Mid-Term Evaluation of the EU’s GSP: Review of final interim report

1. Presented by : Dr. Willem van der Geest, Team Leader Civil Society Dialogue Monday, September 25, 2017 Mid-Term Evaluation of the EU’s GSP: Review of final interim report

2. Contents • Progress to date • Economic analysis • Social and human rights analysis • Environmental analysis • Stakeholder consultation process • Main challenges and mitigation • Preliminary findings • Economic impact • Social and human rights impact • Environmental impact • Case studies • Project timeline • Next steps

3. I. PROGRESS TO DATE

4. Economic analysis • Identification of policy changes • Changes in the number of beneficiary countries • Country-sector combination of graduation or re-instatement of trade preferences • Changes in the GSP tariffs • Changes in the rules of origin (RoO) • Descriptive and diagnostic analysis • Analysis of the structure of the EU’s tariff regime: MFN, GSP, other PTAs • Utilisation rate: preferential imports as a percentage of GSP eligible imports • Coverage rate: GSP eligible imports as a percentage of total imports • Preference margins: difference between GSP tariffs and MFN tariffs • Analysis of diversification by number of product lines traded and Herfindahl Index • Econometric modelling (Bilateral Gravity Model at Product Level) • Analysis of EU imports at HS 8-digit product level to : • assess the impact of GSP reform on the exports of GSP eligible countries; and • assess the associated impacts on the exports of those countries that are no longer eligible.

5. GSP reform & beneficiary countries • Graduated countries before entrance into force of EC Regulation 978/2012 • Graduated countries from 1 January 2014 – 31 December 2016 • Reinstated countries from 1 January 2014 – 31 December 2016

6. Social and human rights analyses • General impact analysis • Literature review • Application of the GSP Regulation • Ratification and implementation of UN and ILO conventions • Stakeholder consultation: interviews and meetings • Case studies on Bolivia, Pakistan, Bangladesh and Ethiopia • In-depth analysis of social and human rights indicators, including HDI, employment, labour rights, education, health, political and civil liberties, corruption • Ratification and implementation of UN and ILO conventions by Bolivia and Pakistan • Stakeholder consultation: workshops, interviews and meetings

7. GSP reform & social and human rights • Increased support for sustainable development and good governance • Revision of the temporary withdrawal mechanism – in Chapter V of 978/2012 • Conditions preferences to adherence of international conventions “serious and systemic violation of principles laid down in the conventions[…]” • Simplified entrance mechanism for GSP+ • Enhanced adherence to social and human rights in GSP+ • Status upon ratification of GSP+ covered conventions – “effective implementation” • Revision of the monitoring procedure • Bi-annual reports on the status of the ratification of the conventions in the GSP+ beneficiaries • Increased monitoring and dialogues • Commission scorecards – allowing long-term track record

8. Environmental analysis • General impact analysis • Literature review • Ratification and implementation of UN conventions • Impact of main export sections under GSP: textile and clothing • Stakeholder consultation: interviews and meetings • Case studies on Bolivia, Pakistan, Bangladesh and Ethiopia • In-depth analysis of environmental indicators, including climate change vulnerability and readiness, CO2 , greenhouse gas emissions and ND-Gain Index. • Ratification and implementation of UN conventions by Bolivia and Pakistan • Stakeholder consultation: workshops, interviews and meetings

9. Stakeholder consultation process • Stakeholder outreach activities • Comprehensive, balanced, timely and tailored strategy • Dedicated project website • Social media channels: LinkedIn, Twitter • Interviews and meetings with stakeholders in the EU and case study countries (until end of September 2017) • Government, business associations (including SME associations), trade unions, human rights associations, women's groups and other civil society organizations • Stakeholder invitations to date: 450 • Total interviews and meetings conducted: 26; Upcoming interviews: 7 • Written contributions received: 10; Pending contributions: 11 • 1st Civil Society Dialogue in Brussels • On the Draft Inception Report on January 19, 2017 • Local workshops in Bangladesh, Ethiopia, Bolivia and Pakistan • 12-week Online Public Consultation

