Ambassador of EU Delegation in Sri Lanka advocates more open trade policy at NCE AGM

Denis Chaibi, the new Ambassador of the EU Delegation in Sri Lanka who was the Chief Guest at the Annual General Meeting of the National Chamber of Exporters (NCE) held on 28 January at the Hotel Galadari in Colombo was warmly welcomed by the Chamber. 

The NCE has been working closely with the previous Ambassador of the EU in Sri Lanka as well, who in fact was the Chief Guest at the AGM of the Chamber last year. He was supportive of the Chamber, regarding its initiative to introduce a Certificate of Conformity (COC). The NCE is also grateful for the assistance received from the EU under its Trade Facilitation Project, wherein the Chamber has been working closely to implement activities, in collaboration with the International Trade Centre in Geneva. The Chamber will continue to work closely with the new Ambassador as well in all these endeavours which have been very beneficial to Sri Lankan exporters.  

New Ambassador of the EU Delegation in Sri Lanka Denis Chaibi addressing the gathering

The Ambassador stated that Sri Lanka’s exports of merchandise to the EU market reached Euro 4.4 billion in 2018 with a trade surplus of Euro 1.3 billion in favour of Sri Lanka. However, garments and articles of textiles accounted for over 58% of exports to the EU in 2018. He added that not all tariff lines in the garment sector were accommodated under the GSP+ facility, while the Sri Lankan garment sector in general had a relatively high import content of inputs in the case of many tariff lines. In this context the potential for Sri Lanka to diversify and expand exports to the EU was very high. 

The Ambassador pointed out that, with Sri Lanka becoming an Upper Middle Income Country in 2019 according to the World Bank definition, a three-year transition period has been triggered from 1 January wherein the GSP+ concessions hitherto enjoyed by Sri Lanka for exports to the EU market will expire in 2023, subject to labour and human rights conditions being met to enjoy the concessions in the interim period. 

He added that Sri Lanka’s trade with the EU will face challenges due to the expiration of GSP+ and also due to Brexit, compounded by increasing competition from countries such as Bangladesh and Vietnam, who have adopted more open Trade Policies compared to Sri Lanka. In this regard he pointed out that during the period 2013-2018 Bangladesh and Vietnam have been able to increase their exports to the EU by 70% and 80% respectively, while Sri Lanka’s exports have increased only by 20%, mostly due to the GSP+ facility. Further according to the Ambassador the strategic location of Sri Lanka although an advantage will not be sufficient to overcome future challenges in the EU market, vis-vis competitors unless a more open trade policy is adopted.

In this regard it was further stated that although there was great movement in the 1980s to reduce trade barriers in Sri Lanka, by 2010 the level of protection was back to the levels that prevailed in the pre-1908 period, with the inclusion of non-tariff barriers. However, it is the view of the Chamber that in the preceding one or two years, Sri Lanka has proceeded to remove progressively prevailing non-tariff barriers in the form of cesses and other levies, moving towards a more open trade regime. 

In regard to the aspiration of Sri Lanka to be a trading hub, the Ambassador stressed that trade openness is a precondition for the country to position itself as a trading hub since the strategic location of the country alone would not be sufficient to transform Sri Lanka to a hub. This is because the trading activities related to a hub involves importation of inputs required for international trading without hindrance, as well as coordinated trans-shipment activities. He added that the below par export performance of Sri Lanka was probably due to protectionist trade measures, while competitor countries such as Bangladesh and Vietnam have been able to increase their exports due to a more liberalised trade regime. 

The Chamber while appreciating this position, supports in principle a liberalised trade regime, but would at the same time like policy makers to be conscious of the fact that Sri Lankan export oriented enterprises, especially in the Small and Medium Category, would need a certain amount of protection in the interim period, while a more liberalised trade regime is implemented in stages, to enable them to adjust to the competition. Such adjustment is desirable through suitable incentive packages that should be provided to the export sector, which the Chamber has requested from the authorities.

The EU Ambassador urged Sri Lanka to retain access to the EU market, since the EU has the biggest network of preferential trade pacts with other countries, with access to global value chains. In this context the EU was entering into a number of Bilateral Trade Agreements with countries such as Indonesia, Canada, Mexico, Australia, Chile, and New Zealand while finalising a historical agreement with Japan as well. Further Sri Lanka was advised to enter into a trade deal with the UK, post Brexit, since the UK is an important market for Sri Lanka. 

Further, since the EU was adopting a ‘Green New Deal’, with the objective of becoming Climate Neutral by 2050, the Ambassador urged Sri Lankan exporters to familiarise themselves with the new Environmental Standards of the EU. He warned that exports which do not meet EU standards could be imposed tariffs. In this regard the Chamber states that it has already implemented a program to confer a Certificate of Conformity (COC), stated above exclusively for the benefit of member export companies which implements in their enterprises criteria related to eight ethical business practices to ensure good governance for sustainability. This certificate is expected to give member exporters an edge over their competitors in the international market place. 

The Chamber also states that it proposes to implement a separate scheme this year specifically related to environmental standards, through which the Chamber expect to address, the observations made by the Ambassador regarding the ‘Green New Deal’ to be adopted by the EU countries.

The EU Ambassador in his closing remarks also noted the use of renewable energy, as well as recycling measures adopted in production activities, would be crucial for exporters to access the EU market in the future, since the European Commission proposes to impose a ‘Carbon Border’ Tax to address ambitious climate targets. In this regard the Chamber states that it has already focused its attention to such aspects, through collaborative activities with its affiliate ‘The National Cleaner Production Centre’. 

The Chamber looks forward to work closely with the EU Ambassador, and the EU Delegation in Sri Lanka with a view to assist the Sri Lankan export sector to exploit opportunities related to the EU market in the future, by addressing the concerns expressed by the Ambassador to the best possible extent.