Category Archives: Least developed countries (LDC)

Balanced global development is one of the European Union’s objectives and focuses especially on the most vulnerable countries. The Union takes part in international initiatives to assist these countries and places its instruments at their disposal.

Some initiatives are directed at the least-developed countries (LDCs), the list of which is drawn up by the United Nations. Other initiatives are directed at the heavily indebted poor countries (HIPCs) and provide debt relief under the aegis of the World Bank and the International Monetary Fund.

Least developed countries

Least developed countries

Outline of the Community (European Union) legislation about Least developed countries

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Development > Least developed countries (LDC)

Least developed countries (LDC)

Balanced global development is one of the European Union’s objectives and focuses especially on the most vulnerable countries. The Union takes part in international initiatives to assist these countries and places its instruments at their disposal.

Some initiatives are directed at the least-developed countries (LDCs), the list of which is drawn up by the United Nations. Other initiatives are directed at the heavily indebted poor countries (HIPCs) and provide debt relief under the aegis of the World Bank and the International Monetary Fund.

THE MOST HEAVILY-INDEBTED DEVELOPING COUNTRIES

  • Heavily indebted poor countries (HIPC) initiative
  • Community participation in the initiative to ease the debt burden of highly-indebted poor countries (HIPC)
  • Exceptional aid for highly-indebted ACP States

SPECIAL COMMERCIAL ARRANGEMENTS

  • A scheme of generalised tariff preferences 2009-2011
  • Scheme of preferences from 2006 to 2015 – Guidelines
  • Generalised System of Preferences 2006 – 2008

Community participation in the initiative to ease the debt burden of highly-indebted poor countries

Community participation in the initiative to ease the debt burden of highly-indebted poor countries

Outline of the Community (European Union) legislation about Community participation in the initiative to ease the debt burden of highly-indebted poor countries

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Development > Least developed countries (LDC)

Community participation in the initiative to ease the debt burden of highly-indebted poor countries (HIPC)

Document or Iniciative

Commission Communication of 26 October 1999 on Community participation in the debt relief initiative for highly indebted poor countries (HIPC) [COM(99)518 final. Not published in the Official Journal].

Summary

Background

This initiative comes under the framework of the global initiative to help highly indebted poor countries (HIPC) launched by the International Monetary Fund (IMF) and the World Bank in September 1996. It represents a coordinated effort by all the donors, in particular multilateral creditors, and it aims to relieve the debt of the poorest countries. For the first time, a close link has been stressed between poverty alleviation strategies, structural adjustment programs and the debt relief initiative.

At the Cologne G7 summit in July 1999, ministers agreed to an expanded initiative that would provide faster, more comprehensive and broader debt relief. The total cost of the initiative was estimated at around US$ 61 billion at net present value in 2004. This initiative, which was initially to be for a two-year period, has been extended four times (in 1998, 2000, 2002 and 2004).

Eligible countries

The initiative covers the poorest countries that are making concerted efforts to adjust and are committed to fighting poverty. It covers, in particular, those poorest countries which are already receiving supplementary assistance from the World Bank and the IMF, and whose debt burdens are deemed to be unsustainable after all other debt relief measures have been applied. Certain ACP countries are among the countries concerned.

Role of the European Community

As a major partner of developing countries, the Community has a key role to play, especially given the new high total cost of the initiative. The resources granted from the interest accrued on EDF funds, as provided for by Decision 98/453/EC of July 1998 concerning exceptional assistance for the heavily indebted ACP countries, will not be sufficient to cover the financing of the new enhanced initiative.

The Commission has indicated that it is prepared to use funds in the framework of existing European Development Fund (EDF) instruments for the purpose of making a substantial contribution towards alleviating the debt burden of ACP States which are eligible for the HIPC initiative. So far the Community has allocated over EUR 1.6 billion to the initiative, to which it is contributing both as a creditor and as a donor, particularly for the ACP countries. EDF resources are used only for eligible ACP countries. A contribution of EUR 54 million from the budget has been made for the Asian and Latin American countries.

Role of the Community as a creditor

The Community mainly supports development through non-refundable grants. It is therefore only a small multilateral creditor. According to the most recent estimates, it accounts for only about 2% of the total cost of the HIPC initiative. As a creditor, the cost of the Community contribution so far has been estimated as EUR 680 million. The resources granted are allocated mainly out of EDF interest and intra-ACP reserves.

