EU reinstates trade preferences for Sri Lanka

The government’s push to increase export receipts will benefit from the restoration of its Generalised System of Preferences Plus (GSP+) trade concessions status with the EU, which had been suspended for nearly seven years prior to mid-2017. Although data shows that EU imports from Sri Lanka did not significantly decline in the years following its loss of GSP+ concessions, regaining the status is a significant reputation-builder. The EU is Sri Lanka’s largest trade partner and top export market, and Sri Lanka has maintained a healthy trade surplus with the bloc over the last 10 years.

GSP+ should help boost exports throughout 2018 and support the Vision 2025 mid-term economic goals, which include reaching $20bn worth of annual exports by 2020. “The rate of export growth is expected to increase in the short- to medium term, due to the commitment of the private and public sectors, new free trade agreements and the regaining of the GSP+ status,” Zeeshan Mukhi, Sri Lanka country manager for international shipping company Maersk Line, told OBG. GSP+ IMPACT: GSP+ concessions offer considerable economic benefits, reducing duties on EU-bound goods across 6000 lines that account for 66% of the EU Common Customs Tariff. Sri Lanka was a GSP+ beneficiary from 2005 to August 2010, when the bloc revoked the preferential treatment, citing the government’s failure to address human rights concerns. However, data from the European Commission (EC) shows that EU imports from Sri Lanka grew by 8.5% in 2010 to €2.21bn, 10.2% in 2011 to €2.43bn and 5.6% in 2012 to €2.57bn. In fact, imports from Sri Lanka rose in seven of the 10 years between 2006 and 2016, falling only in 2009 by 6.1%, in 2013 by 9.4% and in 2016 by 2.6%.

Being a major producer of textiles, the Sri Lanka Apparel Exporter’s Association (SLAEA) reported that the loss of GSP+ benefits weighed on the sector, with the country’s annual apparel exports flatlining at an average of $4.9bn between 2011 and 2016, after jumping from $2.5bn in 2001 to $4.2bn in 2011. Sri Lanka lost EU textile market share to Bangladesh and Myanmar after the GSP+ concessions were revoked in 2010.

Reform Process 

GSP+ status is only granted to countries that have ratified 27 core international conventions regarding the environment, human rights and labour protections, and have committed to good governance practices. Authorities embarked on a major reform programme following the election of President Maithripala Sirisena in January 2015, including re-establishing the independence of the National Human Rights Commission, providing better protection for witnesses and victims, investigating cases of missing persons, releasing citizens detained under anti-terrorism regulations and creating new laws against child labour.

Re-engagement with the UN has also helped regain concessions, with the EC reporting that Sri Lanka had worked with the UN Human Rights Council to promote reconciliation, accountability and human rights. In June 2017 the World Bank reported that reforms including a Right to Information Law helped the country strengthen its case for GSP+ restoration.

Regained Status

In July 2016 the government re-applied for GSP+ concessions, signalling it had met the entry criteria set out in EU regulations. Sri Lanka’s GSP+ concessions were officially restored in May 2017, with the SLAEA projecting total apparel exports to reach the $5bn mark for the first time in 2017 as a result. Longterm projections are less clear, however, with the UK voting to leave the EU in June 2016. The UK is Sri Lanka’s largest trade partner within the bloc, accounting for 43% of all EU exports, according to the SLAEA.

The World Bank projected that GSP+ restoration would benefit Sri Lanka’s external sector in the second half of 2017. Indeed, local media reported a 10% yearon-year increase in apparel exports to the EU in the last four months of 2017. The country also reached the SLAEA’s global apparel export estimate, with provisional data from the Central Bank of Sri Lanka citing garment exports worth $5.03bn for the year, up 2% over 2016.