Tajikistan has adopted a National Strategy to develop its export potential through improving the business climate and reducing production costs. GSP+ is a key element to this strategy.
According to the World Bank Tajikistan is among of the most vulnerable economies, ranked third (after Micronesia and Maldives) in the world. One of the reasons for this vulnerability is that the large majority of Tajikistan’s exports are concentrated into just a few products (e.g., aluminum and cotton). In addition, those products are in raw or unrefined stages, leaving the value-adding refining processes to be done in other countries. Diversification of export products as well as increasing volume of exports – specifically exports with value-added processes — is in the priority line of the Government of Tajikistan.
Joining the World Trade Organization (WTO) brings many benefits. For developing and least developed countries, one of the more important benefits is the ability to export products into the markets of developed countries under a preferential trade regime. One such opportunity is provided by the European Union (EU) under the “General System of Preferences” (GSP). The EU’s GSP has been in place since 1971, and focuses on giving reduced or eliminated tariff rates to the countries most in need. Yet, where the GSP foresees reducing tariffs up to a certain percent, the enhanced GSP program, known as “GSP+” provides deeper tariff cuts to a broader range of products “Deeper cuts” means 0% import duty for the goods entering EU territory from the countries with GSP+ status. The EU only offers GSP+ to the most vulnerable members of the WTO (for which Tajikistan is one). However, The EU also requires a GSP+ trading partner to adopt 27 international conventions on human rights, the environment and labor use.
GSP and GSP+ are unilateral trade concessions which reduce or eliminate the tariffs on qualifying goods. The first purpose of these programs is to help weak economies export their products to developed country markets as well as to help the products be competitive with similar products from more developed countries (who do not have access to the GSP or GSP+ programs). The second purpose of these programs is to encourage developing countries diversify their economies so as to capture value-added from producing goods instead of just exporting raw materials. The EU is constantly tailoring its GSP and GSP+ programs to ensure that these purposes are fulfilled.
In 2012, the member states of the European Union imported goods worth 40 billion Euros from countries benefiting from the GSP program. Yet only 5.1% of all imported goods originated in countries with GSP+ status. There are currently 26 countries benefiting from the GSP program; of which 13 are also under the GSP+ program. Mongolia, Armenia, Georgia and Pakistan are among the countries that benefit from the GSP+ program. These countries provide good examples of how the GSP+ could increase the quality and volume of Tajik exports to the EU. The benefits for these countries will be great. The Pakistan Ministry of Commerce estimates that GSP+ status will help to create over a million jobs for Pakistani youth and boost exports by USD 500 million.
Current EU GSP and GSP+ preferences cover over 66% of tariff lines, including: certain agricultural products, tobacco, cement, skins and leather, wood, cork, textiles (including silk, wool, cotton, fiber etc.), footwear, aluminum products, glass etc.
There are even greater benefits to GSP+ membership. Countries with GSP and GSP+ status are considered to be a preferred location for foreign direct investment. When a company builds a production facility in a GSP+ country, it will be able to sell the resulting goods to the EU market at a more competitive price than similar products from other countries. The advantage can be very significant. For example, if everything else remains constant, exports of men’s jackets or women’s dresses to the EU market from a GSP+ country will be 12% cheaper compared to its analogues (12% is the import duty for HS 6203 codes goods in EU). Moreover, because the EU market has high technical requirements for product’s safety and quality, the quality of goods produced by Tajik producers will increase overall.
Tajikistan has some advantages that would attract investors, namely cheap cotton, cheap electricity, and cheap labor. By reducing the final cost of Tajik products though GSP+, Tajik producers, and foreign investors will be able to better benefit from these advantages.
Countries must meet certain criteria to be eligible for GSP+ treatment: First, the country must be part of the GSP program; second, the country must meet the World Bank vulnerability criteria; and finally, the country must recognize/ 27 different international conventions on human and labor rights, as well as the environment and good governance.
One important element to mention is that in accordance with the EU’s GSP Rules of Origin, any good must be wholly obtained in Tajikistan in order to qualify under the GSP/GSP+ programs. This requires that any non-originating materials are sufficiently worked or processed in Tajikistan before exported to the EU. There are exceptions for goods that have very small amounts of inputs from other countries (de minimis rule).
Now, let’s review the potentiality for Tajikistan’s chance to be granted with GSP+ status.
– Tajikistan is an eligible country and already a beneficiary of the EU’s GSP agreement.
– According to EU Commission requirements Tajikistan meets the vulnerability criteria
The only remaining substantive requirement is for Tajikistan to ratify the necessary international conventions. Tajikistan has already ratified 25 out of 27 conventions mentioned in the request list. Only the Convention on Crime Against Genocide” and the Agreement on “Protection of Biological Diversity” remain to be recognized and ratified to ensure that Tajikistan can apply for GSP+ status and begin to benefit from the fantastic opportunity to export to the EU market under zero import duty for a good number of goods that could be made in Tajikistan.
Today, several state agencies are opposed to ratification above mentioned conventions. In some cases the logic behind their opposition is not understandable. When Tajikistan was part of the Soviet Union, it was among of the countries who joined and ratified the Convention on Crime against Genocide, yet today there is a strong opposition to joining it? Moreover, protecting biological diversity would not greatly harm Tajik interests, and would likely benefit Tajikistan in the long run, as it is a country seeking sustainable development and has the potential to develop ecological and adventure tourism.
In short, accelerating the efforts to join these two remain conventions together with investing to the quality and safety of goods produced in Tajikistan would create a big opportunity for Tajik producers; both to export to EU market, and to further develop Tajik industry.