The Generalized System of Preference:
The Generalized System of Preference (GSP) is a formal set of releases outlined by the World Trade Organization (WTO), intended at providing preferential access for developing countries in the form of reduced tax or duty for their goods into the markets of developed countries.
Rules of Origin:
Rules of Origin (RoO) are used to determine the country of origin of products for the purpose of international trade. The Rules of Origin for the EU did not allow GSP facilities to products (specifically RMG) that were processed using imported raw materials.
The European Union (EU) has brought about a change in its Rules of Origin (RoO) for products imported under the Generalized System of Preference (GSP). It has been effective since January 2011.
Through the new rules, EU allows exporters to use imported raw materials and still enjoying duty-free access under GSP and from this change in the rules, Bangladesh can enjoy large scale benefits as because it is a major exporter of textiles and readymade garments (RMG).
In the European Union, there are three forms of GSP benefits that are provided to exporting countries:
i. The Standard GSP: providing preference to 176 developing countries over 6200 tax lines
ii. The GSP+: a special arrangement for weak developing countries, offering additional tax reductions
iii. Everything But Arms (EBA): an arrangement that provides Duty-Free, Quota-Free access for all products for the 49 Least Developed Countries (LDCs), among which are Bangladesh, Bhutan and Cambodia.
However, the latest improvement to the rule allows exports from the countries falling under the EBA category to enter the EU market duty free, even if only one stage of the processing has taken place in the country. In other words, selected countries that produce and export apparels will be able to import fabrics from any other country and still enjoy duty free access to the EU market.
we have to keep in mind that a maximum content of 70% of non-originating or imported material for apparels production can be used for getting the GSP benefit.