10. Online Public Consultation • 12-week consultation between 17 March and 9 June 2017 • Featured and promoted through different channels: websites, email, social media • Stakeholder responses • 961 responses in total • High sectoral and geographical concentration • Almost 96% of responses from Italian businesses • Vast majority associated with the EU rice industry

11. Online Public Consultation • Large sectoral participation from agri-food sector • 854 responses – 89% • Low response rate from textile and clothing sector and machinery sector: 5 responses from the textile and clothing sector; 1 response from the machinery sector • Negative feedback on the GSP’s safeguard mechanism • The existing safeguard mechanism does not protect the EU rice sector • Rice imports under EBA from Cambodia and Myanmar disrupt the European rice sector • 815 respondents (85%) issued the following statement : • “After 2009, rice has not been considered as a ‘sensitive’ product by European Commission and for rice there is not an automatic clause of safeguard like other sectors.” • Negative feedback on the poverty reduction objective • Perception that current arrangements benefit large industries and not small businesses

12. Online Public Consultation • Positive feedback on the impact of GSP+ and EBA on development • Perception that these arrangements contribute to the product competitiveness that ultimately promote economic development in these countries . • Low response rate from non-business stakeholders • 3responses from trade unions • 21 from trade associations • 8 responses from governmental authorities in Italy; 5 from the Philippines; 1 from the Czech Republic; 1 from Belgium • 2 responses from international organizations in Italy • 1 response from an NGO in the Netherlands • 2 responses from academia in Pakistan and Bangladesh

13. Local workshop in Bangladesh • Stakeholder outreach workshop on the EBA in Bangladesh • Held at the Le Meridien Dhaka Hotel on February 7, 2017 • Gathered 70 participants from government, industry and civil society • Main findings of the workshop • Overall positive impact of the EBA in Bangladesh • Majority of gains concentrated in the ready-made garment industry • Evidence of declining poverty rates, increased infrastructure development and enhanced productivity in the industrial sector • Reform of RoO contributed to the increase of exports, especially of woven products • Need for further improvement in trade union registrations, minimum wage, supply side capacities and the balance between environmental mitigation and economic growth

14. Local workshop in Ethiopia • Stakeholder outreach workshop on the EBA in Ethiopia • Held at the Capital Hotel and Spa in Addis Ababa on March 7, 2017 • Gathered 64 participants from government, industry and civil society • Main findings of the workshop • The EBA overall has had a positive impact in terms of economic growth, export performance, employment and poverty reduction • The EBA has supported the rapid development of the horticulture sector • There is increasing awareness about the need for sustainable development • The EBA is not fully utilised by exporters due to high standards, stringent RoO, lack of awareness, preference erosion and supply side constraints • Exporters are more keen on utilizing non-reciprocal trade preferences under the US African Growth and Opportunity Act (AGOA).

15. Local workshop in Bolivia • Stakeholder outreach workshop on the GSP+ in Bolivia • Held at the Camino Real Hotel in La Paz on April 25, 2017 • Gathered 52 participants from government, industry and civil society • Main findings of the workshop • There are considerable improvements in social conditions and in the Government’s efforts to implement the 27 conventions covered by the GSP+ • Exporters are not quite familiar with the EU market (‘non-traditional market’) • Non-tariff barriers significantly hinder the growth of Bolivia’s exports to the EU • Exporters prefer to use the EU-Andean Community FTA over the GSP • Low utilisation of preferences because exports are concentrated on mineralproducts under MFN=0

16. Local workshop in Pakistan • Stakeholder outreach workshop on the GSP+ in Pakistan • Held at the Islamabad Marriott Hotel on May 16, 2017 • Gathered 66 participants from government, industry and civil society • Main findings of the workshop • Exports to the EU have significantly increased since 2014, while global exports declined • Stakeholders are concerned that the GSP+ has led to trade diversion instead of creation • Only a positive and sizeable impact on the formal export sector (textile and apparel) • Government considered to be fully committed to GSP+ obligations, theyconsider it as part of their constitutionalobligation • Civil society organisations and trade unions request to be more integrally involved in GSP+ monitoring

