In March 2017, European Union (EU) approved the grant of GSP Plus facility, a much awaited response by Sri Lanka Government since it had been temporarily suspended. This decision of the EU created a blissful environment in Sri Lanka. But in the latter part of December 2017, United States had declared the grant of GSP benefits for Sri Lanka and another 120 nations would end on December 31, 2017.
Now time is ripe for Sri Lanka to examine how the new global tendencies like fluctuations and changes in GSP facilities are liable to affect Sri Lankan exports.
In Early 1960s, the main dialogue in international trade arena was to remove trade barriers and open avenues of opportunity for developing and least developed countries for entry into trade with developed countries. The offer of tariff preferences by developed nations to developing countries and least developed countries as the best gateway to have trade relationship with developed countries was proposed by The United Nations Conference on Trade and Development (UNCTAD). The Generalized System of Preferences or 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 UNCTAD.
From early 1970’s developed countries or industrialized countries such as European Union- EU (1971), Japan (1971), Norway (1971), Switzerland (1971) New Zealand (1972) Australia (1972) United States of America - USA (1974), Belarus (1992), Russian Federation (1992) and Iceland (2002) implemented their Generalized System of Preferences or GSP System in offering trade preferences to developing and least developed countries.
Developing countries and least developed countries recognized as beneficiary countries are offered preferential tariff reductions for their export products to developed countries under GSP System. It is a removal of partial or entire tariff charges for goods exported by beneficiary countries.
In 2005 EU introduced special incentive arrangements under EU GSP scheme called GSP Plus and Everything But Arms (EBA) treatments. Under the Everything But Arms (EBA) treatment of EU GSP forty-nine Least Developed Countries receive duty-free quota-free access for all their products except arms and ammunition.
Beneficiaries countries
GSP Plus, the hot favourite topic among Sri Lankans during the last few years was introduced by EU in 2005 under EU GSP Scheme as special incentive arrangements. The special feature of this scheme is all the eligible products under this new scheme could be exported by selected beneficiary countries to EU totally import duty zero or duty free. The beneficiary countries are able to expand their export to EU better than the scenario they enjoyed under standard GSP scheme come since 1971. Under the standard GSP the products from beneficiaries countries have been imported in to EU not totally duty free, but reduction of normal import duty rates.
In standard GSP, the main important factor considered by Donor countries is, if the Receiving countries respect mainly the labour rights. But in GSP Plus, the beneficiary countries should mainly confirm and effectively implement 27 core international conventions on human and labour rights, good governance etc.
Since early 1970’s Sri Lanka has been enjoying the GSP benefits from donor countries. Even though the GSP facility is offered by all these donor countries, Sri Lanka is more concerned on EU and USA GSP facilities because Sri Lanka exports 57% of its total exports to these two markets. While Sri Lanka was enjoying GSP, Sri Lanka was able to become a beneficiary country under the special scheme GSP Plus introduced by EU in 2005. The special feature was the offer of benefits was limited to a few countries only to ten to fifteen countries.
It was in December 2009 that EU decided to withdraw temporarily the GSP Plus benefits to Sri Lanka on the basis of findings of an exhaustive Commission of Investigations launched in October 2008 and completed in October 2009. However after the long discussions, EU finally decided to grant of GSP Plus benefits affecting from May 2017 temporarily suspended in early 2010.
It is hard to understand why high priority is given to GSP of EU in political agenda of government, when similar trade concessions are approved by certain other countries as USA and Norway.
In policymakers of Sri Lankan government also have highlighted that the EU decision has caused a heavy blow to export trade specially garment sector with the closure of several garment factories amounting to a loss of nearly US $ 800 million of exports last few years. Now it is clearly visible that the key player in the GSP facilities for Sri Lanka is garments.
Sri Lanka’s main products that exported under USA GSP are rubber products, Gloves mittens and mitts mixed with rubber or plastic. It is obvious that Sri Lanka’s exports last year was approximately US$ 300 million worth of items which covers only 10 % of total exports to USA under USA GSP facilities. This clarifies the demand for EU GSP Plus.
GSP facility
Today EU has become the leading business dealer of the International Trade with nearly 4000 billion Euro trade. EU consists of 28 powerful Western Nations having 500 million population and high purchasing power. The EU has achieved a strong position by acting together with one voice on the global stage, rather than with 28 separate trading nations. Even if Sri Lanka enjoys GSP facility with other developed counties, EU is recognized as the major player who provides more benefits not only from one country.
On the other hand the most of Sri Lankan leading export products to EU are included among the 7000 products eligible for EU GSP. It should be noted that all apparels categorized under HS tariff Code 61, 62, and textile code 63 except a few items are permitted for export under EU GSP facilities. Footwear, tunas, other sea foods, ornamental fish, some variety of cut flowers and foliage, black tea, gherkin, rubber items, activated carbon, table ware, wooden products among the Sri Lankan export products of supply capability are in eligible list of EU GSP. This shows that approximately 90% of Sri Lanka exports to EU are exported under GSP PLUS or Duty Zero entry to EU.
There has been no progress in export trade as proved by the export figures during the last few years. Political leadership and the officials claim as an excuse that it was the withdrawal of GSP Plus of EU affected the export. But now that GSP Plus has been granted by EU. It needs to walk the walk against the tendencies and not talk the talk.
Brexit is a subject that requires thoughtful discussions. The decision of UK to quit EU could create another unfavourable situation for Sri Lankan export trade.
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