In July, the EU warned of plans to pull the country’s access to the GSP on concerns over human rights violations. 

The Joint Apparel Association Forum (JAAF) – the apex body representing Sri Lanka’s apparel sector says while there has been much speculation around the potential cost of losing GSP to the EU, many such analyses have significantly under-estimated the potential losses, often failing to account for vital factors.

JAAF points to the EU being a key market for other Sri Lankan products including plastic and rubber, vegetable products, machinery and appliances, food, beverages and tobacco adding the loss of the GSP would have a heavy economic impact.

Citing academic studies done into the loss of the GSP during 2010, JAAF says poverty and inequality increased during the time.

“Opportunity costs are another consideration. Available data overwhelmingly indicates that the GSP scheme is beneficial to countries that are eligible for these concessions. From 2011 to 2017, exports to the EU by GSP beneficiaries had increased by 82%. In Sri Lanka’s case, much of the growth that enabled Sri Lanka’s apparel industry to achieve export earnings of more $5.3bn prior to the pandemic in 2019 is attributed to the EU,” says JAAF chairman, A Sukumaran.

“It’s also important to note that Sri Lanka’s competitors, such as Bangladesh for instance, will continue to enjoy these privileges.”

Sukumaran also notes that apparel brands and buyers now strongly prefer end-to-end solutions providers and that the GSP loss would increase the apparel cost for EU buyers by around 9.5% – the loss of market share will not be limited to products that receive GSP+ concessions, he says.

“Buyers could shift en masse to Sri Lanka’s competitors, resulting in trade shifts which would be further detrimental to the interests of our country.”

 There are also concerns of the parallels between the conditions under which tariff concessions are provided to Sri Lanka via EU’s GSP+ and other similar schemes which Sri Lanka currently benefits from.

“If Sri Lanka were to lose GSP+ to the EU, there is high probability of trade concessions to the UK and US coming under review,” he says. “These markets are also vital markets for Sri Lanka’s exports – with US and UK collectively accounting for more than one third (34%) of Sri Lanka’s national exports in 2020.

“The potential loss of the EU’s GSP+ would have far-reaching adverse impacts on many fronts that could trickle down to all sectors of the economy. Export industries and the country’s economy as a whole have taken a heavy blow from the pandemic. The apparel sector too was significantly impacted and is still grappling with many economic shocks. These include order cancellations and reductions, drop in margins, having to provide longer credit periods to buyers, supply chain disruptions and having to work with reduced staff, in adhering to safety protocols.

“Given these challenges, the need for GSP+ is perhaps greater than ever. In this regard, we appreciate the government demonstrating its clear commitment to retaining it. We are optimistic and hopeful that any concerns can be ironed out through constructive engagement.”

But, he says, Sri Lanka’s apparel industry is not entirely reliant on GSP+ concessions indefinitely in the medium to long-term.

“We have put in place concerted initiatives to enhance the sector’s competitiveness. This includes developing strategic (as opposed to transactional) relationships with buyers, upgrading research and development capabilities and increasing innovation, developing branded products and efforts to diversify export markets. These are not mere claims by the sector and have been recognised by buyers and even in publications of the World Bank.

“Retaining our existing preferential trade concessions together with the initiatives underway to enhance the industry’s competitiveness will enable Sri Lanka’s apparel industry to achieve its goal of becoming an $8bn export earner by 2026. This will significantly increase our contribution to the domestic economy in terms of export earnings, employment, technology infusion and investment.

“The industry is fully-committed to this task but requires sufficient stability, especially protection from further economic shocks at present, to achieve this goal.” 

By Just Style