Chinese exporters should not be too worried about the possible further removal of Chinese 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," he said.

The GSP benefits developing countries by enabling qualified products to enter EU markets at reduced or zero rates of duty.

A graduation mechanism is introduced in EU to remove products from the GSP list.

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

"It is a hard blow," said a manager of a microwave oven making company, who wished not to be identified. "Without the GSP, our costs had increased by 5 percent."

It is like "adding ice to snow," said he, using a Chinese phrase to describe a worsening situation.

"Long-time price wars have already eaten considerably into profits of microwave oven makers," he said.

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

Other "graduated" products include edible products of animal origin, plastics and rubber, paper, optical products and clocks, electro-mechanical goods and consumer electronic goods.

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

What upsets exporters most is that the list is likely to be made shorter, or eliminated one day.

The EU said it will review the GSP agreement that governs the period from 2006 to 2015.

A new GSP scheme will likely focus on least developed countries and most vulnerable developing countries.

"That means less Chinese products will enjoy preference 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 Centre 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 on a yearly basis.

To cope with GSP changes, experts say, Chinese companies should put the quality first.

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

Chinese exporters should enhance the quality, brand value, after-sale services and added value of the products.

"In the long term, the GSP changes will drive Chinese manufacturers to enhance competitiveness," he said.

Zhou also called for enterprises to diversify their export scope in a bid 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.

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 from the Chinese Academy of Social Sciences.

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

(China Daily September 27, 2004)