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EU Commission needs Professor
November 2007
Mike Hodge, International Trade Today
At the beginning of October, an article in one of the national newspapers caught my eye. It was headlined, ‘Scientists made a drop of water flow uphill’. In an instant, it took me back 45 years, to my physics teacher, who had set a number of us the task of inventing perpetual motion. No-one, of course, got the answer but the closest anyone came to it was a marble rolling round and round a hand basin. Give it a try! Anyway, back to the newspaper article. A Professor Jens Egger was apparently meant to be doing some research into the properties of cornflour. (The article doesn’t reveal how he managed not to find something more interesting to do!) Anyway, he has managed to make drops of water defy gravity by flowing uphill and this been achieved by vigorously vibrating the droplets. Mathematicians have now demonstrated how small drops of various different liquids can be made to move up gradients as steep as 85 degrees. Professor Egger has been quoted as saying, ‘This is totally new. It’s never been done before, and we are still not totally sure exactly what is happening.’
It was that last statement that led me to wonder whether there was a place for him working for the EU Commission, and sorting out the new Generalised System of Preferences (GSP) scheme. It would seem to me that we really do need someone of Professor Eggers’ capabilities and tangenticity to create a workable scheme.
The current GSP agreement is up for renewal on 31 December 2008 when a new scope and coverage Regulation will be put in place. Anyway, that’s the plan. Regular readers of International Trade Today will know that I’ve written many, many words on GSP and the inherent risks for importers in the EU.
It is commercially impossible for an importer to have any control over the issue of a GSP Form A in an exporting preference country. By their very nature, the authenticating office in the preference country will be stamping the origin forms with enthusiasm as it is good for the export trade. From the EU Anti Fraud (OLAF) mission reports I’ve seen, it is patently obvious that the authorising bodies in the developing countries are not at all interested whether the goods do actually originate in their country.
So, in March 2005, the Commission produced a paper on the future of GSP. In fact, this paper was a follow up to one issued in December 2003 on the same subject. As we all know, it takes a very long time to get anything sorted out in the Commission and the GSP is difficult. Apart from the procedures involved with authenticating the origin documents, there is the whole immensely complicated area of the rules that have to be met for originating purposes.
The Commission employed a firm of consultants to produce an impact assessment on the rules of origin. The first paragraph is worth quoting verbatim:
‘This impact assessment concerns the rules of origin of the GSP. It is intended to support a proposal for the reform of these rules to make them simpler and more development-friendly. This is an urgent matter. It is a politically important subject, which has been the subject of intense debate for many years and where the expectation of beneficiary countries (including the world’s poorest) are now high’.
The paper goes on to say that the rules of origin are too complex and they need to be changed. However, there was no agreement amongst those consulted about how best to do this.
It is now expected that the European Commission formal proposal on the new GSP Rules of Origin will be available by the time you read this article and that the Commission is working towards adopting a Regulation on the new Rules of Origin by the end of 2007. I have to say that I am not convinced that this is an achievable date.
The Impact Assessment has considered and proposed a single method originating rule based on Value Added (VA) by the production/manufacturing process in the beneficiary country. VA is defined as ‘a prescribed percentage of the ex-works price of the finished product’. This is a really tricky area because a particular product might qualify for preference on a Monday but not on the following day – entirely due to currency fluctuations.
Additionally, some EU manufactured products may be sold as a loss leader – the ex-works price is low and, therefore, the VA is not met. The Impact Assessment has also suggested a rule of origin based on a change of tariff heading. I have to say that it sounds much the same as what we have in place now.
At a meeting in the middle of September, the delegates of the relevant committee were given an outline of some of the possible content of the proposed Regulation. Here is a very brief summary:
- The current list of product specific rules will be much shorter – with ‘VA’ being the norm. There will (naturally) be exceptions for agricultural products, fishery and some textiles
- There will be a list of minimal processes, which will never confer originating status
- The direct transportation rule is being replaced by a ‘non-manipulation’ requirement
- The GSP Form A is being replaced by a statement of origin issued by a registered exporter
- There will be provisions in the Regulation to make sure the beneficiary countries are following the procedures
- The new origin rules are to come into force on 1 January 2009, when the new GSP scheme takes effect.
- The replacement of the GSP Form A will not take effect until 2012 and, even then, there is a provision for the GSP Form A to continue for another five years.
These long-awaited changes should be considered in the light of JCCC Information Paper (07)42, which was issued in the middle of October. The document sets out the difficulties currently being experienced by EU importers purchasing textiles and garments from Bangladesh. A lightning visit by the EU Anti Fraud Squad (OLAF) has apparently discovered that a number of GSP Form As have allegedly been falsified.
The problem is, for importers, that they have absolutely no idea whether a GSP Form A is valid or not. It is, of course, possible to spot obvious errors but the JCCC Paper attempts to describe the difference between a valid authenticating stamp and a non-valid one.
It would seem to me to be eminently sensible for the Commission to give importers a picture of a valid stamp. The Official Journal gives examples of genuine euro notes so why can’t we have a view of a genuine stamp? The sooner the Commission scraps this GSP Form A, the better: 2012 is just not soon enough. Now is the time to do it. Pass the responsibility to the GSP beneficiary countries’ authenticating bodies and then, when ‘errors’ are discovered, charge the duty back to the beneficiary countries.
This brings me back to Professor Jan Egger and his water flowing uphill. We need a fresh view and a radical approach. I wonder whether Professor Egger would be prepared to spare some time to sort out the GSP. But if a really radical solution is wanted – try this!
Scrap the GSP scheme all together – full rates of duty are paid; all EU importers, then, have a level playing field as they would all be paying the same rates of duty. The EU Member States’ authorities record the value of imports from the developing countries and the duty paid.
Onerous? Yes, but we have computers. Somehow we need to identify which goods originate in these preference countries because I suggest it is the duty on those goods that is returned as EU aid. Thereafter, the authorities in the Developing Countries sort out which manufacturers get the aid. In this way, the benefit gets sorted out properly and goes to the right manufacturer.
OK, this may not be as brilliant as water flowing uphill but I reckon it’s as good as marbles in a hand basin. The best bit of all, of course, is that EU importers are relieved of the nightmare of back duty bills. I’m sure the revised GSP proposals will not address this – what would the OLAF staff fill their days with if they couldn’t make EU importers tear their hair out?
