BY Sugeeswara Senadhira
President Maithripala Sirisena commences the third year of his government today (January 9) as the bearer of good tidings that Sri Lanka will receive the Generalized System of Preference Plus (GSP +) trade concession shortly. He has every reason to be overjoyed about the decision by the European Union to restore the concessions to Sri Lanka under the GSP System, as he campaigned at every meeting with the leaders of the EU, either at bilateral meetings or collective meetings at international forums to get the GSP plus concession.
The GSP system was introduced in 1968 by the General Agreement on Tariffs and Trade (GATT) on its initiative to encourage industrialized countries or developed countries to grant Autonomous Trade Preferences to all developing countries in accordance with the recommendation of the United Nations Conference on Trade and Development (UNCTAD), of which, the eminent Sri Lankan economist Dr. GaminiCorea held the top post of Secretary General for two consecutive terms.
Announcing the success of the campaign to obtain GSP Plus concession at a ceremony to open the newly built bridge in Halloluwa in Kandy, the President said during the last two years the government was able to build friendship with all the countries in the world, eliminating many hindrances which had halted the forward drive of the country.
GSP Plus currently covers 13 beneficiaries. They are Armenia, Bolivia, Cape Verde, Costa Rica, El Salvador, Georgia, Guatemala, Mongolia, Pakistan, Panama, Paraguay, Peru, and the Philippines. Trade concessions under the GSP Plus for Sri Lanka was revoked by the European Union in 2010. The reason given by the EU was that no satisfactory progress was shown by Sri Lanka in the implementation of the three UN human rights conventions such as Civil and Political Rights, Convention against Torture and Rights of the Children which were related to the grant of benefits.
Sri Lanka formally submitted the application for restoration of the GSP Plus concessions in December 2015 and after examining the issue during 2016, the EU came to its decision.
The importance of GSP Plus concession is very clear from the export data. The EU is the largest export market and the second largest import source for Sri Lanka. Since the early 1970s Sri Lanka has been enjoying GSP benefits in various forms. In 2008, textiles and garments accounted for the bulk of exports from Sri Lanka to EU countries – 37.4 per cent of exports from Sri Lanka went to the EU, while 22.4 per cent went to the United States. The GSP Plus ensured duty-free entry into EU countries, facilitating a boom in the textile trade and employment in Sri Lanka. Sri Lanka gained about US$ 150 million annually due to preferential tariffs.
A review of Sri Lankan exports indicates that nearly 57 per cent of exports is exported to EU and USA. It shows 27 per cent of exports is shared by the US and the majority 30 per cent is shared by EU. Out of all the products exported during the last 25 years, the apparel sector has taken the lead in 45 per cent of total products exported. The most significant feature is that the US and EU equally share 43 per cent of exports, making the total 86 per cent of whole Sri Lankan apparel exports.
Economic analyst, T. K. Premadasa, in a published paper, stated that it is important to look into how GSP Plus of EU will benefit Sri Lanka compared with GSP US as the two leading export trading partners. Special significance of the American GSP is that all products categorized under US GSP Scheme are entitled to enter US market with duty zero facility. Even though US is the second largest market after EU for Sri Lanka, the benefits under their GSP are very limited. It has to be noted that certain articles are prohibited under US GSP facility such as textiles, apparel, footwear, handbags, luggage, work gloves and other leather wearing, ceramics, glass and steel. This reveals that even apparel, Sri Lanka’s biggest export product which covers 70 per cent total exports to US, is not included in US GSP facility.
Sri Lankan products
Main Sri Lankan products that are exported under US GSP are rubber products, gloves, mittens and mitts mixed with rubber or plastic. It is obvious that Sri Lanka’s exports last year were approximately $ 190 million worth of items which covers only 10 per cent of total exports to the US under US GSP facilities. This clarifies the demand for need of EU GSP Plus.
In 2010, the textile trade suffered a blow when the GSP Plus was suspended. The GSP Plus withdrawal meant that Sri Lankan shipment to the EU had to bear an import-duty of almost 10 per cent. This resulted in Sri Lankan exporters losing the cost advantage they had over the exporters from other countries such as Vietnam, Thailand, Bangladesh, Cambodia and Laos. The end result was the closure of many garment factories and thousands of workers losing their employment.
While Sri Lanka’s EU trade declined, competitors like Pakistan, Cambodia, Vietnam and Bangladesh continue to maintain a significant growth rate in trade with EU, especially apparel products. Furthermore, some others like Nepal and Myanmar have also joined the competition to capture the market share. Bangladesh, using the GSP Plus concession, has increased its exports during the past 10 years at an average growth rate of 13 per cent with 10 per cent of EU apparel imports. In spite of criticism made against the prevalent low condition of the supply service, Bangladesh has become the second largest exporter of apparel products after China in running nearly 4, 600 manufacturing factories in the country.
While many garment factories in Sri Lanka were closed down, skilled Sri Lankan managers and workers found jobs in Bangladesh, Thailand, Nepal and other countries to boost their exports.
The Clothing exporter and Joint Apparel Association Forum made several appeals to Sri Lanka to intervene with the EU to obtain the GSP Plus concession. It pointed out that there is an obvious correlation between GSP Plus concessions and economic growth via Sri Lanka’s apparel industry.
After losing the GSP Plus concession, some garment manufacturers diversified their products for survival. Sri Lanka could consider a long-term plan for development of exports and apply various methods, but a constructive strategy should be drawn in the short-term plan to protect our market share in EU. In this context, it is necessary to work out a meaningful effort with high priority to get the temporary suspension of EU GSP Plus removed at the earliest in a bid to secure our export trade, Economic Analyst Premadasa said in his paper.
Taking up the case, Sri Lanka gradually built up a new relationship with the European Union. Furthermore, Sri Lanka also met all the criteria required by the EU for the GSP Plus. The principles adopted by the government, such as good governance, democracy and respect for human rights helped Sri Lanka to win its case.