GSP+ duty free benefits not lost yet –EC

By Dilshani Samaraweera

The European Commission (EC), amidst a growing debate in the media and political circles over the GSP+ being linked to human rights violations, repeated its assertion – as has been the case in recent months - that no decision has been reached on this scheme and that there is no reason to assume Sri Lanka would be disqualified from the preferential trade scheme by the end of the year.

“There seems to be an impression that the loss of the GSP+ is a done deal. I want to emphasise that nothing is further from the truth. There has been no decision made yet. The review, which is a technical procedure, takes place in the fourth quarter of this year,” said the Head of Operations of the Delegation of the European Commission to Sri Lanka and the Maldives, Peter Maher, earlier this week. Maher was addressing businesses at a seminar organised by the Sri Lanka-Poland Business Council.

A new element also entered the debate with the Commerce Department warning that even if the GSP+ scheme were to be extended, benefits to Sri Lanka could reduce, if the EU implements some proposed changes to the rules of the GSP scheme. This is largely due to a proposal that calls for high domestic value addition from textile products.

The GSP+, preferential trade scheme from the EU allows Sri Lanka to export 7,200 items duty free into the EU and is credited with helping to boost Sri Lankan exports. The scheme is to be reviewed this year for its extension for another three years. Sri Lanka was awarded the GSP+ on the basis of ratifying 27 international conventions on core human rights, labour rights and environmental standards. Given the increasing allegations of human rights violations in the island, there is now growing concern that the scheme may not be extended after the end of this year.

The EC office maintains that the continuation of the GSP+ scheme depends on the implementation of the 27 conventions, but says it does not expect “absolute compliance.” “No one expects absolute compliance. This would be unfair but we need to be clear that there would be an objective assessment on the implementation of these conventions,” said Maher. The conventions in question are not limited to those on human rights. Eight out of the 27 conventions are International Labour Organisation (ILO) conventions to ensure rights of workers.

The Commerce Department says that even before getting the GSP+, Sri Lanka qualified for extra duty cuts, to export to the EU, because of comparatively good labour standards, for a developing country. “Sri Lanka will have to submit a fresh application for the GSP+ by October 31, 2008, providing comprehensive information on the ratification of the 27 conventions. The EC will then examine if these conventions have been adequately implemented with the required laws,” said Maher. The GSP+ review will also consider the findings of international organisations on the implementation of the 27 conventions. The conventions themselves are directly under the United Nations and the ILO.

“The findings of international organisations will also be taken into account. Out of the 27 conventions, eight are ILO conventions on labour rights,” said Maher. One convention that was disputed regarding its effective implementation was the International Covenant on Civil and Political Rights (ICCPR). However, the Supreme Court recently determined that the constitution of the country and the decisions of the Supreme Court gave adequate recognition to the civil and political rights contained in the ICCPR. The court also held that the rights recognised in the Covenant are ‘justiciable’ through legal and constitutional processes prevailing in the country.

“The EU has concerns on the withdrawal of the International Independent Group of Eminent Persons and UN statements and the implementation of certain conventions. However, on the ICCPR, some clarifications were made by the Supreme Court, which of course will be taken into consideration,” said Maher. The list of countries that qualify for the GSP+ scheme from 2009 to 2011 will be announced by mid-December 2008. The EC office says ‘the ball is in the government’s court’ to make sure the country retains the GSP+ for another three years. In Sri Lanka the main export sector using the GSP+ is the garment sector.

However, local garment manufacturers are heavily import dependent. So the Commerce Department pointed out that the high domestic value addition requirement for textile products (50% -60%), if implemented by the EU, could disqualify most garment exporters from using the GSP+, even if the scheme were to be extended. The department pointed out that if implanted, the new rules could divert export orders from Sri Lanka towards least developed countries (LDCs) in the region, like Bangladesh. Already Sri Lankan garment exporters are facing stiff competition from lower cost production from Bangladesh.

“For textile products, they have proposed 50% - 60% domestic value addition for Sri Lanka, but 30% domestic value addition for LDCs. The LDCs are not required to undertake any obligations for this, but Sri Lanka must undertake obligations in the form of implementing 27 conventions. So this could result in trade diversion towards LDCs,” explained Sonali Wijeratne, Deputy Director, Department of Commerce.

Plastics and ceramics exporters may also face problems if the proposed rules of origin are implemented, as they too are expected to meet a 50% domestic value addition criterion. To increase benefits from the GSP+ Sri Lanka is asking that the domestic value addition requirement be reduced to 30%. Sri Lanka is also asking that cross regional cumulation be allowed, to enable Sri Lanka exporters to source inputs from both the SAARC and ASEAN regions and still be able to use the GSP+. Currently only inputs from the SAARC region qualify for GSP+ concessions.