Role of the Community as a donor

Over and above the Community’s contribution as a creditor, it is participating in the initiative as a donor. Unallocated resources from the 8th EDF and previous EDFs have been the main source of funds for the EU’s contribution as a donor. As a donor, the Community has so far allocated EUR 934 million to the HIPP Trust Fund managed by the World Bank.

Additional participation

As a key partner of the developing countries, the Commission considers that the Community should make an additional contribution. In 2001 the Council approved an additional contribution of EUR 60 million, which will enable early repayment in full of the special loans to the least developed ACP countries eligible for the HIPP initiative.

Heavily indebted poor countries initiative

Heavily indebted poor countries initiative

Outline of the Community (European Union) legislation about Heavily indebted poor countries initiative

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Development > Least developed countries (LDC)

Heavily indebted poor countries (HIPC) initiative

Objective
The principal objective of the initiative is to reduce the debt burden of poor countries to sustainable levels in order to ensure that no country faces a debt burden that it cannot manage. It represents a significant step forward, as it places debt relief in the framework of poverty reduction by aiming to ensure that essential restructuring and the development of a country is not compromised by servicing unsustainable debt burdens. The HIPC are also required to embark on clearly defined poverty reduction strategies. The initiative is made up of several dimensions: debt relief/cancellation and structural and social policy reform concentrating particularly on basic health and education provision. For the first time it now involves all types of creditors, i.e. bilateral, multilateral and commercial.

Financing the HIPC Initiative
The total amount of aid provided to the 28 countries that have reached the “decision point” (see below) and the 13 countries that could benefit from debt relief under the enhanced HIPC initiative is estimated to be at around USD 61 billion in net present value for 2004. The funding is almost equally divided between two main types of creditors:

  • Bilateral and commercial creditors

    This category includes individual national governments as well as private enterprises;
  • Multilateral creditors

    These are multilateral banks such as the World Bank and the IMF and regional financial institutions such as the African Development Bank.

Debt relief from multilateral financial institutions is generally dealt with in the framework of the HIPC Trust Fund, which is managed by the World Bank. The Fund is made up of donations from a variety of multilateral and bilateral actors. The European Union is a major contributor to the Fund.

Eligible countries
The initiative is designed to help those countries that cannot reach a sustainable debt burden through traditional mechanisms of rescheduling and debt reduction alone. These countries must follow IMF and World Bank-supported adjustment programmes and must implement a poverty reduction strategy in order to ensure that the benefits brought about by the special assistance awarded through the HIPC Initiative are used to further their development. The exact conditions they must meet to qualify are described below.

As of November 2001 over 40 countries, which include a number of ACP countries, were classified as heavily indebted poor countries although not all have yet qualified for assistance under the HIPC Initiative, nor will they do so automatically.

The stages of the HIPC Initiative
There are two main stages to the HIPC Initiative. During the first stage the countries must adopt a number of measures in order to be considered for interim debt service relief (decision point). Once accepted, they qualify for some interim debt relief and must implement certain policies and meet certain conditions in order to qualify for full assistance (completion point). The process is very flexible, as there is no fixed timetable for the completion of the two stages.

Stage one: leading to decision point

Prior to qualifying for aid under the HIPC Initiative, the countries must normalise their relations with multilateral institutions and reach an agreement about discharging possible arrears. They must subsequently adopt adjustment and reform programmes supported by the IMF and the World Bank and establish a proven track record in implementing them. They must also adopt a special Poverty Reduction Strategy Paper (PRSP). During this first phase the applicant countries continue to benefit from “traditional” debt relief, laid down in agreements with bilateral creditors in the Paris Club.

Once this has been achieved, the remaining debt is analysed to determine whether a country’s external debt stock is sustainable and whether it is eligible for aid under the HIPC Initiative. This is known as the ‘decision point’. The decision is not based on the face value of a country’s external debt but on its ‘net present value’ (NPV), which takes into account other important factors so as to arrive at the real debt burden. Debt is considered unsustainable when debt-to-export levels exceed a fixed ratio of 150%. In the special cases of very open economies, where external factors alone may not adequately reflect the fiscal burden of external debt, the ratio can be set below 150% provided the country meets certain conditions.

During this period bilateral and commercial creditors are generally expected to reschedule obligations coming due, achieving a 90% reduction in NPV of the debt owed to these two types of creditors. The World Bank and the IMF provide some ‘interim relief’ and other multilateral creditors are considering doing the same.

