This article is based on an interview with Economist Sanjaya Ariyawansha of the Ceylon Chamber of Commerce of Sri Lanka
Amidst the prevailing global and local economic crisis, the European Union has taken a significant step to aid Sri Lanka by granting GSP+ tariff relief until 31 December 2027. This decision holds paramount importance for the country, as it provides crucial access to the European market through tax concessions. By complying with 27 international conventions, Sri Lanka ensures the promotion of sustainable development and supports developing countries like itself. This tax concession is seen as a crucial lifeline to bolster the nation’s economic prospects and foster a path towards progress and stability.
Amid the prevailing global and local economic challenges, the continuation of the GSP+ tariff concession holds paramount importance. Originally set to expire by the end of 2023, the European Commission has recommended extending this tax exemption until December 31, 2027, making it crucial for the economic stability of Sri Lanka. As one of the eight countries benefiting from the GSP+ tariff concession scheme, Sri Lanka stands to gain significant advantages in accessing the European market and fostering sustainable development.
The tariff concession presents a valuable opportunity to foster growth and stimulate economic development in Sri Lanka. With over two-thirds of its products being eligible for export to the European Union with reduced tariffs, this concession offers significant advantages during this economic crisis.
However, it is essential to acknowledge that while these reliefs are advantageous, they may not single-handedly address all the economic challenges the country faces. To ensure economic stability, it is crucial to prioritise inflation management, fiscal discipline, and the establishment of a conducive environment for sustained growth. The duty relief offered through tariff concessions is complemented by robust domestic export policies, playing a significant role in fostering economic prosperity. Additionally, tariff concessions play a vital part in promoting responsible domestic economic policies and governance, which are essential for overall economic well-being.
Extending the GSP+ tariff concession is expected to play a significant role in restoring Sri Lanka’s economy. The slowdown in economic growth faced by the United States is partially due to reduced consumer demand from major export markets, including the European Union, and a decline in demand for imported products.
In the face of higher inflation rates compared to recent history, the GSP+ tariff scheme has emerged as a crucial element in the current economic climate of Sri Lanka. By securing improved stability and predictability in trade relations with the
Economic prospects
European Union, the GSP+ tariff concessions have played a pivotal role in bolstering the country’s economic prospects.
The restoration of the GSP+ tariff concession in 2017 has already yielded significant benefits for Sri Lanka. According to the European Union, the country experienced remarkable export growth of 20 percent in 2017 and an additional 5 percent in 2018 as a direct result of these tax concessions in the European Union.
As a result of the GSP+ tariff concession, Sri Lanka’s exported products gain enhanced competitiveness in the European Union market, leading to a positive impact on the country’s export economy. This concession allows for zero-granting, effectively reducing costs for European importers, which further encourages trade between Sri Lanka and the EU and strengthens economic ties between the two regions.
The cost reduction resulting from the GSP+ tariff concession will drive a surge in demand for Sri Lanka’s products within the European Union. This heightened demand has the potential to fuel growth in the country’s export sectors, playing a vital role in driving economic progress in the aftermath of the current crisis.
Exporting products from Sri Lanka to countries in the European Union under the GSP+ tariff concession provides much-needed relief to local exporters, allowing them to offer their products at relatively lower prices in the market. This relief is essential, particularly during a period marked by reduced exports. The extension of the GSP+ tariff relief until 2027 is a positive trend for exporters, as it will continue to motivate and support them during challenging economic times.
The GSP+ tariff scheme offers improved market access to the European Union for selected products from developing countries. This entails the reduction and elimination of taxes on these products, making them more competitive and affordable for EU consumers. Importantly, this scheme does not impact goods originating from the EU or other countries.
To maximise the potential of the GSP+ tariff concession and address current weaknesses, Sri Lanka should consider several steps. Sectors like fisheries have encountered significant challenges, including strong competition from regional competitors in recent years. Therefore, to effectively tackle these issues and fully utilise the concession, strategic measures need to be explored and implemented.
Tariff concession
In order to optimise the benefits of the GSP+ tariff concession, Sri Lanka should focus on stimulating industries like garments by adhering to origin criteria. Implementing effective policies to leverage the current situation is vital, while also prioritising efforts to enhance the quality of exports. Strategic investments in sectors with high export growth potential, particularly in emerging industries, will be essential for driving economic progress.
By following these measures, Sri Lanka can attain substantial relief and establish transparent access to the European market. Improving the supply chain and infrastructure is a crucial step in maximising the advantages of tariff concessions. Effective communication with the business community and investors about the terms and benefits of the GSP+ tariff concessions is vital. Creating greater awareness about this scheme will lead to its more effective utilisation, ultimately contributing to the revival of the Sri Lankan economy. These actions collectively pave the way for a strengthened position in the international market and a prosperous economic future. When considering customs concessions, it is crucial to prioritise areas that contribute to job creation and support Sri Lanka’s economic development. Sectors like spice production, fishing, and the rubber industry should receive comparable attention, as they hold immense potential for growth and significant benefits for the country.
Amidst inflationary pressures and the impact of events like the Ukraine-Russia war, numerous countries are grappling with economic challenges. In this context, obtaining GSP+ tariff relief becomes a source of respite for Sri Lanka.
The GSP+ tariff concession offers countries an opportunity to export their goods to the European Union, stabilising export earnings and stimulating economic growth. For Sri Lankan exporters, this concession opens doors to the European market, providing access to a more competitive trading environment.
The GSP+ tariff relief has proven advantageous for sectors like garments, processed food products, seafood, toys, and porcelain. The extent of additional duty relief granted to these sectors varies, resulting in significant benefits. Notably, tariffs on apparel categories have been reduced from 9.6 percent to 0, seafood from 18.5 percent to 0, fresh processed fruits and vegetables from 12.5 percent to 0, porcelain tableware from 7.4 percent to 0 prcent, and the toy manufacturing sector from 1.2 percent to 0 percent.
Competitiveness
These reductions in tariffs have facilitated increased competitiveness and market access for these sectors, providing a favourable environment for growth and economic development.
The GSP+ tariff concession provides Sri Lankan exporters with the advantage of accessing the European market at reduced prices. By eliminating import taxes, this concession fosters a rise in demand for Sri Lankan products in the European market due to their competitive pricing. This achievement is a significant milestone for the country, as it empowers Sri Lanka to seize new opportunities, expand its market presence, and bolster its economic growth. The GSP+ tariff concession stands as a remarkable achievement for Sri Lanka, positioning it for increased export success and contributing to the country’s overall economic advancement.
Market success is contingent upon multiple factors, and price alone does not guarantee it; instead, critical elements such as quality consistency and supply chain reliability also significantly contribute to achieving success in the market.
Indeed, while Sri Lanka benefits from the GSP+ tariff concession, it is crucial to address other vital market requirements. As this concession has a limited duration, exporters must focus on meeting critical demands in the market to ensure long-term success.