Brooding over GSP+?
It is heartening news
to learn that the government is prepared to renegotiate with the
European Commission on the issue of GSP+ and the question of significant
shortcomings in relation to the implementation of three human rights
conventions relevant for benefits under the scheme. But it is equally
determined not to allow any foreign countries or institutions to
interfere in the internal affairs of the country under the disguise of
any conditions attached to assistance programs. Rightly so as such undue
interference undermine the dignity and sovereignty of an independent
EU’s Generalised System of Preferences (GSP) is a trade arrangement
by which EU provides preferential access to the EU market covering 120
countries in the Union to 176 developing countries in the form of
reduced tariff for three years at a time, encompassing (1) the standard
GSP on over 6,200 tariff lines, (2) the special incentive arrangement
for sustainable development and good governance and (3) The Everything
But Arms (EBA) by which it provides duty free, quota free access to all
products for the 39 Least Developed Countries (LDCs).
Textile industry continues with or without GSP+. File photo
Sri Lanka is one of those countries, which receives additional
incentives (GSP+) with other 14 developing countries. Except Mongolia,
Sri Lanka is the second Asian country to be provided with GSP+
The primary objective of the GSP is to be able to reduce poverty and
promote sustainable good governance and the preferential tariffs to
promote international trade to gain additional export revenue with a
view to developing industries and job opportunities in their countries.
If a country exceeds or falls below a set threshold or does not
comply with any requirement, preferential tariffs are either suspended
or stopped following the findings of a Commission.
Where Sri Lanka is concerned, GSP+ was stopped from August 15, 2010,
for non-compliance of its request to the government to investigate the
alleged human rights abuses.
Sri Lanka can still export clothing, garments and ceramics and other
key products to EU countries at standard preferential tariffs, which is
The government emphasizes that, when the conditions were drawn up in
2005, there were no human rights or fundamental rights issues attached
to the original criteria to offer concessions but the present
requirements drawn up by the Commission are considered to be an
interference in the legitimate internal affairs of the country. Now this
has become a bone of contention between the two parties with no
anticipated solution in the immediate future.
However, it has to be admitted that the withdrawal of GSP+ would
certainly affect the foreign exchange earnings and loss of jobs in the
clothing, garment and ceramics industries.
Preferential access to EU market for 176 developing nations
* Reduced tariff for three years
* On over 6,200 tariff lines
* Lanka one of 15 developing nations to get additional
* Lanka second Asian country to receive GSP+
* EU imports from Lanka amount to
US $ 1.55b in 2008
EU imports from Sri Lanka under GSP+ amounted to EUR 1.24 billion
(US$1.55 billion) in 2008.
The EU and the US are the two major importers of garments from Sri
Lanka. During the period 2009 to 2010, the US market fell from 2.4
percent to 1.9 percent but this loss was compensated to some extent by
an increase in exports to the EU from 1.6 percent to 1.9 percent during
the period 2004 to 2008.
The garment industry is a US$ 3.2 billion export business and
accounts for 45 percent of the country’s export revenue.
Sri Lanka has nearly 300 garment factories including major suppliers
such as Brandix, Hirdaramani and MAS Lanka.
To counteract the repercussions of the withdrawal of GSP+, it is
suggested in some quarters that the devaluation of the rupee might
improve the situation. Devaluation means that the exports become more
competitive and cheaper to foreigners. It will increase the demand for
On the other hand, imports will become more expensive and will reduce
the demand for imports invariably resulting in inflation. With the
implementation of a large number of development programs especially in
the North and the East, devaluation may not be a viable proposition at
this stage as it is bound to increase the cost of machinery and other
equipment needed for such programs and even for the expansion of textile
and garment making factories in the country.
Foreign exchange reserves
The Government has already taken steps to use its foreign exchange
reserves to prevent the rupee strengthening and eroding the
competitiveness of exports. It is said to be in a position to adjust the
dollar by 10 to 12 percent.
The interest rate was about 19 percent at the time the crisis began
but today it is down to 11 to 12 percent and the inflation is kept low.
Setting up of more textile and apparel making factories is yet
another significant factor to handle the problems created by the GSP+
The Board of Investment (BOI) has given approval to investors to set
up garment factories in the country.
The Hong Kong based company Interfashion Ltd will invest Rs 35
million to manufacture high value ladies formal wear for Marks & Spencer
and Tesco. It will be located in Nuwara Eliya and will provide work for
250 workers initially and up to 1,200 when it goes into full production.
The production capacity of the plant is estimated to be 6,000 pieces per
Trendywear Adhikarigama is to invest Rs 315 million to export high
fashion ladies garments employing about 1,000 to 1,500 workers.
The plant is expected to produce about 120,000 pieces a month. It
also has four other garment manufacturing units providing work for about
Sri Lanka should also explore the possibilities of expanding their
trade in countries like Hong Kong, South Korea and Taiwan and strengthen
their ties with the US now that the recession is almost over in that
Hong Kong, South Korea and Taiwan are wealthy countries and are the
world’s largest exporters of garments but they do not have sewing
factories. It is this factor Sri Lanka should explore, as its textiles
are of high quality and cheaper.
On an overall estimation, it may be possible for the government to
whisk away the problems of foreign export earnings and loss of
employment in the textile industry in keeping with the mandate given to
the President at the Presidential elections not to barter the
sovereignty of Sri Lanka for the EU’s seven percent trade concession (GSP+).