EU trade measures will bring relief to poor countries but more is needed

The European Commission's decision to bring forward a new system of trade preferences for poor countries will help reduce poverty by improving market access for their exports, but the gains will be limited as many protectionist measures persist, warned international agency Oxfam today.

"Today's announcement is welcome as it represents a willingness on the part of Europe to use trade measures to help developing countries, including those affected by the tsunami,” said Phil Bloomer, Head of Oxfam International’s Make Trade Fair Campaign. “However, the EU could do a lot more to make trade work for poor people. Under today’s proposal, bigger developing countries, like India, may lose out, even though they have millions of very poor inhabitants. This is one step in the right direction but there is still a long way to go.”

Oxfam also welcomed Europe's promise to review its unfair 'rules of origin', which limit the extent to which poor countries are eligible for preferences by stipulating that the majority of components in a product must be sourced domestically. Rules of origin represent a major barrier to trade, particularly for clothing exporters such as Sri Lanka, the Maldives and other very poor countries.

Bloomer: “Reform of the EU's unfair rules of origin is long overdue. For too long, countries that are fully entitled to trade preferences have been denied them because they have sourced some of the ingredients from overseas. For example, shirts produced in the Maldives are burdened with massive taxes when sold in the EU just because the fabric comes from China. These conditions are canceling out the benefits of a system designed to help the poor.”

The EU's Generalized System of Preferences (GSP) is a system of special trade deals through which Europe gives improved access to its markets for poor countries. Following the Asian tsunami, the European Commission has agreed to fast track the GSP by three months as a way to bring some relief to the affected countries. The new program of trade preferences will now come into effect on April 1st.

There are good and bad aspects of the new deal:

• The new fast-tracked GSP will help Sri Lanka and other small developing countries outside the tsunami region, because some EU tariffs come down to zero.
• The promise to ease rules of origin so that countries can qualify more easily for reduced tariffs is welcome, especially for the least developed countries such as the Maldives, Bangladesh and Cambodia. These countries have – theoretically - duty free access to EU markets for their clothing exports but in practice pay hundreds of millions of Euros in duties.
• Larger developing countries such as Indonesia, India and Thailand obtain some reduction in tariffs on some products, but it may not last long, perhaps only up to 2008. These countries face substantial trade barriers on many agricultural products. The GSPprogram unfairly discriminates against larger developing countries such as India, even if they are very poor in income terms.