Exporters fear another GSP Plus withdrawal

· EU warnings grow louder
· An assessment to be conducted in 2019

By Madhusha Thavapalakumar

Following statements made by the European Union (EU) last week, Sri Lankan exporters have expressed fears of a possible withdrawal of the Generalised System of Preferences Plus (GSP+) status owing to the prevailing constitutional crisis.

Ambassador of the EU to Sri Lanka Tung-Lai Margue recently told Reuters that the European Union will consider withdrawing Sri Lanka’s duty-free access if it fails to implement its commitments on rights.

Margue had said in late October that Sri Lankan exports to the EU had increased by 18% after receiving GSP+ in May, 2017.

A spokesperson from the European Commission (EC) said last week that a mission was scheduled for 2019 to conduct an assessment exercise of Sri Lanka’s compliance with its GSP+ obligations.

“As a beneficiary of the EU GSP+ trade benefits, Sri Lanka has committed to uphold and effectively implement 27 international conventions on human and labour rights, environmental protection, and good governance,” the statement said.

Meanwhile, the EU released another statement on Saturday (10) saying the dissolution of the Parliament ahead of its planned reconvening further deepens the political and economic crisis in the country.

“As a longstanding supporter of a democratic Sri Lanka, the European Union expects a swift and peaceful resolution of the current crisis, in line with the Sri Lankan Constitution,” it said.

The exporters
To assess the mood of the local export community, The Sunday Morning Business contacted several prominent exporters to understand the real impact of the GSP+ on their industries.

Expressing his hope that GSP+ will not be removed, Apparel Exporters Association (AEA) Chairman Felix Fernando said: “I can’t quantify the impact but certainly withdrawal of GSP+ will affect the exports from Sri Lanka.”

According to F. Fernando, the drastic hike in 2017 exports was driven by the GSP+.

“If it was not given last year, our exports should have come down. Because our prices were not cheaper in comparison with the region,” he added.

Apparel constitutes more than half of Sri Lanka’s exports to the EU and is the industry that benefits most from GSP+ concessions.

Meanwhile, the Seafood Exporters Association of Sri Lanka (SEASL) President Dilan Fernando said:

“Withdrawal of the GSP+ will create a huge negative impact on Sri Lankan fish exports. We are exporting about $ 200 million worth of Tuna per annum. That will be at risk.”

When questioned as to what measures need to be taken to ensure the GSP+ remains, D. Fernando said:

“Democratically a prime minister should be chosen. That is what the EU wants.”

Seafood is one of the top beneficiaries of the trade concession after apparel.

Chairman of the Boat Building Technology and Improvement Institute (BTI), which organizes the annual Boat Show, Neil Fernando was also brought into the conversation to determine the growth of the boat and ship building industry under GSP Plus.

“If the GSP+ is withdrawn, it will affect us badly. We have to compete with countries like China,” he said.

Explaining the issues in depth, Neil Fernando said that the unavailability of raw materials in Sri Lanka makes it difficult to compete with other countries.

“Several other countries have come into the picture of boat building now. They have their own raw material. But in Sri Lanka we have to import everything,” he said.

Boat and ship exports saw the sharpest spike of all beneficiary sectors after the reinstatement of GSP+ in May, 2017.

The Sunday Morning Business also contacted Lanka Fruit and Vegetable Producers, Processors and Exporters Association Vice Chairman Suresh Ellawala.

“If GSP + is withdrawn, there will be a significant impact on the exports of processed food and beverage products, which is a key area for developing exports under the National Export Strategy.”

According to Ellawala, a significant increase in exports to key EU countries can be seen in the fruit and vegetable sector this year, despite the existence of non-tariff barriers including phytosanitary and maximum residue level requirements.

National Chamber of Exporters (NCE) President Ramal Jasinghe was also concerned about a possible withdrawal.

“We have over $ 6 million worth of export products that would get affected if the GSP plus is withdrawn,” said Jasinghe.

According to Jasinghe, after the restoration of the GSP+, exports saw a consistent growth month over month, from last year to this year, and that might get affected if it is withdrawn again.

When contacted, the Export Development Board (EDB) refused to comment on this issue and all attempts to reach the Tea Exporters Association of Sri Lanka (TEA) failed.

The statistics
The Sunday Morning Business delved into the numbers to determine the exact impact of GSP+ on Sri Lankan exports since it was regained.

In 2017, Sri Lanka had its highest ever export earnings of $15.1 billion and it was also a record year for Foreign Direct Investments (FDI) as it was recorded at $ 1.9 billion.

According to the Central Bank of Sri Lanka (CBSL), export earnings increased by 15.5% year on year to $ 1,001 million in August, 2017. Primary beneficiaries of the GSP+ are apparel, seafood and boat and ship building.

Apparel sector exports
At the top of the Sri Lankan export basket, the apparel sector recorded $ 4.7 billion exports in 2017, showing a slight improvement from the $ 4.6 billion recorded in 2016. Up to September, 2018 $ 3.66 billion worth of apparel exports have been recorded, according to the Export Development Board (EDB) reports.

Based on the Index of Industrial Production (IIP), the manufacturing of wearing apparel grew by 4.7% in 2017, against the 5.7% growth of the previous year. Increased exports to the EU, following the restoration of the EU GSP+ facility, as well as to the USA, Canada and other non-traditional markets facilitated this growth.

Even though the export number has gone up, apparel contribution to total merchandise exports in 2017 was 41.54% which is comparatively lower than that of 45% in 2016.

Seafood exports
Edible fish exports saw a remarkable increase of $ 240.65 million, compared to $ 169.61 million recorded in 2016. Up to September, 2018 edible fish exports were recorded at $ 191 million.

According to the CBSL annual report 2017, fish exports increased by 41.8% in volume terms and 48.5% in rupee terms, compared to 2016, following the removal of the ban on fish exports to the EU in 2016.

Exports of fish to the EU accounted for 23.1% of total fish exports in 2017, and grew by 125% over 2016.

Along with the exports numbers going up, contribution to total merchandise exports also increased to 2.11% in 2017, from 1.66% in 2016.

Boat and Ship building
This sector saw a drastic growth from $ 64.7 million in 2016, to $ 279 million in 2017, contributing to 2.45% in the total merchandise exports, from 0.63% in 2016.

Apart from these three sectors, other export products haven’t recorded much significant growth, driven by the GSP+. In fact, several sectors have recorded a downfall from their positive growth records over previous years.

Sri Lanka became a beneficiary country of GSP+ in 2005; under the special scheme GSP+ introduced by the EU. Due to allegations of human rights violation, Sri Lanka lost it in August 2010.

However, Sri Lanka was able to regain the duty free concession in May, 2017 based on the promise of meeting certain commitments.

* This story has been updated to reflect the dissolution of Parliament.