17. Main challenges and mitigation strategies • Late availability of trade data for 2016 • Approach: Analysed 2011-2015 data and updated when 2016 data became available • Lack of up-to-date social, environmental and human rights indicators • Approach: Complementary in-depth qualitative analysis in case studies • Restricted involvement of stakeholders in local workshops • Approach: Bilateral meetings with civil society and business associations in workshop countries • Low response rate initially to the Online Public Consultation • Approach: Active promotion through online outreach, workshops, emails and calls • Large number of stakeholder consultation activities • Approach: Invitation sent to 450 stakeholders from Europe, Bangladesh, Bolivia, Pakistan, Ethiopia, and other beneficiary countries to participate in meetings and interviews.

18. II. PRELIMINARY FINDINGS

19. Economic impact – Import shares • Majority of imports in EU market enter under MFN arrangements. In 2016, 82.2% under MFN; 4.1% under GSP; and 12.8% under FTAs/PTAs. • Share of EU imports under GSP+ and EBA have increased post-regulation by 0.18 and 0.03 percentage points, while it has decreased by 2.16 percentage points under the Standard GSP. • An assessment of compositional changes reveals that for the 80 beneficiary countries under investigation, 49 EBA countries and 8 GSP+ countries increased their exports substantially in the post-regulation period; while marginal increase in exports from 23 Standard GSP countries.

20. Compositional changes

21. Percentage share of imports by regime

22. Economic impact – Tariffs and margins • No major changes in the distribution of tariffs across regime type, which is in keeping with the 2012 . • Changes only for 19 tariff lines where duty-free access was granted for Standard GSP countries; and 4 tariff lines where similar access was granted for GSP+ countries. • No major changes in preference margins: • Preference margins are highest for foodstuffs, textiles, clothing and footwear • Slow but constant preference erosion through increased number of PTAs and expansion of MFN= 0 tariffs • Preference erosion occurred for 7 out of 21 sections across all three schemes, leaving the greater margin of EBA and GSP+ largely unchanged

23. Preference margins by HS section compared to MFN tariffs

24. Economic impact – Trade flows • Main product sections imported under the GSP are textiles, footwear and machinery and mechanical appliances • Textiles moved from 23% of GSP imports in the pre-regulation period to 47% in post regulation period • Footwear moved from 3% to 9% • Machinery and mechanical appliances moved from 7.5% to 8% • While the value of overall GSP imports declined since 2014, the value of textile imports continues to grow • Between 2014-2016, textile imports under GSP increased by 24.5%, compared to 6.5% between 2011-2013.

25. Economic impact – Trade flows • Increased use of preferential duty-free treatment under all three arrangements • Biggest increase for EBA countries– from 25.80% of traded value in 2011 to 65.36% in 2016 • On average, EBA beneficiaries have a higher utilisation rate than other GSP beneficiaries post-reform • Average utilisation rates increased for GSP+ and EBA beneficiaries • Average utilisation rates declined for standard GSP countries (possibly caused by compositional changes) • Highest utilisation rates: Solomon Islands (99.2%), Laos (96.9%), Senegal (97%), Bangladesh (96.6%) and Sudan (96.3%)

26. Economic impact – Trade flows • Analysing diversification by number of non-zero tariff lines traded • Number of tariff lines traded are highest for EBA beneficiaries • Number of tariff lines traded decreased considerably at all sector levels for Standard GSP beneficiaries • Number of tariff lines decreased for all GSP+ countries combined, but no clear pattern at sectoral level • Analysis of export diversification using Herfindahl Index: • Of all three arrangements, EBA has least diversified export portfolio at both the product and sectoral levels. • Unlike EBA countries, Standard GSP countries with highly diversified portfolios at the product level were similarly diversified at the sectoral level. • The majority of GSP+ countries reflected only minor changes in export diversification.

