FTZ manufacturers express concern over EU resolution; flag impact from GSP+ loss

The Free Trade Zone Manufacturers Association (FTZMA) yesterday expressed concern over the recent resolution passed by the European Parliament and warned that the loss of GSP+ benefits will have a major impact. 

The sole trade chamber representing manufacturers in the country’s free trade zones, FTZMA in a statement said it is quite perturbed by the EU resolution adopted, which includes a measure to temporarily suspend the GSP+ preferential tariff concession afforded to Sri Lanka. 

“The impact of losing the EU GSP+ this time around is also expected to be immense. 

Especially at a time when the global COVID-19 pandemic has had a debilitating impact on the Sri Lankan economy resulting in weakening its balance of payments and increasing the unemployment rate,” it said, given the fact EU is Sri Lanka’s second biggest export market.  

FTZMA also warned of the potential loss of FDIs by export enterprises which could potentially move their operations elsewhere.

“The economy of our country is majorly driven by SMEs but due to the pandemic those enterprises are already being hit badly. The GSP+ withdrawal will throw them from the pan into fire, as not only textile but about 7,500 tariff lines, which cover almost all the industrial exports from Sri Lanka to Europe, will suffer in the event GSP+ is withdrawn. Therefore, unlike previously, with the cascading effects of the pandemic it will cause a catastrophic impact to our economy. This will prevent industries from achieving the set future export goals. This will be a major setback,” FTZMA said. 

Whilst urging the Government to review its position on the implementation of mandatory legislative measures, FTZMA on behalf of its members urged the EU to reconsider its position and work with the Sri Lankan Government to reach an amicable solution. 

FTZMA said that, as a part of the business community, it could support the approach of the Government in regaining GSP+ by: 

1) Monitoring how enterprises fulfil treaty obligations 

2) Advocating for improvements and 

3) Acting as a partner to communicate the views of the Sri Lankan public

As a major stakeholder of the export business, FTZMA said that, in helping the Government achieve the scheme’s conditions, together with its members it will continue diligently to uphold labour and human rights and safeguard its workforce from the negative impacts of the pandemic. 

FTZMA firmly believes the removal of the GSP+ preferential trade concession will have serious and negative consequences on the Sri Lankan export industry. The EPZs of Sri Lanka, with about 280 enterprises in all zones employing over 150,000 employees, generate a significant portion of the export revenue of the country. 

“Therefore, we reiterate that we need to have an urgent and short-term strategy to protect our EU market share proactively, without speculating upon reactive measures on what next comes from the EU,” FTZMA said in its statement. 

A 10 June resolution adopted by the European Parliament urged the EU Commission to consider a temporary withdrawal of the GSP+ status given to Sri Lanka. The move has put the spotlight back on the country’s human rights situation, prompting Colombo to defend its “multifaceted progress”. 

FTZMA said it is understood that in the worst-case scenario, where the EU decides to withdraw, action will take place in about 10 to 12 months, while best case a review could take place on the GSP renewal process in 2023. This situation can best be judged within next one or two months.

The EU is Sri Lanka’s second-largest export market after the US, absorbing 22.4% of Sri Lankan exports in 2020. As a product, textiles and apparel dominates industrial exports, with around 35% globally, and it’s also the largest even in the case of EU. 

To provide the reader with a brief outline of GSP, it is an instrument negotiated under WTO to provide tariff preferences or concessionary or zero customs duty rates for exports from the lower and lower-middle-income countries to some industrialised nations on around 70% of the tariff lines (commodities), depending on the preference giving country schemes which are renewed at regular intervals. 

GSP+ is an extension of the same scheme but to provide zero tariff market access to beneficiary countries, given only by the EU region, and one which was introduced in 2005 through the EU GSP scheme based upon the beneficiary country’s keenness on sustainable development and good governance. The beauty of the whole GSP scheme is that, unlike standard bilateral trade deals, there is a nonreciprocal nature of it towards the beneficiary exporting country. However, depending upon the benefactor nation the eligibility criteria can differ. 

The GSP+ trade concession enabled Sri Lankan exporters to EU a competitive advantage over none GSP+ nations, and as a result thousands of additional job opportunities for Sri Lankans – thereby elevating their income and quality of life. 

FTZMA noted that in December 2009, too, the facility was temporarily removed by the EU on their dissatisfaction with the implementation of three UN human rights conventions. However, this withdrawal was reported to have contributed to the loss of revenue of only around $ 782 million for textile and apparel exports, as a result of the closure of several export-oriented enterprises.