Loss of the trade concession will affect 30% of all apparel exports. The government is counting on general growth and better economic management to make up for the loss. It’s not clear whether this can make up for the loss of preferential access to such a big market.
The European Union has withdrawn its GSP+ tax concession on Sri Lankan apparel imports. This tax affects 30% of all apparel exports, according to the Central Bank. The apparel industry employs thousands of people and jobs may be in jeopardy without preferential access to this major market. The EU stated that it is withdrawing the concession because Sri Lanka failed to respond to its demands by July 1. To quote the press release:
“Sri Lanka will temporarily lose its preferential access to the EU market starting from August 15th 2010. The decision to withdraw the preferential tariff system GSP+ from the country had been taken by the Council of Ministers in February 2010.”
“Based on dialogue with the Sri Lankan authorities on shortcomings in its implementation of three UN human rights conventions, the EU in June offered to delay the entry into force of the Council decision by a further six months. In exchange, it asked for tangible and sustainable progress on a number of outstanding issues. In the absence of a reply from the authorities in Colombo by 1 July, the Commission is not in a position to table a proposal with a view to delaying the Council Decision.” (European Union)
The GSP+ is a specific tariff tied to sustainable development and good governance under the EU’s Generalised System of Preferences. “Under GSP+ the EU provides additional preferences to economically vulnerable developing countries which have ratified and effectively implemented 27 international conventions in the fields of human and labour rights, sustainable development and good governance and which voluntarily apply for GSP+ benefits and accept the associated conditions. Sri Lanka is a current beneficiary of GSP+, along with 15 other Developing Countries. Like all other GSP+ beneficiaries, Sri Lanka committed to maintain its ratification and effective implementation of the 27 conventions when it applied for the scheme.”
This scheme enabled Sri Lanka to supply cheaper and more competitive exports to the European Union. In February 2010, however, the EU decided to temporarily withdraw the concession based on human rights issues which a 12-month investigation found lacking. The government has been in discussion with the EU since then. In June the EU offered to extend the benefit for another six months. The government, however, did not give a written response by July 1st, effectively ending talks.
“We very much regret the choice of Sri Lanka not to take up an offer made in good faith and in line with the EU commitment to a global human rights agenda. We will however keep the door open for Sri Lanka to return to talks,” said HR/VP Catherine Ashton. ”Our precedent-setting offer sought to recognise some tangible progress yielded during these last months of dialogue,” added Commissioner Karel De Gucht. “We hope that these results, however partial, will be sustained, in line with the incentivising characteristics of GSP+.”
In response government spokesman Minister Keheliya Rambukwella said “We will not accept the conditions put forward by the EU. We are very clear on that. The Sri Lankan government has made alternative arrangements to meet the consequences. The GSP loss is only around 85 Million Euros and we are also looking at other markets to meet our needs.”
The government then referred to Central Bank release which stated that Sri Lanka would make up for the loss of GSP+ through “better economic management” and expanded growth from the end of war.