Pay attention! 32 countries cancel the GSP treatment for China, how should Chinese companies respond?

Recently, the news that "32 countries will cancel the GSP treatment for Chinese export products" has aroused widespread concern.

As early as the end of October this year, the General Administration of Customs issued a "Notice on No longer issuing GSP certificates of origin for goods exported to EU member states, the United Kingdom, Canada, Turkey, Ukraine and Liechtenstein" (No. 84 in 2021 Announcement) mentioned that starting from December 1, 2021, the Customs will no longer issue GSP certificates of origin for the 32 countries that no longer grant China’s GSP tariff preferential treatment.

It is worth noting that with China's economic development and the continuous improvement of people's living standards, China has "graduated" from the GSP benefits of advanced economies successively.

From 2012 to 2019, Ukraine, Canada, Switzerland, Liechtenstein, the European Union, Turkey, Japan, etc have cancelled the preferential treatment of GSP tariffs granted to Chinese exports successively.

In 2021, the Eurasian Economic Union announced the abolition of preferential tariff treatment for China's Generalized System of Preferences. At present, Norway, New Zealand, and Australia are still granted China's GSP treatment.

So, what exactly is GSP? What impact will the cancellation of the GSP treatment in 32 countries have on China? how should Chinese companies respond?

What is the Generalized System of Preferences? What is the difference between GSP treatment and MFN treatment?

The Generalized System of Preferences referred to as the GSP, is a universal, non-discriminatory, non-reciprocal tariff preference system for developed countries (perference-giving countries) export manufactured and semi-manufactured products to developing countries and regions (beneficiary countries).

For related products imported from beneficiary countries,tariff concessions based on the most-favored-nation tax rate will be given, and even zero-tariff access treatment will be granted.

After the preferential countries notified the cancellation of the GSP treatment, China’s export goods could no longer enjoy tariff preferences by virtue of the GSP certificate of origin. Correspondingly, the relevant visa measures of the Customs will also be adjusted accordingly.

However, it needs to be emphasized that the GSP is different from the most-favored-nation treatment that we often hear.

The Generalized System of Preferences is a system of preferential tariffs granted by developed countries to exports of manufactured and semi-manufactured products from developing countries and regions. According to World Bank standards, it is no longer a low-income or low-middle-income economy, and developed countries can cancel the GSP treatment (commonly known as "national graduation").

Most-favored-nation treatment is one of the basic principles of the World Trade Organization (WTO). It requires WTO members to give each other equal tariff treatment, also known as "non-discriminatory treatment." After China's accession to the WTO, it will automatically receive the most-favored-nation status of the WTO, and the most-favored-nation tax rate will be applied when goods are exported to other member states.

Experts say this change is unlikely to have much impact on China's foreign trade exports

So, what impact will the cancellation of the 32 countries GSP treatment have on China?

According to the Global Times, Jianguo Huo, vice chairman of the China WTO Research Association, believes that the normal tariffs of European and American countries remain between 2-3%, even if the GSP is cancelled and the normal tariff level of these countries is restored, the impact on Chinese products will be not big.

Xinyu Mei, a researcher at the Institute of International Trade and Economic Cooperation of the Ministry of Commerce, said that in fact, the EU has gradually reduced its preferential trade arrangements with China since the 1990s.

By the second decade of this century, the types of commodities that the EU granted China's Generalized System of Preferences were no longer many, but the scale of China's exports to the EU had expanded exponentially.

Xinyu Mei said that for more than 20 years, many products in China have "graduated" one after another, which shows that China has achieved considerable economic development.

Now, the European Union and some other countries will abolish the GSP treatment for China. Some of the original beneficiary countries have completely lagged behind China in terms of manufacturing. We should treat them with peace of mind. This change is unlikely to have a major impact on China's foreign trade exports.

How do companies respond?

Faced with the cancellation of the GSP treatment by 32 countries and the adjustment of relevant Customs visa measures, how should export companies respond?

The General Administration of Customs of China recommends that for goods exported to advanced economies that no longer grant China GSP treatment, companies can apply for non-preferential certificates of origin to apply the most-favored-nation tax rate.

In addition, the General Administration of Customs has two suggestions:

One is to communicate and explain to foreign customers as soon as possible to avoid inconvenience caused by different types of certificates of origin.

The second is to make full use of the achievements of China's free trade zone construction. Exploit emerging markets, optimize the structure of export markets, increase the utilization rate of free trade agreements, and create new competitive advantages.

Export products to countries and regions that have signed and implemented free trade agreements with China, and enjoy tariff reduction or exemption, and even zero-tariff market access.

In September this year, Vice Minister of Commerce and Deputy International Trade Negotiation Representative Shouwen Wang stated that so far, China has reached 19 free trade agreements and signed these agreements with 26 countries and regions.

As of last year, free trade agreement partners accounted for nearly 35% of China's total foreign trade.

Shouwen Wang introduced that the free trade agreement has played a very good role in China's opening up. In terms of trade in goods, the average tariff of China's most-favored nation is 7.5%. The free trade agreement enables more than 90% of the trade between China and its free trade partners to achieve zero tariffs, so the level of tariff liberalization in goods trade is very high.