The Sunday Leader

Govt Backing Down On GSP Plus


The EU’s decision to withdraw the facility has been estimated
to cost the government US$ 1.5 billion.

By Camelia Nathaniel

With reports that the government is in the process of preparing the initial paperwork to re-apply for the EU’s GSP Plus trade concession that was withdrawn from the country in August 2010 due to non-compliance with the conditions connected to the facility, the General Secretary of the Free Trade Zones & General Services Employees’ Union (FTZ&GSEU) Anton Marcus says the government first needs to formulate a proper road map in order to regain that facility.

It was also reported that discussions were underway to re-apply for the GSP Plus facility at the External Affairs Ministry consultative meeting in parliament recently.
However when contacted by The Sunday Leader, the External Affairs Ministry officials declined to comment on whether or not the government was in the process of re-applying for the GSP plus facility.

Despite government claims in 2010 that the loss of the GSP Plus facility would not have a severe impact on the country’s economy, the EU’s decision to withdraw the facility was estimated to cost the government US$ 1.5 billion. It is further noted that over 200 garment factories had closed down due to their inability to be competitive.

The continuous closure of industrial factories and the increase in the unemployment rate due to the loss of the GSP Plus facility has now forced the government to tone down its arrogant attitude and re-think its stance on the EU’s trade concession.

Speaking to The Sunday Leader Marcus said, “We have information that the government is planning to re-apply but the government does not want to say it openly and we know that it is due to the bad economic situation and the government has no other choice but to obtain the GSP plus.

However unless there is a joint effort between the employers, unions and the government, there is no way that Sri Lanka can regain the GSP plus concessions. The government alone cannot do it as there are issues.
If there is a proper dialogue and if we can come up with a road map to address these issues then we can jointly intervene and try to obtain it.”

According to him, there are about 27 international conventions that Sri Lanka is expected to adhere to, and that is why, he pointed out, unless there is a proper road map Sri Lanka will definitely not be able to reach that status in order to obtain the GSP plus.

Commenting on reports that the withdrawal of the GSP Plus facility was illegal he said, “Why didn’t the Minister of External Trade file a case against the EU in that case? They did not file any case or take any action because that is not the truth.
They had the sole discretion to take a decision, but when the government was requested to make submissions, they took an arrogant attitude and withdrew from the review, claiming that the withdrawal of the GSP plus will not affect the country in any way, he said adding that had the government participated in the review they could have explained what was going on in the country.

“However the government did not participate in the review and took up a very nationalistic and arrogant approach. But this is not a nationalistic issue but a trade issue, and due to the arrogance of the government the EU acted on the information that was available to them and as a result they withdrew the trade concession from Sri Lanka.

How can the government claim that it is unlawful? Well if it is so then they should challenge that decision at a proper forum, and why haven’t they done so all this time?” he questioned.

Citing examples he said, taking into consideration what is going on in the garment and other sectors in this country, Sri Lanka couldn’t compete with other countries such as China, Bangladesh and Vietnam unless Sri Lanka develops our industrial sector.
All other countries have developed their industrial sector from the bottom up he said, but added that in comparison to the garment trade in those countries our garment industry is simply a tailoring shop.

“Everything is imported, tailored here and exported. The only advantage we have is that we have an educated workforce and if you implement those labour conventions in law and practice then we can use that as a tool to convince the EU.
If the workers are treated well and their voices heard and they are allowed to join trade unions, the workers will also be satisfied and that would definitely increase productivity. This is the only way out for Sri Lanka,” he said.

Marcus however not only blamed the government but pointed fingers at the employers as well for not paying due consideration to their employees.

“Unfortunately not only the government, even the employers are also not willing to comply because most of these garment employers do not have the long term perspective, its just about making money.

They don’t think about the country in the long run. When we had the GSP Plus we had a 30% profit margin, but where did it go to? This profit never trickled down to the workers but ended up in the employers’ pockets.

That is why according to a Labour Department survey 66% of female workers in the Katunayake free trade zone are suffering from anaemia.

However according to a book published by Yapa publishers, of the 50 richest persons in the country the majority are garment factory owners.

This clearly indicates where the benefits have gone to,” he added.

He further pointed out that this is where the government should intervene and all the social partners should come together.
It is then that the country can once again obtain the GSP plus concession he said warning that if the government thinks that it can play games with the EU it is sadly mistaken.

