GSP+ haunts us again
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Despite an independent tracking system showing business confidence has improved (possibly because the number of COVID-19 cases has reduced and the vaccine programme is on schedule), the government is faced with a plethora of issues.Farmers are screaming for fertiliser, consumers are complaining because they have to join queues for milk powder and gas while importers are struggling with an acute shortage of foreign currency.
Top of the list this week on the menu of never-ending problems were two issues – the foreign exchange crisis and the September 27-October 5 visit by a European Union delegation examining whether Sri Lanka has kept its side of the bargain in the disbursement of GSP+ concessions. The visit follows a June 2021 resolution by the European Parliament to examine whether GSP+ concessions should be withdrawn over concerns that human rights violations were taking place.
Writing this column on Thursday morning, while watching the antics of the trio in conversation under the margosa tree, the foreign exchange crisis is likely to be partly or fully resolved on Friday morning when Central Bank Governor Ajith Nivard Cabraal unveils a 6-month roadmap to address macroeconomic issues including the shortage of foreign currency.
The threat of losing GSP+ concessions is something the government needs to be seriously worried about since the last time they were suspended in February 2010, small and medium (SME) scale garment exporters were the ones who suffered the most, losing orders and retrenching workers, unlike bigger firms such as MAS Holdings, Brandix or Hirdaramanis which were able to ride out the crisis since they were in niche markets.
While the economy was recovering at that time from mid-2009 after the end of a prolonged conflict and a pickup in tourism and investments, this time the situation would be worse as any reversal in trade benefits would be a double whammy for SMEs which are already struggling for survival owing to the COVID-19 impact on businesses.
As I was reflecting on GSP+ while sipping tea, the phone rang. It was, surprisingly, a long-distance call from ‘Dosai Danny’, my verti-clad friend from Trincomalee. “Hello, hello,” I said in my most welcoming tone.
“Fine, fine,” he said, pleasantly, adding: “I was interested in the visit of the EU delegation on the GSP+ issue. Will we survive the probe?”
“To my knowledge, I think we would since the opposition and trade unions appear to be in agreement that it is important for the GSP+ concessions to continue with, of course, assurances from the government that the EU’s concerns would be addressed favourably,” I said.
“So this would be one of the few occasions when the government and the opposition are thinking alike, which is a good move,” he said.
“Absolutely. It would be disastrous if we were to lose these concessions,” I said, discussing many other issues with ‘Dosai Danny’ before ending the conversation.
Before I could go back to writing my column, I was drawn by laughter under the margosa tree. The trio could be heard listening to a Sunil Perera (Gypsies’) tune, popular these days on social media platforms just like Yohani’s ‘Manike Mage Hithe’.
“Me sindu hondai me davas wala thiyena karadara walin tikak midenna (These songs are good to relax when there are many problems these days),” said Kussi Amma Sera.
“Ow, haal mila naginawa. Kiri piti walata diga polim thiyenawa. Mekath, paan hinge wage 1970-we thibba (Yes, rice prices are rising and there are queues for milk powder. This is just like the 1970s bread shortage period),” said Mabel Rasthiyadu. Adding to the concerns, Serapina said: “Langadima, godak ahara wala mila wedi wei. Aanduwata haal mudalali-kattiya-wa palanaya karanna be, egollo ona ona mila-wal danawa (Very soon many food items will go up in price. The government has no control over the rice mudalalis who are fixing their own prices).”
While the government is desperately showing it won’t wilt under any international pressure vis-à-vis the removal of trade concessions, it has promised to amend the Prevention of Terrorism Act while the President’s recent statement reaching out to the Sri Lankan diaspora to address concerns on reconciliation, are conciliatory gestures to placate the EU.
However, there are mounting problems. Opposition parties and trade unions are fuming over the curtailment of freedom of expression and arrests of strikers, political opponents and lately, the targeting of journalists. Trade unions, in particular unions representing the education sector, are concerned over some of their members being detained. The continuous detention of human rights lawyers, artistes and politicians was also discussed with the visiting EU delegation.
When the GSP+ concessions were restored on May 19, 2017, then opposition leader Mahinda Rajapaksa said in a statement that fulfilling the conditions to qualify for GSP+ could cause permanent damage to a country’s political, legal and institutional framework, which is “why my government allowed GSP+ to be withdrawn in 2010 without agreeing to the political demands the EU made for the continuation of GSP+ such as instituting war crimes inquiries against our armed forces and greater devolution of power”.
He further said: “The government should not create unrealistic expectations about GSP+ among the public. Programmes should be started to help businesses prepare for the inevitable transition to a future without any EU trade concessions, through the diversification of products and markets. Providing low interest capital to modernise factories, tax incentives for expansion, upgrading the skills of the labour force may be some of the measures needed to facilitate this transition.”
The former opposition leader and current Prime Minister was correct on the last point that Sri Lanka should be prepared for a future without such concessions. However, governments and the industry have so far failed to prepare for such a transition.
Remember it is not only garments that would suffer from a withdrawal of GSP+ concessions. Seafood and added-value rubber exports would also be affected.
According to a recent analysis by the Institute of Policy Studies (IPS), the EU is the largest single trading bloc, with the UK, accounting for 30 percent of Sri Lanka’s exports to the EU which could fall by US$627 million if the concessions are withdrawn. “As seafood, rubber products and footwear sectors utilise more than 90 percent of GSP+ benefits, those sectors will be more vulnerable to the shock,” IPS said.
At this point, in walked Kussi Amma Sera with my second mug of tea, saying “Manike Mage Hithe, lassana sinduwak neda (Manike Mage Hithe is a nice song).” I nodded, reflecting on the fact that it is imperative that both sides – the government and the EU – meet at least midway in their bargaining positions to ensure that the concessions continue as a loss would be a severe blow to Sri Lanka’s economy.