Stage two: leading to completion point
Once a country is eligible for support under the initiative, it is entitled to extra debt relief above and beyond that provided by traditional mechanisms. In order to reach ‘completion point’ and benefit from full assistance, the country must establish a further track record of good performance under IMF/World Bank supported programmes as well as meeting other requirements. There is no deadline imposed for the completion of this second stage, however qualification for full assistance under the initiative is dependent on 3 main factors:

  • the satisfactory implementation of key structural policy reforms agreed at the decision point;
  • the maintenance of macroeconomic stability;
  • the adoption and implementation of the Poverty Reduction Strategy for at least one year.

Once a country has fulfilled these criteria it reaches ‘completion point’ and qualifies for the remaining assistance in order to reach a sustainable debt level, which implies the following:

  • Bilateral and commercial creditors: a reduction in the net present value of the stock of debt, proportional to their overall exposure to the HIPC. Many have announced that they will provide debt forgiveness over and above that envisaged by the HIPC Initiative. The Paris Club, an informal grouping of creditor countries, has indicated that it could reduce the stock of eligible debt by up to 90% in present value terms;
  • Multilateral creditors: a (further) reduction to reach sustainable debt levels.

Role of the European Union
The EU and its Member States are important players in this initiative, reflecting their importance as development partners on the international scene. In a communication to the Council in 1999, the European Commission outlined its approach to the initiative and pledged donations to the ACP countries, Latin American countries and some countries in Asia. The biggest share of its support to the HIPC Initiative goes to the ACP countries. The Union plays a dual role, participating both as creditor and donor, providing debt relief as well as direct donations to certain HIPC countries and to the HIPC Trust Fund. The European Commission, which manages the EU’s financial contribution to the initiative, signed two Financing Agreements in July 2000 governing the EU’s contribution to the Trust Fund (EU as a donor) and to the European Investment Bank (EU as a creditor). At the present time, the total EU contribution to the HIPC Initiative is over EUR 1 billion.

Progress
The HIPC Initiative has already had a positive impact on heavily indebted poor countries. To date 28 countries have reached the decision point and can benefit from interim debt relief. Of those 28, 18 have reached the completion point. The majority of these countries are in sub-Saharan Africa.

The HIPC Initiative alone is not a panacea and the initiative still attracts criticism from academic circles, NGOs and civil society groups. HIPC funding, use of HIPC resources, eligibility of middle income countries with a high percentage of people in poverty, debt sustainability, poverty reduction and the issue of additionality are among the key issues currently being debated.

Generalised System of Preferences 2006 – 2008

Generalised System of Preferences 2006 – 2008

Outline of the Community (European Union) legislation about Generalised System of Preferences 2006 – 2008

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Development > Least developed countries (LDC)

Generalised System of Preferences 2006 – 2008

This Regulation sets out the Generalised System of Preferences for the period from 1 January 2006 to 31 December 2008. It simplifies the preferential import arrangements for products originating in developing countries, thereby streamlining the preferential scheme and reconciling trade and development objectives.

Document or Iniciative

Council Regulation (EC) No 980/2005 of 27 June 2005 applying a scheme of generalised tariff preferences [See amending acts].

Summary

This Regulation implements the Generalised System of Preferences (GSP) for the period 2006 – 2008. The GSP sets out preferential arrangements for duties on Community imports of goods originating in the beneficiary countries.

The GSP therefore applies to the countries and territories listed in Annex I to the Regulation.

The products affected by the GSP are set out in Annex II. The arrangements for originating products conform to the rules set out in Regulation (EEC) No 2454/93. Regional cumulation is also possible, provided the regional groups are respected.

Products are divided into two categories: sensitive products, and non-sensitive products. Sensitivity is determined in relation to the effect that imports into the Community could have on Community products. Common Customs Tariff specific and ad valorem duties are fixed for such products. They are, however, suspended where the rate of an ad valorem duty reduced in accordance with the provisions of the GSP is 1 % or less and the rate of a specific duty is EUR 2 or less.

The GSP sets out three arrangements. Tariff preferences therefore differ according to the arrangement applicable to the beneficiary countries, namely:

  • the general arrangement;
  • the special incentive arrangement for sustainable development and good governance, which targets vulnerable countries;
  • the special arrangement for least developed countries.

General arrangement

The general arrangement sets out the general rules for the GSP. The principle for non-sensitive products is the complete suspension of the Common Customs Tariff duties applicable to such products, except for agricultural components.

For sensitive products, however, the Common Customs Tariff ad valorem duties applicable to the products are reduced by 3.5 %. This reduction is limited to 20 % for textiles and clothing. However, a tariff reduction of more than 3.5 % laid down by the GSP in the preceding 2002 to 2005 period (Regulation (EC) No 2501/2001) still applies. Common Customs Tariff specific duties are reduced by 30 %.

