A boost for trade and development

Sri Lanka has finally regained the much-awaited Generalised Scheme of Preferences (GSP) Plus facility from the European Union (EU). The GSP Plus allows developing countries to pay less or no duties on their exports to the EU. This gives them vital access to EU markets and contributes to their economic growth. Sri Lanka will now be getting preferential access to the EU market from Friday after a lapse of nearly seven years.

Sri Lanka lost the Plus facility in 2010, after an HR investigation by the European Commission. The investigation relied on reports by UN Special Rapporteurs and Representatives, other UN bodies and by human rights NGOs that identified significant shortcomings in Sri Lanka’s implementation of three UN human rights conventions: the International Covenant on Civil and Political Rights, the Convention against Torture and the Convention on the Rights of the Child.

The restoration of GSP Plus is a diplomatic and moral victory for the Government which has totally transformed the country’s foreign policy after coming to power in 2015. Forging better relations with the EU and other Western nations was one of the priorities of the National Unity Government. These countries share the same democratic values and ethos of governance and it is in our interest to cultivate better ties with them. They also happen to be our biggest trade and Overseas Development Assistance (ODA) partners.

It was clear at least from the beginning of this year that the EU would grant the facility to Sri Lanka, but the final confirmation came yesterday. (The EU had earlier resumed fish imports from Sri Lanka). The granting of GSP+ is based on the country showing that it is continuing to make progress towards effectively implementing 27 international conventions on human rights, labour conditions, protection of the environment and good governance.

The removal of the GSP Plus facility led to the closure of at least 40 apparel factories and a loss of millions of dollars. There was much chest-beating at the time about not giving up the country’s sovereignty by implementing the EU’s human rights requests, but the reality is that every country that seeks GSP Plus has to conform to certain universal human rights and values. These do not violate our sovereignty – on the other hand, they strengthen it. Indeed, no other country that enjoys the GSP Plus has surrendered its sovereignty as far as we know. There will be a stringent, bi-annual monitoring process to make sure that Sri Lanka continues to progress. The first such report is due in January 2018.

This is certainly a significant moment for Sri Lanka’s export fraternity, for the EU is the country’s biggest export market for apparel and many other goods, responsible for 32 percent of all exports. The EU imported goods worth 2.6 billion euro from Sri Lanka in 2016 alone even without the GSP Plus facility. The apparel and textiles sector accounts for nearly 62 percent of all exports to the EU (2016 figures of European Commission). According to Minister Harin Fernando, this could go up to 4 billion euro with the restoration of GSP Plus which will see the full removal of duties on 66% of tariff lines, covering a wide array of products including textiles and fisheries. The EU itself sees an additional one billion euro worth of business in the next few years. The exporters of garments and textiles, rubber products, small machinery, fisheries, food products and tea stand to gain the most from the improved trade status.

The benefits of GSP Plus extend beyond enhanced exports and revenue. The GSP Plus will help reduce Sri Lanka’s trade deficit and encourage Sri Lankan companies to diversity their exports due to their increased competitiveness in the EU market. An indirect benefit of GSP Plus is making Sri Lanka a more attractive country for foreign investors which could in turn generate more jobs for local youth.

Both the EU and Sri Lankan authorities hope that this would benefit small and medium-sized enterprises (SMEs) too. The EU is launching a project worth 8 million euro over five years to help to bring SME products up to EU standards which are very stringent.

Sri Lanka is rapidly developing, which that means that we risk losing certain aid and trade concession programmes. With regard to GSP Plus, Sri Lanka has the chance to benefit from the trade scheme until it achieves upper middle income country status for three consecutive years. Based on current economic trends, that should mean that Sri Lanka will benefit from GSP+ until at least 2021. Five years may seem really short, but Sri Lankan exporters should seize this moment to export products so good that they will be more competitive and in demand even if the duty concessions are removed five years from now. We are not the only pebble on the beach and our competitors, some of whom continued to enjoy GSP Plus while we were cut off, are catching up. Thus export diversification, new markets and quality improvements are essential to stay ahead.