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Forum on GSP+ for Sri Lankan Exporters

Organized by the National Chamber of Exporters Of Sri Lanka (NCE) on 22nd May 2017

What is GSP+ ?

In 2005 the EU introduced special incentive arrangements under the Standard EU GSP scheme called GSP Plus and Everything But Arms (EBA) Schemes. Under the Everything But Arms (EBA) treatment of the EU GSP, 49 Least Developed Countries receive duty-free and quota-free access for all their products except arms and ammunition.

GSP Plus, was introduced by the EU in 2005 under the EU GSP Scheme as a special incentive. The special feature of this scheme is all eligible products could be exported by selected beneficiary countries to the EU duty free.

The beneficiary countries were able to expand their exports to the EU better than the scenario they enjoyed under standard GSP scheme since 1971. Under the standard GSP the products from beneficiary countries have been imported in to the EU not totally duty free, but with a reduction of normal import duty rates.

The beneficiary countries should mainly conform and effectively implement 27 core International Conventions on Human and Labour Rights, Sustainable Development, Environment and Good Governance for the entitlement of GSP plus benefits.

GSP Plus currently covers 13 beneficiaries: Armenia, Bolivia, Cape Verde, Costa Rica, El Salvador, Georgia, Guatemala, Mongolia, Pakistan, Panama, Paraguay, Peru, and the Philippines. Sri Lanka was a beneficiary country from 2005 to 2010. According to some sources the EU had offered GSP plus to Sri Lanka in consideration of the tsunami disaster

GSP+ for Sri Lanka

The European Commission which is the Executive body of the European Union (EU) has restored the special concessions for imports from Sri Lanka under the GSP+ Facility, in view of the improved human rights and labor record of the country, and ratified by the European Parliament, which will be accompanied by a rigorous monitoring of human rights, good governance, labor conditions, protection of the environment, and rule of law, in conformity with the concerned 27 International Conventions.

The GSP+ Preference would entail the full removal of duties on 66% of tariff lines, covering a wide range of products including Textiles and Garments, Fisheries Products, Rubber Products, and Machinery.

Since the EU consisting of 27 countries is the biggest export market for Sri Lanka accounting for 1/3 of total global exports of the country, the concessions can make a significant contribution to Sri Lanka’s economic development by increasing exports to the EU market especially by the apparel sector which accounts for 46% of Sri Lanka’s Exports. In 2015 EU imports from Sri Lanka amounted to 2.6 Billion Euros which highlights the significance of the concessions that will be available.

Currently there are Eight GSP+ beneficiaries among developing countries. In this context that Sri Lanka will have a particular advantage over competitor countries such as Pakistan, Bangladesh, and the Philippines for exports especially in the Textiles and Garments Sector.

GSP Plus withdrawal

In December 2009 the EU decided to withdraw temporarily the GSP Plus benefits to Sri Lanka. This decision was based on the findings of a Commission of Investigations launched in October 2008 and completed in October 2009. According to the report of the Commission, no satisfactory progress was shown by Sri Lanka in the implementation of three UN human rights conventions covering Civil and Political Rights, Convention against Torture, and Rights of Children which were required for the grant of benefits.

Initially this withdrawal was only for period of six months. As this period was not sufficient, it was further extended to enable to identify and address the issues faced. The EU opened a dialogue with the Government of Sri Lanka in the hope of necessary measures been taken to resolve matters involving human rights, the situation of which was being monitored and re-evaluated by the EU. Unfortunately, there was no significant interest displayed by Sri Lanka since 2010. However the current unity Government has immediately continued dialogue in a positive manner in the hope of getting GSP Plus restored.

From 2009, Sri Lankan exports reverted to the standard GSP preferences as provided for in the current GSP Regulation.

Policymakers of the Sri Lankan Government realised that the decision to withdraw the GSP+ facility caused a heavy blow to the export trade with the closure of several garment factories amounting to a loss of $ 782 million of exports. This was a challenge for the growth of the Sri Lankan economy. As such, it is important to understand why the GSP Plus is deeply beneficial to Sri Lanka.

