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Winning
GSP+ extension not a political issue but a necessity
By
A. K. Azeez
The European Union (EU) is today Sri Lanka’s largest
trading partner. The EU is also Sri Lanka’s number one
export destination, with products and services worth approximately
1.7 billion euros, being exported to the EU, which is 29 percent
of Sri Lanka’s total exports. Garments and textiles account
for over 55 percent of the value of our exports to the EU,
amounting to more than 1 billion euros.
The key factor behind the recent increase in Sri Lanka’s
exports to the EU is the GSP+ status, granted to Sri Lanka
in 2005. Under this facility, Sri Lanka can export more than
7,200 product categories to the EU. Sri Lanka is one of the
15 countries in the world, that enjoys this trade concession
and the only country in Asia.
The GSP + scheme is to be reviewed by the end of this year.
. The review which is a technical procedure will only take
place in the 4th quarter of 2008 and the list of countries,
that qualify for the GSP+ scheme from 2009 to 2011, will be
announced by mid-December, 2008. Regarding this review, the
European Union (EU) maintains that, no decision has been reached
over the GSP + scheme, as far as Sri Lanka is concerned and
that, there is no reason to assume that, Sri Lanka would be
disqualified from the preferential trade scheme, by the end
of 2008.
At a recent Business Seminar organised by the Sri Lanka-Poland
Business Council, the representative of the Delegation of
the European Commission (EC) to Sri Lanka and the Maldives,
Peter Maher emphasised that, no decision has yet been made
in this regard and therefore, the impression created that
Sri Lanka will not qualify, is erroneous.
In a recent message on Europe Day, Ambassador and Head of
the Delegation of the European Commission to Sri Lanka and
the Maldives Julian Wilson, also sought to clarify the impression
that, the concession is all but lost to Sri Lanka, stating
that the EU wanted Sri Lanka to get the GSP + for the next
three years, and Sri Lanka had to meet certain eligibility
criteria, that applies to all beneficiaries of the scheme,
to guarantee the GSP + renewal.
Sri Lanka was granted GSP+ preferential trade concession,
on the basis of ratifying 27 international conventions on
human rights, labour rights and environmental standards. The
labour standard in Sri Lanka was a driving force in making
Sri Lanka, a beneficiary of the GSP + concession. Sri Lanka
will have to submit a fresh application for the GSP+ by end
October 2008, giving comprehensive information on the ratification
of these 27 conventions. Since these conventions are directly
under the United Nations and the International Labour Organisation
(ILO), the findings of these international bodies will also
be taken into account, when reviewing performance.
Doubts
Sri Lanka’s doubts on the extension of this preferential
trade scheme, emanate from recent allegations pertaining to
the country’s human rights record. However, the EC office
maintains that, it does not expect absolute compliance on
the 27 conventions, but there would be an objective assessment,
on the implementation of these conventions. The recent decision
of the Supreme Court of Sri Lanka, which held that the rights
recognised in one of these conventions and which had been
disputed regarding its effective implementationm namely the
International Covenant on Civil and Political Rights (ICCPR)
are ‘justiciable’ through the country’s legal
and constitutional processes, as the decisions of the Supreme
Court gave adequate recognition to the civil and political
rights contained in the ICCPR, would no doubt be taken into
consideration by the EC.
Despite these seemingly positive signals, there seem to be
other developments, which do not augur well for Sri Lanka.
The EU plans to implement some changes to the rules of the
GSP scheme, such as the requirement, for high domestic value
addition of nearly 50% for products, exported under the scheme.
Since most Sri Lankan garment manufacturers depend heavily
on imports, this could affect our garment exports, a major
export to the EU, even if the GSP+ scheme was to be extended.
