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1. The special incentive arrangement for sustainable development and good governance may be granted to a country which:

(a) has ratified and effectively implemented the conventions listed in Part A of Annex III, and (b) has ratified and effectively implemented at least seven of the conventions listed in Part B of Annex III, and (c) commits itself to ratify and effectively implement by 31 December 2008 those conventions listed in Part B of Annex III which it has not yet ratified and effectively implemented, and (d) gives an undertaking to maintain the ratification of the conventions and their implementing legislation and measures and which accepts regular monitoring and review of its implementation record in accordance with the implementation provisions of the conventions it has ratified, and (e) is considered as a vulnerable country as defined in paragraph 3.

2. By way of derogation from paragraph 1 (a) and (c) for countries faced with specific constitutional constraints, the special incentive arrangement for sustainable development and good governance may be granted to a country which has not ratified and effectively implemented a maximum of two of the sixteen conventions listed in Part A of Annex III provided:

(a) that a formal commitment has been made by the country concerned to sign, ratify and implement any missing Convention should it be ascertained that there exists no incompatibility with its Constitution no later than 31 October 2005, and (b) in case of an incompatibility with its Constitution, the country concerned has formally committed itself to sign and ratify any missing Convention no later than 31 December 2006.

Before the end of 2006, the Commission shall report to the Council on the compliance by a country concerned with the above-mentioned commitments. The granting of the special incentive arrangement for sustainable development and good governance to this country beyond 1 January 2007 is subject to a Council decision. As appropriate, and on the basis of the abovementioned report, the Commission shall propose to the Council such a continuation.

3. A vulnerable country is one:

(a) that is not classified by the World Bank as a high income country during three consecutive years, and whose five largest sections of its GSP-covered imports to the Community represent more than 75 % in value of its total GSP-covered imports, and (b) whose GSP-covered imports to the Community represent less than 1 % in value of total GSP-covered imports to the Community. The data to be used are those available on 1 September 2004, as an average over three consecutive years.

4. The Commission shall keep under review the status of ratification and effective implementation of the conventions listed in Annex III. Before the end of the period of application of this Regulation and in time for the discussion on the next Regulation, the Commission shall present to the Council a report concerning the status of ratification of such conventions, including recommendations by monitoring bodies.