Although if Sri Lanka enjoys the GSP facility with other developed counties, the EU is recognised as the major player which provides more benefits. Most of Sri Lankas leading export products are included among the 7,500 products eligible for duty free access under the EU GSP plus.

Therefore the new Government elected in January 2015 focused its immediate attention by building a conducive environment by policy changes in the country in an attempt to convince the European Union to restore GSP Plus benefits temporarily suspended in early 2010.

In the early 1960s, the main dialogue in the 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 relationships with developed countries was proposed by The United Nations Conference on Trade and Development (UNCTAD).

According the Generalised System of Preferences or GSP System was introduced in 1968 by the General Agreement on Tariffs and Trade (GATT) on its initiative to encourage industrialised countries or developed countries to grant Autonomous Trade Preferences to all developing countries in accordance with the recommendation of UNCTAD.

From the early 1970s developed countries or industrialised countries such as the 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 GSP Systems offering trade preferences to developing and least developed countries.

Developing countries and least developed countries recognised as beneficiary countries were offered preferential tariff reductions for their export products to developed countries under the GSP System. It is a removal of partial or the entire tariff charged for goods exported by beneficiary countries.

Beneficiary countries here bound to adhere to certain international labour regulations and manufacture products complying with international standards together with a certain percentage of value addition to be accepted by offer countries.

Since the early 1970s Sri Lanka has being enjoying standard GSP benefits.

Need for EU GSP Plus

A review of Sri Lankan exports indicates that nearly 57% of exports is exported to the EU and the USA. It further shows that 27% of exports is shared by USA and the majority 30% is shared by EU. Out of all products exported during the last 25 years, the apparel sector has taken the lead with 45% of total products exported. The most significant feature is that the USA and the EU equally share 43% of exports, out of the total of 86% of Sri Lankan apparel exports.

In view of the above facts, it is important to look as to how the EU GSP plus will benefit Sri Lanka compared with the USA GSP as the two leading export trading partners.

A special significance of the American GSP is that all products categorised under US GSP Scheme are entitled to enter the US market with duty zero facility. Even though USA is the second largest market after the EU for Sri Lanka, the benefits under their GSP is very minimal.

It has to be noted that certain articles are prohibited under the USA GSP facility such as textiles, apparel, footwear, handbags, luggage, work gloves, and other leather wearing, ceramics, glass, and steel, etc. This reveals that even apparel, Sri Lanka’s biggest export product which covers 70% of total exports to the USA, is not included in the USA GSP facility.

Main Sri Lankan products that are exported under the USA GSP are rubber products, gloves, mittens and mitts mixed with rubber or plastic.  Sri Lanka’s exports last year were approximately $ 190 million worth of items which covers only 10% of total exports to the USA under the USA GSP facility. This underscores the importance of the EU GSP Plus.

Huge challenge for Sri Lankan exports

Obviously, this scenario stands on a huge challenge for Sri Lankan exports. While Sri Lanka could consider a long-term plan for development of exports and apply various methods, a constructive strategy should be implemented in the short-term to protect our market share in the EU.

The EU as a leader of Trade.

The European Union Parliament on 27th of April, overwhelmingly defeated a resolution by some criteria that called for the denial of the EU’s GSP + Concession to Sri Lanka.

It was a win- win situation for Sri Lanka with 436 votes in favour drowning out the 119 mustered by the anti-vote, with 22 abstentions.

This was a huge gain for Sri Lanka.  As the last step of the process, on the 11th of May 2017 the EU Council of Ministers convened to ratify the overwhelming approval, and restored the GSP+ to Sri Lanka. Sri Lanka has now become officially entitled to reap all the GSP+ benefits.

This will facilitate a large number of investors and investments coming to Sri Lanka, and that would be a major boost for the national economy.