27. Economic impact – Gravity model results • Results of bilateral gravity model at product level vary depending on the regression technique utilized: OLS vs Fixed Effects Model • Fixed effects model is preferred to the standard OLS model as it controls for time invariant variables and focuses on year-to-year changes. • Preliminary results reveal the following: • Positive relationship between a country’s world exports at the sectoral level and specific product exports to the EU. • Results also reveal that those countries that exited the EBA scheme (The Maldives) as well as those that exited the Standard GSP arrangement (i.e. over 80 countries) exported less to the EU in comparison to non-GSP and non-FTA countries.

28. Economic impact – Gravity model results • Results also reveal that: • Countries that entered into and exited the GSP+ arrangement had positive coefficients, indicating that they exported more to the EU more in comparison with countries that did not belong to any specific grouping. • Countries that have entered into FTAs as well as all those which collectively exited the GSP Scheme post-2013 (i.e. countries that were previously EBA, Standard GSP and GSP+ beneficiaries), have all increased their exports in comparison to countries that did not participate in the GSP scheme or an FTA arrangement.

29. Social and human rights impact • Legal conditionality through the temporary withdrawal mechanism incentivises beneficiaries to adhere to fundamental rights • EU leverage depends on importance of the EU market, export value and GSP utilisation • Inconsistently applied, i.e. Cambodia and Myanmar • Structural dialogue preferred over withdrawal of preferences • GSP+ has a positive impact on the promotion of fundamental rights • Promotes implementation and adherence to obligations under international conventions by GSP+ beneficiaries • Facilitates cooperation and dialogue with beneficiary countries • Incentivises ratification of fundamental conventions by Standard GSP beneficiaries, i.e. Pakistan, Ecuador and Tajikistan • EU leverage depends on importance of the EU market, export value and GSP utilisation

30. Social and human rights impact • GSP can be a facilitator for social development and poverty reduction through increased economic growth and resources • Impact is dependent on domestic priorities and policies • Overall increased awareness about the need for sustainable development • Other domestic and international factors can also influence social development and adherence to fundamental rights • Increased export opportunities and growth can also have negative impacts on fundamental labour and human rights • Cases of land grabbing in Cambodia and Ethiopia to facilitate businesses • Violation of labour rights in Bangladesh to facilitate cheap production

31. Environmental impact • No legal conditionality through the temporary withdrawal mechanism for Standard GSP and EBA beneficiaries to adhere to environmental protection • GSP+ has a positive impact on the promotion of environmental protection • Promotes implementation and adherence to obligations under international conventions by GSP+ beneficiaries • Facilitates cooperation and dialogue with beneficiary countries • Incentivises ratification of fundamental conventions by Standard GSP beneficiaries, i.e. Tajikistan • Potential positive impact as not all eligible Standard GSP beneficiaries have ratified and implemented the conventions on environmental protection and climate change • EU leverage depends on importance of the EU market, export value and GSP utilisation

32. Environmental impact • GSP can be a facilitator for environmental protection and sustainable development through increased economic growth and available resources • Impact is dependent on domestic priorities and policies • Increased awareness about the need for sustainable development, yet environmental protection is often not a priority for developing countries • Increased export opportunities and growth can also have negative impacts on the environment • Production of textile and clothing has a detrimental effect on water, soil and air quality through intensive use of energy, chemicals and water • The negative impact can be mitigated with effective waste and resource management measures

33. Environmental impact – ND- Gain Index • The majority of GSP countries are vulnerable to the effects of climate change and lack capacity to take advantage of investments to convert them into adaptation actions. • In 2015, the best performers were found amongst the GSP+ countries. • Armenia had the most impressive score, ranking 64th out of 181 countries. • The only exceptions were Bolivia and Pakistan, who ranked amongst the lowest of all GSP countries. • The EBA countries ranked the lowest of all three beneficiary countries • The Central African Republic was ranked in the 181st position. • Modest environmental improvements in the case-study countries • In 2015, Pakistan was the highest in rank of the four countries, placing 125th out of 181 countries. • Ethiopia revealed the highest year-on- year changes since 2010 • Bangladesh and Bolivia have shown modest improvements since 2010.

