Commercial Information Circulars

Ref. : CR EIC 230/20/1 XIX

20 November 1997

Dear Sirs,

Commercial Information Circular No. 170/97

Graduation of Hong Kong from the
EU's Generalised System of Preferences (GSP) Scheme

Further to Commercial Information Circulars Nos. 152/94 of 31 December 1994, 28/95 of 25 February 1995 and 150/95 of 16 November 1995, the European Commission (EC) formally adopted on 5 November 1997 a proposal to graduate certain beneficiary countries, including Hong Kong from the EU's GSP Scheme on 1 January 1998, and has submitted the proposal to the Council of the EU for consideration. The Council's approval is awaited.

2. The Council of the EU has not fixed a date to discuss and to decide on the EC's proposal. The proposal is now being examined by the Council's GSP working group. The Department shall monitor closely the Council's deliberations on the issue and keep the trade informed of development.

Details

Graduation Criteria

3. Under the EC's GSP graduation proposal, beneficiary countries are to be excluded from the GSP Scheme if they have a per capita income exceeding US$8,210 (in 1995) provided that their development index^(Note) is greater than a prescribed level (-1). A development index of zero (0) is considered to indicate that the level of industrial development of the GSP beneficiary concerned is equal to that of the EU. The EC has chosen negative one (-1) as a benchmark and considers that better-off GSP beneficiaries (i.e. those having a development index greater than negative one) should no longer receive GSP benefits. Under these criteria, Hong Kong, South Korea and Singapore will be graduated at the same time.

Transitional Arrangements for Graduated Beneficiaries

4. The EC's proposal has not included transitional arrangement. Should the Council endorse the EC's proposal in the present form, products originating in the graduated beneficiaries which are shipped before but cleared customs on or after the effective date (proposed to be 1 January 1998) will no longer be eligible for GSP preferences and would be subject to the EU's most-favoured-nation rates.

Background

5. Hong Kong has been a beneficiary of the EU GSP Scheme since its inception in 1971. The 1995-1998 EU GSP Scheme was introduced in December 1994 after a major review. The Scheme provides for sector/country graduation in phases with effect from 1 April 1995, and wholesale graduation of the more advanced beneficiaries with effect from 1 January 1998. Under the current Scheme, Hong Kong is subject to sector/country graduation mechanism in which preferential access of specified sectors of products including articles of leather and furskins, clothing, jewellery and precious metals, consumer electronics, watches and clocks and optical and musical instruments have been completely phased out since 1 January 1996. At present, Hong Kong products which are still eligible for EU's GSP treatment include certain electrical machinery and equipment, mechanical appliances, plastic articles and footwear.

Enquiries

6. For enquiries concerning the content of this circular, please contact the undersigned at telephone number 2398 5684.

Yours faithfully,

(Miss Helen YUNG)
for Director-General of Trade

Note:
The development index represents the overall level of industrial development of the GSP beneficiary concerned, compared with that of the EU. The relevant formula considers the foolowing factord -

- the income of the GSP beneficiary;
- the income of the EU;
- the population of the GSP beneficiary;
- the population of the EU;
- the value of the manufactured exports of the GSP beneficiary; and
- the value of the manufactured exports of the EU.

Note:
While every effort is made to ensure the accuracy of the above information, the Department cannot guarantee this to be so and will not be held liable for any reliance placed on the same.