The European Union, which is putting in place a new preferential access mechanism for imports, plans to link trade with labour and environment concerns in its generalised system of preferences scheme for 2005.

Almost 70 per cent of India's exports to the EU, estimated at $12 billion, is through the GSP route. In segments like textiles -- the largest export item at around $4 billion last year -- the share of GSP account for as much as 88 per cent. With the GSP scheme norms slated to be tightened, a bulk of India's exports to the EU could be affected.

In the draft GSP scheme, countries that are at higher stages of development are proposed to be excluded from the ambit of the scheme. The scheme, prepared by the Commission of the European Communities, proposes to differentiate between sensitive and non-sensitive products, in addition to providing social and environmental incentives.

The draft scheme also proposes to amend the graduation mechanism, whereby countries are incentivised in accordance with their status of development, so that larger countries do not walk away with all the benefits.

The proposal seeks to devise the mechanism in such a way that all countries, which have preferential access to EU markets but account for less than 1 per cent of the GSP imports, will be excluded.

"In practice, this will focus the effects of graduation on the principal GSP beneficiaries, a dozen countries accounting for the bulk of GSP trade," the proposal said. Besides India, the main beneficiary countries include China, Russia, Thailand, Indonesia, Malaysia, Brazil, Pakistan, Saudi Arabia, the Philippines and Vietnam.

The present GSP scheme, which had a 10-year tenure, is slated to end on December 31 next year.

But the EU will renew the scheme for only a year in the backdrop of the ongoing negotiations at the World trade Organisation.

Indian government officials viewed the development as an arm-twisting technique by the EU to garner support for its position on multilateral issues. They also said according to available indications, the GSP scheme in future could only be made available to the least developed countries, though the present review may not see such a drastic change.