Chinese exporters should not be too worried about the possible removal of more products from the European Union's Generalized System of Preferences (GSP) list, and should focus efforts on increasing the competitiveness of their products, experts say.

"It is unavoidable that more and more Chinese exports will 'graduate' from the GSP list," said Zhou Shijian, a senior trade expert, adding that it in part demonstrates that Chinese products are becoming competitive in the international market. "Chinese exporters should not rely too much on this one-way benefit."

The GSP benefits developing countries by enabling qualified products to enter EU markets at reduced or zero duty rates. The EU introduced a graduation mechanism to remove products from the list.

Zhou's comments were directed at manufacturers who complain that exporting advantages have been greatly reduced because the EU downsized the GSP list again in May.

"It is a hard blow," said one microwave oven manufacturer who asked not to be identified. "Without the GSP, our costs increased 5 percent."

It is like adding ice to snow, he said, using a Chinese phrase to describe a worsening situation. "Long-term price wars have already eaten considerably into profits of microwave oven makers."

Microwave ovens were one of the products removed from the list in May.

Other "graduated" products include edible products of animal origin, plastics and rubber, paper, optical products and clocks, electromechanical goods and consumer electronics.

Currently, the EU GSP only covers live animals, plant products, farm products, textiles, jewelry and transport equipment.

The EU has said that it will review the GSP agreement that governs the period from 2006 to 2015. A new scheme will likely focus on the least developed countries and most vulnerable developing countries.

"That means fewer Chinese products will benefit from the preferential treatment and that the products may completely graduate from the GSP in the near future," said Qiu Yuanlun, a researcher with the Chinese Academy of Social Sciences.

"China runs a trade surplus with the EU," said Yao Qiugen, a researcher with the China WTO Center of the University of International Business and Economics. "This could be another factor leading to downsized GSP coverage."

China exported US$56 billion worth of goods to the EU in the first seven months of 2004, increasing 38.9 percent year-on-year.

To cope with GSP changes, experts say, Chinese companies should look first at quality.

"It is the time to adjust traditional pricing," said Zhou.

Exporters should enhance the quality, brand value, after-sale service and added value of their products. "In the long term, the GSP changes will drive Chinese manufacturers to enhance competitiveness," Zhou stated.

He also called for enterprises to diversify their export destinations to reduce reliance on the EU market.

"Lessons have taught us not to put all our eggs in one basket. Many companies will be at a loss if their only market closes," he said.

However, some analysts say that China is still a developing country and has the right to enjoy GSP treatment.

"Companies and industrial associations should apply to the EU for a certain product if they think it deserves it," said Wang He, a researcher with the Chinese Academy of Social Sciences.

According to the EU, China is the largest beneficiary of the GSP list, accounting for about 33 percent of its benefits in 2002.

(China Daily September 27, 2004)