Graduation from the European Union’s Generalized System of Preferences

The European Union’s Generalized System of tariff Preferences currently provides preferential access to 176 countries. In 2007 the total value of the preferential imports was €57 billion. The objective of the European Union’s Generalized System of Preferences is to promote development through preferential trade. Thus the countries benefit from various tariff reductions and exceptions depending on their status as a developing country. However when the export from the countries grow they face the risk of being graduated, either in a specific export sector or the country as a whole. The graduation will force the countries to pay the higher normal tariff on goods exported to the European Union. Throughout the years countries has thus lost the preferential access once they managed to compete successfully with domestic production. According to the EU today a product group will be graduated once it has reached a level of competitiveness which is likely to ensure further growth without the preferential tariff reduction, this will ensure that the benefits of the preferential access target those in most need. The purpose of the essay has been to examine how the graduation process has worked and to analyze how trade volumes have been affected by the sector graduation. This has been done by studying how the graduation process has changed throughout the years and by carrying out an empirical analysis on the graduations the recent years. The graduation process has been simplified throughout the years and today the graduation process is more predictable and the GSP more stable compared to before. However according to the empirical analysis most countries whom had sectors graduated the recent years have seen a relative decrease in exports, hence it seems as graduated product groups haven’t managed to stay competitive. If the European Union´s thought behind the graduation is that graduation only shall occur to competitive products they might have to review and change the graduation mechanism