Business Times

GSP+ reversal: Exporters worried about mid-to-long-term impacts

By Dilshani Samaraweera

Exporters are worried about the impact of GSP+ suspension over the mid-to-long-term. They point out that export orders for many products must be obtained 6-months to 1-year ahead. These orders are directly affected by the uncertainty of the GSP+ not being available by the time of export.

This week, the European Commission (EC) recommended ‘temporary suspension’ of the GSP+ trade scheme that allows Sri Lanka to export about 6,000 items duty free into the European Union. However, the Head of Delegation of the EU to Sri Lanka, Ambassador, Bernard Savage, speaking at a press conference on the Lisbon Treaty, this week, said that the GSP+ will be available for local exporters for another 6- 8 months, until the suspension order is enforced. But exporters are worried about what happens after that period.

“The GSP+ will be available for at least another 6 months, but our concern is for the longer-term. For some products we have to get orders 6-months to 1-year ahead. So buyers will start looking for other countries to buy from, because they are not sure of the GSP+ being available that far ahead,” explained the Vice President of the Exporters Association of Sri Lanka, Lasantha Wickremasekara.

The worst affected by the GSP+ uncertainty is the apparel export sector that accounts for the biggest share of exports to the EU and the biggest share of exports using the GSP+. Other sectors like fruit and vegetables, fish, footwear and ceramic exports are also impacted, but at much lower level.

However, most export sectors using the GSP+, including apparel exports, have already locked-in their orders at least for the first part of 2010. The uncertainty applies to the latter part of 2010 and later. Apparel exporters say that already some international buyers of Sri Lankan garments are asking local factories to absorb the loss of the GSP+.

“Buyers start planning their sourcing about one year ahead. So some buyers have already asked our factories to absorb the additional duty cost, but some have agreed to spilt it, so that both parties will absorb the added duty cost. Either way, this is going to very difficult for our companies to do because they are not operating with large profit margins, especially the SMEs,” said the Secretary General of the Joint Apparel Association Forum, Rohan Masakorala.

Exporters noted that the loss of the GSP+ would impact future export growth. For instance, the footwear sector, which has been identified as a ‘thrust industry’ by the government, was looking at increasing exports into the EU using the GSP+.

“Our footwear exports to the EU are negligible at the moment. So if we lose the GSP+, most footwear companies will not be directly affected, because anyway they are not exporting anything much to the EU. But we are hoping to increase exports to the EU in the future. So future export growth can be badly affected, if the GSP+ is not there,” said the President of the Footwear Association of Sri Lanka, Sarath Perera.

Number game
The Central Bank maintains that Sri Lankan exporters do not need to depend on the GSP+ to get export orders, because operating costs are reducing in the country and the rupee has depreciated against the Euro and the Sterling Pound.

However, exporters as a whole, are not buying this argument. They maintain that costs are still lower in many other competitor countries in Asia. Exporters also noted that without the GSP+, to offer goods at the same price with duties factored in, local manufacturers will have to reduce their selling prices. Reducing selling prices, say exporters, will reduce incomes for the country. Retaining the GSP+ on the other hand, will increase exports and will also allow local exporters to sell at reasonable prices according to local production costs.

Working it out
Meanwhile, the EU Delegation in Sri Lanka, and the EC in Brussels,
have maintained that they are willing to work with the government to address the causes of GSP+ suspension. According to the applicable laws, the EU member countries can re-establish the GSP+ for Sri Lanka, if the reasons for temporary withdrawal are removed. EU officials say these causes can be addressed over the next few months, before the suspension order comes into force.

“We are talking of a period of 6 – 8 months when the GSP+ benefits will not be withdrawn. During this period we will pursue a dialogue with the government to allow the Commission to review its decision to suspend the GSP+, before, the suspension comes into force,” said the Head of Delegation of the EU to Sri Lanka, Ambassador, Bernard Savage, speaking at a press conference on the Lisbon Treaty. While there is no official word from the government at this point, the government has indicated willingness to cooperate with the EU on retaining the GSP+ scheme.

Last week addressing a room full of businessmen, at the Best Corporate Citizen Award ceremony, of the Ceylon Chamber of Commerce, the Minister of Disaster Management and Human Rights, Mahinda Samarasinghe, said the government is developing an Action Plan for Protection of Human Rights. The Action Plan is due to be made public soon. The Minister said the Action Plan on human rights is also expected to help retain the GSP+ trade scheme.

Temporary suspension
The EC says its recommendation this week to temporarily suspend the GSP+ scheme is a result of its investigation findings on Sri Lanka. "The Commission completed a thorough investigation into the human rights situation in Sri Lanka and in particular whether Sri Lanka is living up to the commitments it made to respect international human rights standards when it became a beneficiary of th European Union’s GSP+ trade incentive scheme which provides for additional trade benefits,” said the EC in statement.

“The report came to the conclusion that there are significant shortcomings in this area and that Sri Lanka is in breach of its GSP+ commitments,” said the EC. The shortcomings noted by the EC are in the implementation of the International Covenant on Civil and Political Rights (ICCPR), the Convention against Torture (CAT) and the Convention on the Rights of the Child (CRC). The EC says their findings indicate that Sri Lanka is not effectively implementing these Conventions.

However, the EC also says that its investigation has relied heavily on third party reports and not direct findings. “The investigation has relied heavily on reports and statements by UN Special Rapporteurs and Representatives, other UN bodies and reputable human rights NGOs,” said the statement. The government in response to the EC investigation report said the investigation was biased and the findings inaccurate.

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