Where Common Customs Tariff duties on products listed in Annex II as sensitive products include ad valorem duties and specific duties, the specific duties are not reduced.

Agricultural products are subject to a special monitoring mechanism to avoid disturbances in the Community market. Agricultural products continue to be subject to safeguard clauses applied under the Common Agricultural Policy.

Special incentive arrangement for sustainable development and good governance

Under the special incentive arrangement for sustainable development and good governance, Common Customs Tariff ad valorem duties on products listed in Annex II are in principle suspended. Specific duties are also suspended, unless there is also an ad valorem duty. By contrast, specific duties on certain types of chewing gum are limited to 16 % of the customs value.

This arrangement replaces the special arrangements to combat drug production and trafficking in force under the previous GSP (Regulation (EC) No 2501/2001) and therefore enters into force, exceptionally, on 1 July 2005.

The countries that will benefit from this arrangement are those that are considered to be vulnerable due to their lack of diversification and insufficient integration into the international trading system. This applies to countries not classified by the World Bank as high income countries for three consecutive years. These are also countries where the five largest sections of GSP-covered imports to the Community represent more than 75 % in value of their total GSP-covered imports, and where GSP-covered imports to the Community represent less than 1 % in value of total GSP-covered imports to the Community.

These countries are listed in Annex I to the Regulation (column E). Such countries must have made a valid request to the Commission by 31 October 2005 in order to benefit from the arrangement as of 1 January 2006. The definitive list of beneficiary countries is published in the Official Journal after requests have been examined.

For the 2006-2008 period, the countries benefiting from the special incentive arrangement for sustainable development and good governance are Bolivia, Columbia, Costa Rica, Ecuador, Georgia, Guatemala, Honduras, Sri Lanka, the Republic of Moldova, Mongolia, Nicaragua, Panama, Peru, El Salvador and Venezuela.

To become beneficiaries, countries are also subject to a general obligation to ratify and effectively implement the international conventions listed in Annex III to the Regulation. Annex III distinguishes between two types of international convention:

  • Core human and labour rights UN/ILO Conventions (Part A of Annex III). Ratification and effective implementation of these is in principle obligatory. If, however, a country is faced with specific constitutional constraints, and has neither ratified nor effectively implemented two of the sixteen conventions on the list, it must make a formal commitment to do so by 31 October 2005 at the latest, or 31 December 2006 if there is an incompatibility with its Constitution;
  • Conventions related to the environment and governance principles (Part B of Annex III). Ratification and effective implementation of at least seven of the international conventions listed in Part B is required. The remaining international conventions must be ratified and effectively implemented by 31 December 2008 at the latest.

The Commission monitors this obligation closely, to ensure that it has been respected and applied.

Special arrangement for least developed countries

These countries are listed in Annex I to the Regulation (column D). In line with the “Everything But Arms” initiative, Common Customs Tariff duties are entirely suspended for all products except arms and ammunition.

By contrast, a gradual reduction in Common Customs Tariff duties, culminating in their total suspension, is planned for certain products, namely husked rice, some banana varieties, and white sugar. During the lead-up to total suspension, husked rice and white sugar are to benefit from a global tariff quota at zero duty. The Commission will be assisted by the management committees for the relevant common market organisations in administering these quotas.

The list of least developed countries is drawn up by the United Nations, which may also decide to remove countries from the list. In such cases the Commission removes the country in question from the list of countries benefiting from the arrangement. Removal is progressive, and involves a transitional period of at least three years.

Temporary withdrawal

Temporary withdrawal from the preferential arrangements may affect some or all of the products from the country in question. It is mainly a consequence of the behaviour of the country concerned, and may result from:

  • serious and systematic violations of the international conventions listed in part A of Annex III;
  • serious and systematic unfair trading practices;
  • trade in drugs, or failure to comply with international conventions on money-laundering;
  • serious and systematic infringements of the rules governing fisheries and fishery resources;
  • export of goods made by prison labour.

A temporary withdrawal decision may be made if there are sufficient grounds for an investigation to be opened. The investigation is carried out by the Commission in liaison with the Generalised Preferences Committee, which assists the Commission in implementing the Regulation, the beneficiary country, and international organisations and agencies. Withdrawal therefore follows an enquiry and investigation procedure, and measures, and is decided by the Council. A withdrawal decision, in principle, enters into force six months after its adoption.