Meanwhile, in the least developed countries (LDCs), the proposed
domestic value addition is 30% and these countries are also
not required to undertake obligations, in the form of implementing
the 27 conventions, and thus, there could be diversion of
export orders from Sri Lanka to such LDCs, particularly the
LDCs in the region. To increase the benefits from GSP+ it
may be necessary to request the EU, to reduce the domestic
value addition requirement for Sri Lanka to 30%, and permit
cross regional accumulation, to enable our exporters to source
inputs from both SAARC and ASEAN regions. At present, only
imports from SAARC region qualify for GSP+ preferential concession.
Exporters particularly to the EU countries are also understandably
perturbed, by a recent remark made by the Governor of the
Central Bank of Sri Lanka, during the course of an interview
with the BBC, which seemed to give the impression that, the
government is not unduly concerned about international mechanisms,
for fair trade. In this interview, the Governor described
the GSP+ scheme as a subsidy, which our exporters specially
garment exporters, would do well, to manage without. The Governor
subsequently followed this up with a request to local banks,
to have a plan to fall back, in the event, Sri Lanka does
not get an extension of the concessions, when the EU reviews
the country’s claims to the concession, towards the end
of this year, whilst asserting that, all steps will be taken
to ensure that, the country receives the GSP+. He requested
the banks to work closely with the apparel industry, the industry
which is likely to be the worst affected, in the event of
loss of concessions, so as to mitigate any adverse affects
from the fallout.
Whilst measures to revitalise an affected industry, which
is vital to the country’s economy, following loss of
GSP + , is commendable, it is better to be prudent, to take
all possible steps, to prevent such an eventuality, in the
first place.
The Annual Report of the Central Bank of Sri Lanka for 2006,
the first full year after the granting of the GSP+ trade concession
by the EU to Sri Lanka in July, 2005, states that “amidst
intense global competition, the apparel exports exceeded US$
3 billion in 2006, aided by increased access to the EU market
under the GSP+ scheme” and that “Tariff concessions
granted under GSP+ scheme, helped to diversify exports and
markets in the EU region and that, despite intense competition,
apparel exports to the EU increased by 17.3%, mainly on account
of the GSP+ tariff concession”. It also states that,
“Although apparel exports to the US declined marginally,
exports to the EU including apparel, increased significantly
by 18.4% , partly capitalising the concessions offered by
the GSP+ scheme” and that, “apparel exports to the
UK rose significantly, capitalising on the tariff concession,
received by Sri Lanka under the GSP+ scheme”.
Other industries
Although the garment industry is by far the biggest beneficiary
of the GSP + scheme, it cannot be forgotten that, the scheme
benefits several other industries, such as leather products,
gems and jewellery, fisheries, including new ones like bicycle
exports. In fact, most non-garment products from Sri Lanka
have managed to get new markets or expand existing market
share, thanks to access given by GSP + .
Sri Lanka exports approximately 1.1 billion euros, worth of
garments and under the GSP+ a 14% duty concession was given
to Sri Lanka’s fruits and vegetables. Currently, the
garment industry is badly losing market share in the US and
growth is being sustained only in Europe, due to the GSP+
concession. Loss of the trade concession, could also result
in an unfortunate situation for the country, due to loss of
jobs for many thousands, in the event, overseas investors
who have set up factories and other enterprises here, due
to the access given, as a result of the GSP+ concession, decide
to pull out or close down their factories and go elsewhere.
Value addition
The GSP + scheme encourages more value addition, to be done
in Sri Lanka, thereby encouraging backward integration, resulting
in the setting up of new industries, creating substantial
employment in the country. The granting of duty free access,
to many products tends to encourage Sri Lankan industries,
to diversify their exports of products to the EU, thereby
removing the country’s dependence on few sectors, allows
only few sectors, to earn valuable foreign exchange.
Both buyers and manufacturers have to take into consideration,
the availability or non-availability of the GSP+ concession,
when preparing for next year’s orders. Orders for the
winter season could start in June and buyers may want to know,
what the price is. Knowledge of Sri Lanka’s GSP+ status
is vital, in deciding whether or not to factor in the duty
component, into the costing. The present uncertainty, places
many exporters in a predicament. Further, the loss of GSP+
may mean that, exporters may end up having to add between
12-18 % import duty, to the cost of an export unit.