Until now, Sri Lankas exports under the standard GSP were with reduced tariffs but not totally duty free. Exports to an approximate value of $ 2.5 billion under the EU GSP plus could be executed which represents 25% of current total Sri Lankan exports to the world. During the period Sri Lanka enjoyed GSP Plus, Sri Lanka exported products to the value of nearly $ 1. 8 billion to the EU under GSP Plus in 2008.

Since the volume of exports of fish to the EU is not as high as apparel, the onus is on the exporters to take immediate measures to benefit from the removal of the ban on fish exports to the EU.

There are approximately 75 large and medium scale fish export companies in Sri Lanka, and 32 companies among these large and medium scale companies utilise EU approved fish processing plants.

As a nation, the onus is on the Government and exporters to focus special attention to overall exports since there is no indication of a significant improvement shown in our export trade for the last six years. Average annual exports still amount to $ 10 billion in value, and a collapse of main export sectors like garments (42%), tea (13%) and rubber and rubber products (8%) will lead to a chaotic situation economically and socially highlighting the importance of diversifying the basket of export products and services from Sri Lanka.

In 2010 a Five-Year National Export Strategic Plan was ceremoniously launched, at a highly colourful event, for the period 2011-2015 targeting a 13% average growth rate of  exports to achieve a value  of $ 15 billion by 2015; $ 4 billion was the target for garments by 2015. Normal promotional tools were highlighted as strategies in the plan and the suspension of the EU GSP plus  facility was not considered as an issue. The main intent of the plan was to increase exports to markets other than the EU and USA by over 50% by 2015, with high expectations related to the markets in India and China. However there expectations have failed to materialise the data.

Meanwhile competitor countries of Sri Lanka utilised to the optimum to increase their exports consequent to the introduction of the new special incentive related to GSP Plus and Everything But Arms (EBA) by the EU in 2005. This resulted in the decrease of Sri Lankan market share in the EU.

Mainly South American countries and four Asian nations are currently covered by the GSP Plus as beneficiary countries. After the suspension of Sri Lanka, Pakistan was recognised as a beneficiary country for GSP Plus benefits in 2013. Vietnam and a few other countries competing with Sri Lanka are eyeing the earliest opportunity to enter the GSP Plus facility.

Another most important factor is that Bangladesh, Cambodia, Afghanistan, Nepal, Myanmar and Yemen, which are direct competitors of Sri Lanka particularly for apparel, tea, fisheries products and light engineering products, enjoy trade benefits under a special incentive under the EU GSP scheme, namely, Everything But Arms (EBA) introduced in 2005. These beneficiary countries are permitted to export duty free any product other than arms to EU under the EBA. It means that 100% of their products are open to be export on duty free basis to the EU.

As shown by international trade statistics, Sri Lankan competitors are Pakistan, Cambodia, Vietnam and Bangladesh continue to maintain a significant growth rate in trade with the EU especially in apparel products, and other countries such as Nepal and Myanmar are in full swing to capture the market share of their competitors as well.

Bangladesh, as a beneficiary nation, has enthusiastically increased her exports during the last 10 years at an average growth rate of 13%, with 10% related to EU apparel imports. In spite of criticism made against the prevalent poor conditions of supply, Bangladesh has become the second largest exporter of apparel products after China with nearly 4,600 manufacturing factories in the country.

During the period 2006 to 2016, Sri Lanka enjoyed a 1.3% market share of the EU apparel market without any improvement while Cambodia, Vietnam, and Pakistan had a 2% market share each where as it was 0.5%, 1%, and 1% market share respectively in 2006. Today, Cambodia, Vietnam and Pakistan have overtaken Sri Lanka maintaining high growth rates of 21%, 13.5% and 10% respectively.

The higher benefits received under the GSP Plus and EBA are the main reason behind the progress of the export trade of Bangladesh, Pakistan and Cambodia to the EU. This trend cannot be seen in the USA market as apparel is not an eligible product in the USA GSP list.

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