EU Relaxes Rules of Generalised System of Preference

The import of complete bicycles from countries like Bangladesh, Thailand, Cambodia and Vietnam into Europe is expected to grow rapidly in the coming years, as new EU trade rules are very favourable to OEM bike makers in these countries. What it all boils down to is a big relaxation of the rules of the Generalised System of Preferences.

New approach

On November 23, 2010 the European Commission announced in the Official Journal of the European Union its new approach to the rules of origin in all preferential trade arrangements and in particular in development oriented schedules such as the GSP. This announcement comes after a long-lasting discussion which started in 2003. This amendment is applicable as of January 1, 2011.

Local content

The new regulation is very favourable for Asian bike suppliers as the local content for products made in the Least Developed Countries (LDC’s) is now set at a requirement of just 30%, instead of 60% as specified in the old ruling. According to the European Commission the rules of origin should reflect the features of specific sectors but also allow beneficiary countries a real possibility to access the preferential tariff treatment granted.

The EU aims to encourage the industrial development of the least developed countries. The new regulation is based on the creation of a threshold applicable to non-originating content while still ensuring that the operations which take place in those countries are genuine and economically justified.
The new rules stipulate, “A maximum content of non-originating materials of up to 70 % for products originating in the least developed countries should result in increased exports from them.”

For example, this means that an OEM bike maker in Bangladesh can import for 70% of the ex-works price of a bike in components from Europe, which can be used in the bikes he exports to Europe.  

Cooperation between countries

In order to stimulate the cooperation between LDC countries with identical rules of origin; they are now able to work together in the manufacturing of products which are eligible for preferential tariff treatment. The European Commission has eased the existing conditions for this regional “bilaterial cumulation of origin” by making them less stringent and complex, by removing the existing value condition for example.
Regional cumulation will apply to four separate regional groups. (Semi-final) parts and components made in one of the countries within a group are regarded as local production when the final product, such as bike assembly, is made in one of the other countries of the group.

These groups are: Group I: Brunei, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam; Group III: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The other two groups are the Mecosur as well as the other South and Latin American countries.
This bilateral cumulation even allows products originating in the European Union to be considered as materials originating in a beneficiary country when incorporated into a product assembled in that country. Of course the European Commission has set some exceptions to this rule. For example affixing or printing marks, labels, logos and other distinguishing signs on products or their packaging are considered as insufficient to confer the status of originating products. As a result bicycle assemblers in one of the LDCs can now offer a wider range of goods as they are not limited in their choice of specs.

Integration LDCs in world economy

The reason to change the existing trade rules is that in the context of the Doha Development Agenda, the need for a better integration of the least-developed countries into the world economy, in particular through improved access to the markets of developed countries, has been recognised by the European Union. For that purpose, the rules of preferential origin are simplified and made less stringent, so that products originating in beneficiary countries can actually benefit from the preferences granted.

The European Commission’s new approach to its preferential trade arrangements holds a second part which is to become effective on a much later date. This part will eventually do away with the need for the Form A and take the responsibility of the accuracy and eligibility for issuing form A away from the exporting Government and make it the responsibility of the exporter.  Due to the complexity of the system requirements (like the establishment of an electronic record of registered exporters) this part is to become effective January 2017.