This would make Sri Lankan products uncompetitive, against
rival exporting countries’ products, which continue to
enjoy the concessions, giving them greater market access.
Already there are negative influences, on some overseas buyers,
as a result of the uncertainties, over the extension of GSP+
concession to Sri Lanka, have made them look elsewhere and
some orders may have already moved to countries like, Vietnam
and Bangladesh.
Struggle
Sri Lankan exporters are presently struggling to remain competitive,
with interest rates on borrowings going up and domestic inflation
reaching almost 30%. The GSP+ scheme if extended, will continue
to help boost our exports to European countries.
The GSP+ scheme ensures employment for thousands and has the
potential to generate more jobs and contribute towards reducing
poverty. Although, the garment sector is the main beneficiary,
35% of other products also go to the EU, under the GSP+ scheme
and as such, many people, as those employed in the apparel
industry, would be affected by the non-extension of the scheme,
which fact is not very much appreciated.
Even though, on a smaller scale than garments, the local agricultural
sector is also using the GSP+ concession to expand into European
markets. Companies exporting fruits and vegetables to Europe
are now making use of these concessions and these companies,
source their products from farming families, in the rural
areas. Loss of the GSP+ would be a big blow, to these rural
suppliers, thousands of whom are likely to lose their livelihoods.
Although, the total number of persons whose jobs are dependent
on GSP+ is not known, the garment industry, the biggest beneficiary,
provides direct employment for over 250,000 and this industry
also provides indirect employment. Therefore, the total number
of people in this and other sectors, dependent on GSP+ , could
be quite large.
Benefits for the poor
Securing the GSP+ concession for a further period of three
years, is therefore, not a political issue but a necessity,
for the poor of the country, on whose account the concession
was actually provided. A major objective of the EU in granting
the GSP+ concession, was to combat poverty, as a means of
ensuring democracy. Efforts to extend the concession are therefore,
attempts to preserve the poverty alleviation initiatives,
Sri Lanka is continuously engaged in.
In this context, another concern of the GSP+ concession that
must be addressed by stakeholders, as well as the government
is that the GSP+ concession, has not had an impact, on poverty
reduction in Sri Lanka, as much as expected and there has
been an unequal sharing of the gains, especially from the
apparel industry. Therefore, we need to ensure that, there
is a reasonable sharing of the benefits gained from this concession.
Taking these factors into consideration, a civil society initiative
undertaken recently appears to be a very laudable exercise.
Under the initiative of the Association for Dialogue and Conflict
Resolution (ADCOR), a trust set up by the National Association
for Trade Union Research and Trade Education (NATURE) and
the Employees Federation of Ceylon (EFC), a meeting of stakeholders
was held on May 13th, 2008. The discussions highlighted the
fact that, everyone wished to see the continuance of the GSP+
concession and that, the forum should make its position known
to the government and that, a united stance should be adopted,
to secure the GSP+ , as it was a necessity for the poor of
the country, on whose behalf the concession was actually provided.
While employers and trade unions consider that, the extension
of the GSP+ scheme, is dependent on interaction between Government
officials with the EU authorities, trade unions can and are
likely to play an important role, by canvassing support at
international level, with trade union federations, with whom
they are affiliated and by promoting Sri Lanka’s international
image, in order to convince the European authorities, to extend
the GSP+ concession. However, these stakeholders maintain
that, the government of Sri Lanka, must also play its part.
It is therefore paramount that, all stakeholders continue
the dialogue now begun, so that, issues which jeopardise the
grant of GSP+ concession, for a further period of three years,
can be satisfactorily resolved and that civil society, continues
to marshal its forces and focus on developing a road map,
to achieve the standards required, over a period of time.
This country can least afford to lose this concession, at
this critical stage of its economic development.
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