34. Impact of GSP on textile sector • Textiles and clothing (S-11a and S-11b) are the main import sections under GSP • Section’s share increased from 22% of total GSP imports in 2013 to 50% in 2016 • Between 2014-2016 imports increased by 25.3% compared to 2.6% between 2011-2013 • EBA beneficiaries have steadily increased their exports, especially Bangladesh • GSP+ beneficiaries have rapidly increased their exports, especially Pakistan

35. Impact of GSP on textile sector • There are significant differences in preference utilisation per arrangement • Standard GSP beneficiaries export 56% of textile and clothing imports under GSP • GSP+ and EBA beneficiaries export more than 90% under GSP • Average preference margin for EBA and GSP+ beneficiaries is 8.01% compared to 1.62% for Standard GSP beneficiaries • Reduction in beneficiary countries has created opportunities for beneficiaries • Imports from EBA beneficiaries have significantly increased between 2011-2016 • Pakistan and Bangladesh have managed to utilise the increased export opportunities • The impact of the scheme on the EU textile and clothing industry is diverse • Some companies benefit from cheap imports under the GSP • Other companies face increased competition from imports under the GSP • Stakeholders argue that the thresholds of the safeguard mechanism are too high

36. Impact of GSP on machinery • Machinery (S-16) is the third largest import product under the GSP • The section’s share fluctuated between 7% and 9% of total GSP imports • Between 2014-2016 imports decreased by 14.5% compared to a 9.9% increase between 2011-2013 • Large decrease as a result of the reduction in number of beneficiaries • Mostly imports from Standard GSP beneficiaries – only 4.8% imported under GSP+ and only 0.1% under EBA

37. Impact of GSP on machinery • There is a low utilisation of GSP preferences • Standard GSP beneficiaries export less than 20% of their products under GSP • GSP+ and EBA beneficiaries export less than 10% under GSP • Presumably because it is difficult for local companies that only assemble components produced in other countries to meet the RoO • Average preference margin is low – 2.32% for GSP+ and EBA beneficiaries compared to 2.06% for Standard GSP • The GSP reform has created limited opportunities for beneficiaries • Beneficiaries continue to mainly export under MFN • Some beneficiaries rapidly increased their exports while utilising MFN instead of GSP • The impact of the scheme on the EU machinery industry is limited • Only 1.2% of machinery imports enters the EU market under GSP • Reduction of beneficiaries has had limited effect due to high utilisation of MFN • EU industry mainly faces competition from China, which was already excluded from the GSP for machinery since 2005

38. Impact of GSP+ in Bolivia • Exports to the EU increased by 32.9% between 2011-2013 and by 1.2% between 2014-2016 • EU as the fourth largest export destination • Limited export diversification: Mainly ores, slag and ashes under MFN and cereals, beverages, spirits and preparations of vegetables and fruits under GSP+ • Decreasing utilisation rate: 94% in 2016

39. Impact of GSP+ in Bolivia • Positive development on a number of social indicators • Steady improvement through numerous social policy reforms • Decline in poverty rates – from 45.1% in 2011 to 38.6% in 2015 • Human development index increased by 0.71% per year between 2011-2015 • Mixed results on environmental indicators • Increased CO2 emissions • Increased deforestation • Detrimental impact of mining and agriculture, i.e. water and soil degradation • Mixed results on the effective implementation of the GSP+ conventions • Failure to meet all reporting obligations • Several shortcomings identified in the implementation of the conventions by the UN and ILO monitoring bodies

40. Impact of GSP+ in Pakistan • Exports to the EU decreased by 1.4% between 2011-2013 and increased by 14.7% between 2014-2016 • EU as the main export destination • Limited export diversification: Mainly textiles and clothing under GSP+ • High average utilisation rate: 95.8% in 2016