Failure to comply with rules of origin or provide administrative cooperation are also grounds for a Commission decision to suspend preferences. Administrative cooperation mainly concerns the information that beneficiary countries are obliged to supply regarding rules of origin and the respect thereof. As well as information supplied to the Commission, it may also involve missions or enquiries carried out by the Commission itself.

Beneficiary countries may be removed from the scheme (graduation) if the World Bank classifies them as high-income countries, or if they are bound to the Community by a preferential commercial agreement.

Tariff preferences for all products from countries benefiting from the general arrangement and the special incentive arrangement for sustainable development and good governance may also be removed. Removal may be justified by the volume of Community imports of the product concerned from the beneficiary country, i.e. if it reaches 15 % of the total volume of Community imports of the same product from countries that are beneficiaries of one of these two arrangements.

Safeguard clause

The safeguard clause entails restoring the Common Customs Tariff duties. It is generally implemented when imports of a product cause serious difficulties or create direct competition with similar products from a Community producer. Serious difficulties are assessed using criteria measuring Community producers’ market share, production, stocks, production capacity, bankruptcies, profitability, capacity utilisation, employment, imports and prices.

Investigations are opened at the request of a Member State or on the Community’s own initiative, and must in principle be completed within six months, unless an extension decision is granted. As with the withdrawal procedure, the Commission decision is made on the basis of an information meeting establishing the facts, and on exchanges between the parties. Preventive measures may be taken if they are justified by exceptional circumstances.

Background

Trade preferences are intended to ensure that the Common Commercial Policy is consistent with development policy. The Community aims to help eradicate poverty and promote sustainable development and good governance in developing countries, while still abiding by the rules laid down by the World Trade Organisation.

The GSP was first introduced in the 1970s. The system covered by this Regulation is part of a more generalised plan for GSP for the ten years from 2006 to 2015, the foundations of which were laid by the Commission communication of 7 July 2004 entitled “Developing countries, international trade and sustainable development: the function of the Community’s generalised system of preferences (GSP) for the ten-year period from 2006 to 2015.” It therefore covers the first stage, for the period 2006-2008.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 980/2005 1.1.2006
(excluding the special incentive arrangement for sustainable development and good governance: 01.07.2005)
31.12.2008 OJ L 169 of 30.6.2005
Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 566/2007 28.5.2007 OJ L 133 of 25.5.2007
Regulation (EC) No 606/2007 5.6.2007 OJ L 141 of 2.6.2007

Related Acts

COUNTRIES BENEFITING FROM GSP

Commission Regulation (EC) No 566/2007 of 24 May 2007 removing the Republic of Chile from the list of beneficiary countries in Annex I to Council Regulation (EC) No 980/2005 applying a scheme of generalised tariff preferences [Official Journal L 133 of 25.5.2007].

Council Regulation (EC) No 1933/2006 of 21 December 2006 temporarily withdrawing access to the generalised tariff preferences from the Republic of Belarus [Official Journal L 405 of 30.12.2006].

Council Decision of 19 December 2006 on the granting of the special incentive arrangement for sustainable development and good governance beyond 1 January 2007 to the Republic of El Salvador [Official Journal L 365 of 21.12.2006].

Commission Decision 2005/924/EC of 21 December 2005 on the list of the beneficiary countries which qualify for the special incentive arrangement for sustainable development and good governance, provided for by Article 26(e) of Council Regulation (EC) No 980/2005 applying a scheme of generalised tariff preferences [Official Journal L 337 of 22.12.2005]

GENERALISED DOCUMENTS

Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee of 7 July 2004: “Developing countries, international trade and sustainable development: the function of the Community’s generalised system of preferences (GSP) for the ten-year period from 2006 to 2015.” [COM(2004) 461 final – Official Journal C 242 of 29.09.2004]

Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee – The rules of origin in preferential trade arrangements – Orientations for the future [COM(2005) 100 final – Not published in the Official Journal]

This communication follows the consultations launched by the Commission’s Green Paper on the future of rules of origin in preferential trade arrangements. The paper shows that the preferential rules of origin need to be reviewed. This review is also important on account of the priority accorded to integrating developing countries into the world economy. This revision should be accompanied by an adaptation of the management and monitoring procedures. The Commission proposals cover:

  • a review of the conditions for a product to be considered as originating in a country;
  • a change in the customs procedures necessary for the proper implementation and supervision of the use of the preferences by economic operators;
  • the development of instruments ensuring that the beneficiary countries comply with their obligations.