Commission is currently in the process of developing a new regulation for the Generalised Scheme of Preferences (GSP), and a revamp of the Trade and Sustainable Development chapter of the Free Trade Agreement can also be expected.

The GSP scheme facilitates trade between the EU and over 40 emerging economies by offering beneficiary countries reduced or zero tariffs on their exports to the EU. In order to benefit from the scheme, beneficiary countries need to meet internationally recognised standards, such as labour and environmental provisions. If a country fails to fulfil certain criteria, it could lose its favourable access to the EU market.

The primary goods that are imported into the EU through the GSP include garments, textiles and shoes. Due to the reduced tariffs, beneficiary countries remain very competitive in the global marketplace, and in some cases, at the detriment of production in the Union. In fact, imported products coming from the main GSP beneficiaries pose a significant risk to garment and shoe production in countries such as Spain, Portugal, Italy and France.

The European Commission should include several measures in the new regulation to make the scheme more predictable and effective in reaching its desired effects. It should facilitate trade with emerging economies, drive sustainability in the supply chains and stimulate trade that benefits workers inside and outside of the EU.

Moreover, the scheme’s current monitoring mechanism is sanctions based. This means, in practice, the Commission can move to implement sanctions if a country fails to adhere to the internationally recognised standards or a serious regression occurs. Sanctions should not be taken completely off the table in case of serious wrongdoing, however, to ensure the stability of the system and to level the playing field between companies within and outside of EU borders, incentives would be a welcome tool to the current regulation.

First of all, incentives would allow the EU to move away from a scheme whose enforcement relies solely on punitive measures. In practice, this would entail a staged implementation of tariff reduction linked to the implementation of the scheme’s new provisions. For example, the EU could assess the progress made by individual GSP beneficiaries in addressing the issues or actions listed in the monitoring scorecards and grant additional tariff preferences on this basis.

The EU should ensure that the tariff preferences are not granted arbitrarily, but rather on the basis of clearly identified targets or benchmarks, such as amendments to labour laws. It should also consider that these additional preferences can be available to any other GSP beneficiary that, on the basis of an objective assessment, is in the same or similar situation.

Secondly, increased transparency regarding the monitoring process, anchored in the new regulation, would help stabilise the scheme. It would ultimately ensure that all stakeholders can cooperate to improve sustainability and labour standards on the ground through common action.

By furthering this cooperative approach, the EU would strengthen the enforcement of the GSP’s labour and sustainability standards, whilst simultaneously strengthening its enforcement and safeguarding relations with its important trading partners.