According to Marcus, after the withdrawal of the GSP Plus facility in August 2010, to date over 200 garment manufacturing factories have closed down, resulting in the loss of over 20,000 jobs.

“Although we have figures for the urban areas there are also many smaller factories that have been forced to shut down in the rural areas as well, but the figures are not available even with the labour department,” he said.
However there is some solace for the industry in the knowledge that the government is currently engaged in preparing the initial paperwork in relation to reapplying for the GSP Plus facility.

The necessary documents are being prepared by the Commerce Department and are to be handed over to the EU Commission in June 2014. However although the final application has to be sent by June 2014, the initial paperwork is currently being done, according to government sources.

The government also said at the External Affairs Ministry consultative meeting in parliament that discussions are underway to reapply for the GSP Plus facility.

Meanwhile, speaking to The Sunday Leader regarding the issues faced by the industry, the Managing Director of Peak Clothing (Pvt) Ltd., Prashantha Wimalasena said that the egotistical attitude adopted by the Sri Lankan government with regard to the GSP plus concession has had a devastating effect on the local garment industry which was once a thriving export earning sector.

According to him today there are only around 25% of the garment manufacturers still in existence in comparison to the year 2000.

Despite the government’s claims that it would not affect the garment industry, many factories have been forced to close down, while thousands of employees have either lost their jobs or are forced to seek alternative employment due to the meagre wages being currently offered.

This situation has recently forced the government to rethink its stance on the EU’s trade concession.
The GSP Plus trade concession boosted the country’s industrial exports and its withdrawal has affected export income and the trade balance adversely, as the economy is heavily dependent on industrial exports, said Wimalasena.

The overall income from the apparel exports in 2011 was around US$ 4100 million, but it had declined to US$ 3850 million by 2012.

Wimalasena said that what happened was due to various human rights violations and various issues during the civil war the government was given notice by the EU to improve its HR track record, but the local authorities had chosen to ignore those warnings and taken a obstinate stand, based on the notion that Sri Lanka would still succeed in the industry without the GSP plus concessions.

“However in spite of several notifications by the EU that if we did not improve our HR track record, the GSP Plus facility would be withdrawn, whoever was responsible at the time instead of complying, went on a collision course and at the end of the day the GSP Plus facility was withdrawn from Sri Lanka.

At the end it was not only the garment industry but everyone who exported any commodity or service to the EU lost the benefit of exporting to the EU market on a duty free basis,” he said.

Wimalasena added that at the time of losing the duty free facility all garment manufacturers were promised benefits and incentives by the government.

“We were promised extended tax holidays or reduced tax structures and the government promised to grant us incentives on export earnings and so many promises to compensate for the loss of the GSP plus facility.

However at the end of the day nothing materialised and as a result we lost our competitive edge in export and much cheaper countries like Bangladesh capitalised on the situation. Consequently we are losing a lot and facing a difficult task of exporting to the EU.

Today if you see the total export sector the majority is to the EU. Earlier the bulk of the exports was to the US but the trend has now changed and the majority of exports is to the EU. It is having a huge snowballing effect on us,” Wimalasena said.
When asked how he perceived the future of the Sri Lankan garment industry considering the fact that most of the larger companies are moving their business to places like Bangladesh, he said that upon analysis it can be seen that since early 2000 only about 25% of the companies are still in existence in Sri Lanka today.

“The industry has shrunk tremendously. Unless a proper plan for resurrecting this sector is enforced I doubt we can move forward even in the next five years. Operating from Sri Lanka has become so expensive.
For example we are producing only a small quantity of fabrics for export. The major component in the garment trade is the fabric and most of our fabric is imported for conversion to garments.

At the time of import we have to pay 5% as tax (ports authority levy) then 2% national building tax, VAT 12% and when you add all these up almost about 19% of our working capital is paid out as import taxes even before we start the manufacturing process.

It is becoming increasingly impossible to continue with our business operations in this current situation,” he lamented.
He added that unless the government takes measures to address this issue and make an effort to provide some consolation to revive this sector, the once thriving Sri Lankan apparel industry, would simply remain a thing of the past.

However taking into consideration the latest developments, the garment manufacturers are hopeful that the government will agree to comply with the conditions laid down by the EU which would then enable the EU to grant the GSP plus concession once more.

Irrespective of what has taken place in the past the only solution for the government is to at least agree to comply with conditions laid down by the EU.

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