41. Impact of GSP+ in Pakistan • Positive development on a number of social indicators • Pakistan Vision 2025 aims to improve education, health, employment, poverty and human rights • Human development index increased by 0.95% per year between 2011-2015 • Textile industry provides important employment opportunities for skilled and unskilled workers and women • Mixed results on environmental indicators • Stable CO2 emissions despite economic growth • Increased deforestation and pollution • Detrimental impact of textile industry, i.e. air, water and soil pollution • Positive impact on the effective implementation of the GSP+ conventions • Ratification of conventions and withdrawal of reservations to become eligible for GSP+ • GSP+ task force and national and regional treaty implementation cells • Improved adherence to reporting obligations since 2014 • Several shortcomings identified in the implementation of the conventions by the UN and ILO monitoring bodies

42. Impact of EBA in Bangladesh • Exports to the EU increased by 20.2% between 2011-2013 and by 32% between 2014-2016 • EU as the main export destination • Limited export diversification: Mainly textiles and clothing under EBA • High average utilisation rate: 96.4% in 2016

43. Impact of EBA in Bangladesh • Positive development on a number of social indicators • Human development index improved by 3.95% between 2011-2015 • Decline in poverty rates • Textile industry has a positive and negative social impact • Provides important employment opportunities – employs 4.2 million workers • Provides opportunities for women – 80% of the workforce is female • Detrimental effect by restricting fundamental labour rights, i.e. restricted trade union membership, unsafe working conditions • Mixed results on environmental indicators • Increased CO2 emissions • Increased pollution through increased production • Textile industry has a negative environmental impact • Lack of sufficient waste management measures • Detrimental effect on air, water and soil quality through processing methods and waste generations

44. Impact of EBA in Ethiopia • Exports to the EU decreased by 24.5% between 2011-2013 and increased by 29.2% between 2014-2016 • EU as the main export destination • Limited export diversification: Mainly coffee under MFN and flowers under EBA • Volatile utilisation rate: 61.2% in 2016

45. Impact of EBA in Ethiopia • Ethiopian producers face difficulties in accessing the EU market • Limited awareness of GSP compared to US’ AGOA • Stringent RoO and high standards • Eroding preference margins • Positive development on a number of social indicators • Human development index increased by 1.71 per cent between 2010-2015 • Declining poverty rates • Expanding horticulture sector provides employment opportunities for young workers and women • Negative human rights impact in the form of land grabbing • Reallocation of land to foreign investors, including in agriculture and horticulture • Mixed results on environmental indicators • Increased deforestation • Increased pollution of soil, air and water • Detrimental effect of horticulture and agriculture on soil and water quality

46. III. PROJECT TIMELINE

47. Local workshop in Ethiopia Next steps • Presentation of the Draft Final Report in October 2017; • Publication of Final Report in November 2017. . .s September 2017 .sCivil Society Dialogue, Brussels . . . September 2017 .Final Interim Report online November 2017 .Final Report online Online Public Consultation ends • 25 April 2017 • 19 January 2017 • 7 March 2017 • 16 May 2017 • Local workshop in Bolivia • Civil Society Dialogue, • Brussels Local workshop in Pakistan • 17 March 2017 • April 2017 • 7 February 2017 • 9 June 2017 • Online Public Consultation begins • Final Inception Report online • Local workshop in Bangladesh

48. Next steps • Presentation of the Draft Final Report in October 2017; • Publication of Final Report in November 2017. 17 March 2017 .Online Public Consultation 19 January 2017 .sCivil Society Dialogue, Brussels September 2017 .sCivil Society Dialogue, Brussels 7 February 2017 .Local workshop in Bangladesh 7 March 2017 .Local workshop in Ethiopia 25 April 2017 .Local workshop in Bolivia April 2017 .Final Inception Report online 16 May 2017 .Local workshop in Pakistan September 2017 .Final Interim Report online 10 January 2017 .Online Public Consultation November 2017 .Final Report online

49. Thank you for your attention! WE WELCOME YOUR FEEDBACK • What is the economic/social/human rights/environmental impact of the EU’s GSP? • What is the impact of the EU’s GSP on poverty reduction? • What is the impact of the EU’s GSP on the distribution of gains? • Are there any unintended consequences of the EU’s GSP? • comments@gspevaluation.com • www.GSPevaluation.com • @GSPEvaluation • GSP Evaluation