Sri Lanka is one step closer to regaining GSP+. The Government delegation that accompanied President Maithripala Sirisena has indicated that, following high level talks in Germany and Austria, Colombo will be submitting a formal application in two weeks. But the process is far from over.
GSP+ will be crucial for Sri Lanka’s apparel manufacturers to meet the target of reaching $ 8.5 billion worth of clothing exports per annum by 2020. Sri Lanka has carved a niche as an international centre for clothing manufacturing despite tough regional competition, with the high-value segment performing particularly well.
However, a decision in 2010 by the European Commission to temporarily revoke the low or non-existent tariffs awarded to the country under the Generalised System of Preferences Plus (GSP+) scheme has inhibited more robust sector growth in the intervening years, insists stakeholders.
Sri Lanka lost its GSP+ concessions following an investigation into alleged human rights abuses at the end of the country’s civil war, though it retains access to the standard GSP scheme, which grants some, albeit fewer, preferential import tariffs. It is this very issue that could decide whether Sri Lanka regains the preferential tariffs.
The EU is a key trading partner for Sri Lanka, accounting for nearly 40% the country’s clothing exports. Although growth has continued in spite of Sri Lanka’s reclassification, with exports rising to $ 2 billion last year, industry players argue that duties have held back progress towards the $ 8.5 billion-per-annum export target.
The scheme’s reintroduction would be especially timely, in light of the prospect of increased regional competition. Under the Trans-Pacific Partnership (TPP) deal agreed in early October, several Asian countries – including Vietnam, Malaysia and Indonesia – will be given preferential access to textiles in the US market, which is Sri Lanka’s second-largest destination for apparel exports. Additionally, Vietnam’s ongoing negotiations for a free-trade agreement with the EU could exacerbate competitive pressures.
Sri Lankan manufacturers already face competition from neighbouring Pakistan, which enjoys GSP+ status, and Bangladesh, which benefits from similarly favourable duty concessions and has one of the lowest costs of labour in the world.
This has prompted a shift towards niche product lines with more added value – a strategy that appears to be paying off. While several studies have found a decline in the price of apparel worldwide following the liberalisation of the garment trade, Sri Lanka has bucked global trends by recording an increase in export unit value, according to data issued by the Central Bank of Sri Lanka.
But reliance on the industry to spearhead the country’s ambition of fast tracked growth depends on a combination of GSP+ and stronger trade links such as Free Trade Agreements (FTAs). At Sri Lanka’s current levels of growth the country could well lose eligibility for GSP+ at the turn of the decade but to get there it will certainly need the facility.
The Government is now under even more pressure to implement as many of the two dozen United Nations international conventions with pledges at the United Nations Human Rights Commission (UNHRC) at the core of these commitments. In the process it will also have to balance a sensitive political space at home. Colombo may well find that the harder road lies ahead.