The European Commission has recently announced a four-year extension to the Generalised Scheme of Preferences Plus (GSP+) for Sri Lanka which was set to expire on December 31 this year. Thus it will be available until December 31, 2027.
The GSP+ is a trade scheme initiated by the European Union (EU) to foster sustainable development and economic growth in developing countries. It offers these nations the opportunity to export a specified range of goods to 27 EU Member States under preferential trade conditions. This facility is offered to less than 20 developing countries.
While naysayers in the Opposition and other quarters had predicted Sri Lanka would lose the facility, the decision to extend the scheme can be considered a great opportunity for the country.
 Prof. Priyanga Dunusinghe |
As countries around the world face the challenges of inflation, Sri Lanka’s ability to export goods at lower prices to these nations and gain access to their markets presents a significant advantage for Sri Lankan trade. The extension of the facility will also support Sri Lanka’s economic revival efforts amidst the ongoing economic crisis.
While Sri Lanka has benefited from both the GSP and GSP+ schemes, a handful of countries including Sri Lanka are allowed to avoid EU taxes and sell the goods at lower prices in the European market.
As a result, European importers are incentivised to buy more Sri Lankan goods due to the competitive prices offered through these schemes.
Indeed, the GSP+ is generally considered more advantageous than the standard GSP scheme. Under the GSP+, eligible exporters can send their goods to the European market by paying significantly reduced tariffs or, in some cases, no tariffs at all.
Despite facing stiff competition from countries like Thailand and Malaysia in certain markets, Sri Lanka has found solace in the GSP+ tariff relief.
This trade scheme has been a special blessing, allowing Sri Lanka to mitigate the disadvantages and enhance its competitiveness. Particularly in the garment and fishing industries, Sri Lanka has been able to capitalise on the benefits of GSP+, enabling Sri Lankan exporters to export their products to European markets despite facing various obstacles over the past decade.
Although all countries are supposed to be equal partners in global trade under the World Trade Organisation (WTO) rules, there are several trade arrangements targeted at developing nations.
The GSP Plus concession is one of the most generous preferential trade agreements in the world today allowing beneficiaries to enter a market consisting of 25 countries and is almost on par with the concessions offered by the US under its own GSP scheme.
To fully capitalise on the benefits of the GSP+ tariff relief, Sri Lanka should consider organising itself strategically. During the period of January to June 2023, Sri Lanka’s garment exports experienced a notable decline of approximately 15 percent compared to the exports recorded from January to November 2022. The primary reason behind this decrease can be attributed to the inflationary situation, which has led to a postponement in the purchase of textiles and clothing by consumers and businesses alike. Given the current circumstances, securing GSP+ duty relief presents a crucial opportunity for Sri Lanka to restore its export market to previous levels.
The duty relief offered by GSP+ is especially significant as it can alleviate the risk of job losses in the garment sector for the majority of youth who are directly and indirectly involved and come from low-income families in Sri Lanka.
But given Sri Lanka’s past record, it is evident we have failed to capitalise on trade agreements such as the Indo-Lanka (the first-ever Free Trade Agreement signed by Sri Lanka), Sri Lanka- Pakistan, the Bangkok Agreement and the South Asia Free Trade Agreement (SAFTA). It appears that the failure to provide adequate information and guidance to local producers and industrialists about foreign markets has been a contributing factor to the challenges faced.
It appears that there are concerns about the effectiveness of the Sri Lanka Department of Commerce, which operates under the Ministry of Commerce, in handling the process adequately. As a response to this issue, there was a proposal in the last budget to create a specialised unit for foreign trade. To fully leverage the relief, it is crucial for the Government departments responsible for trade to offer the necessary support, which the country needs now more than ever.
Many Embassies and High Commissions around the world such as Bangladesh, Morocco and Thailand are known to promote their trade and support bringing exporters and importers together.
An urgent and comprehensive plan must be presented and implemented to maximise the benefits of the GSP+ duty concession. Without such a plan, only a limited percentage of exports, ranging from 35 to 50 per cent, will be able to seize the opportunity provided by the European Union.
Therefore, a formal program should be implemented by the Ministry of Commerce, Department of Commerce, Industrial Development Board (IDB), Export Development Board (EDB), Foreign Embassies, and other relevant Government departments to fully harness the benefits of the GSP+ tariff concession and other trade agreements.
Sri Lanka should prioritise aligning with the export sector and promote a related approach to expand exports, encompassing citizens from villages to the highest levels of society.
While the Ministry of Finance and the Central Bank of Sri Lanka (CBSL) are diligently taking steps to steer the country out of the economic crisis, there remains a concern about the commitment of relevant Government institutions towards promoting exports.
While temporary measures are being employed to address the current economic challenges, it is imperative that concrete export plans are swiftly implemented to ensure a sustained recovery from the crisis in the long run.
The GSP+ tariff relief is built upon the principle of upholding a decent, law-abiding, and democratic framework that safeguards the rights of all individuals.
In essence, the conditions for the GSP+ tariff relief are centred around safeguarding democratic principles, individual rights, political rights, labour laws, and environmental regulations. In summary, these conditions are aimed at promoting liberal democratic values and ensuring the protection of labour and environmental laws.
The GSP+ tariff relief is availed by many countries based on similar conditions, and Sri Lanka is not exempted from adhering to these requirements. Some argue that programs like these, initiated by the International Monetary Fund (IMF) and the EU, impose various conditions on Sri Lanka. However, instead of viewing them as mere conditions, they should be regarded as essential guidelines to ensure the establishment of a well-functioning and ethical society.