The Sunday Leader

EU To Introduce New GSP Law In October

  • Sri Lanka To Lose US$ 5 Billion Over Next 10 Years

UNP MP Eran Wickramaratne

By Mandana Ismail Abeywickrema

The European Union is to adopt a reformed GSP law in October 2013 and a new preference scheme is to apply from January 1st, 2014.

UNP MP Eran Wickramaratne says that Sri Lanka stands to lose US$ 5 billion over the next 10 years if the country does not enter into EU’s new GSP scheme.

The new GSP scheme will last for 10 years.

In February 2013, the EU released procedural rules on how to treat the applications for the GSP+ arrangement. The product categories will be revised over a two-year period.

There are 29 developed economies (of which 15 are in the European Union) that welcome products from developing countries.

Wickramaratne explained the benefits of the scheme; the duty exemption means a more competitive price to the consumer in the importing country, enabling the Sri Lankan exporter to increase its share of the market and providing new exporters with an edge to break into a market.

“If we do not have the advantage of “GSP +” our competitors in other countries for Apparels, tea and rubber products will enhance their market share. Ten years from now our dominant industries will become marginal exporters to the EU and USA.  It will be near impossible to recover from such loss of market share and competitiveness,” the MP claimed.

While Sri Lanka will qualify to apply for “GSP+”, there are conditions to be met such as the rules of origin, and compliance with global treaties.

An early decision to apply must be made as the industry needs to gear itself to take advantage of the tariff concession.

Sri Lanka declined the GSP benefit in 2009 due to the ongoing military conflict and the country’s inability to comply with the conditions.  The decision that the country took at that time is estimated to have  caused a loss of more than US$ 1 Billion, closure of hundreds of factories and loss of thousands of jobs.

More than four years after the end of the conflict we must re-engage our dominant trading partners in Europe and North America, said Wickramaratne.

The absence of GSP beginning 2014 will translate into a potential loss of about US$ 350 Million per annum.  The loss over 10 years can exceed US$ 5 Billion.  Given the state of the global economy and the declining exports from Sri Lanka the advantage of GSP has become more pronounced.

According to Wickramaratne, GSP is the casualty of a failed foreign policy.

“There were understandable reasons to terminate the GSP preference in 2009.  The Government’s inability to forge stronger links with our major export markets more than 4 years later may weigh-in on the decision to apply or not apply for the GSP. A foreign policy that does not improve our global standing in the community of nations, neither providing strength to our export markets is indefensible,” he noted.

The idea of tariff preferences for developing countries has its origin with the General Agreement on Tariffs and Trade (GATT) and UNCTAD beginning in the 1960’s.  There were 4,800 products from 129 countries that received preferential duty free entry into the U.S.A.  In 1990’s textiles and agriculture were included even though it was sensitive to GATT’s primary promoters the U.S. and Europe.

The EU has emerged the number one market for Sri Lanka’s export since 2007.  Total value of trade was US$ 5.4 Billion in 2011, but came down to US $ 4.9 Billion in 2012. Exports from Sri Lanka to the EU were US$ 3.5 Billion in 2011, and down to US $ 3.1 Billion in 2012. Sri Lanka’s trade to EU has steadily increased since 2004, with the exception of 2008 and 2012 where the European Financial Crisis was evident.

SL’s major exports to the EU are Apparel with 59% of the total exports, rubber products 8%, Diamonds & Gems 8%, tea 4% gloves 2%, solid rubber tyres 2% and tobacco products 1.9% consisting the balance.

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