Financial Times

Sri Lankan garment exporters must hang on till 2007 for better market entry chances into the EU with the European Commission (EC) office in Sri Lanka saying last week that the long awaited changes to the rules governing the GSP+ scheme will not come into force this year. The GSP+ scheme is a special trade concession given by the European Union (EU) countries to Sri Lanka. Under the concessionary scheme Sri Lanka can export over 7,000 items to the EU duty free. One of the main export sectors that were to benefit from the GSP+ was the garment export trade as the EU is the second largest buyer of Sri Lankan ready made garments. However, Sri Lanka’s garment trade is finding the concessions difficult to use because of the high domestic value addition requirements. This is mainly because Sri Lanka’s fabric industry does not have the capacity to cater to the export garment industry. As a result most Sri Lankan garment factories import fabric and this effectively cuts them out from the GSP+ benefits.

To help the garment industry Sri Lanka requested the EC to relax its domestic value addition criteria. The EC agreed to consider changing the rules but one year after the GSP+ came into force the rules are still inflexible. “The EC is looking at the rules of origin to see if it can be improved to increase access to the scheme but there are two sides to this,” said Trade and Economic Advisor to the EC delegation in Sri Lanka, Roshan Lyman, speaking at the opening of the World Trade Organisation Reference Centre at the Department of Commerce.

Lyman points out that hasty relaxation of rules of origin by the EC may not ultimately benefit the Sri Lankan economy as it may encourage trade diversion rather than trade creation.

“Relaxing the rules too much may allow other countries, say for example, Chinese companies, to set up factories here (in Sri Lanka) and export to the EU using the GSP+. But Sri Lanka has ratified a number of conventions and standards to be eligible for the scheme. So the benefits must come to Sri Lanka and not to any other country,” explained Lyman.

The EC says the delay in taking time over new rules of origin will pay off in Sri Lanka’s favour in the long run. “I am quite optimistic that by early next year Sri Lanka will have new rules of origin and they will be an improvement on the existing rules of origin,” said Lyman.