Sri Lanka’s GSP+ advantages running out of time

Sri Lankan businesses are being urged to make maximum use of the European Union’s GSP+ benefits in the face of a looming trade agreement between the EU and India.

Currently many Sri Lankan exports enjoy highly favourable access into the EU through the GSP+ scheme. However, competition in EU markets is set to increase.

Last week the European Commission (EC) announced preliminaries for trade talks with not just India but also other Asian countries targeting goods, services and investments.

“The European Commission has welcomed the formal adoption by European Member States of negotiating mandates for a new generation of Free Trade Agreements with India, South Korea and ASEAN,” said an EC press release.

Through the India-EU agreement, the EU is hoping to export more manufactured goods, especially vehicles, into India. “Europe's vehicle exports to India are expected to increase by 700% - worth 1.8 billion euros,” it said.

India is looking to increase exports of agricultural goods and manufactured products into the EU. India is also hoping to increase benefits for its garments and textile exports.

“The Commerce Secretary of India declared a Comprehensive Partnership Agreement with the EU a few months back. The main purpose is market access into the EU. This is both agricultural goods and NAMA (Non Agricultural Market Access), including garments and textile,” said Counsellor (Economic and Commerce), Indian High Commission in Colombo, Sunjay Sudhir. In Sri Lanka, the biggest beneficiary of the EU’s GSP+ scheme is the garment export industry. However, at this point, the impact on the garment industry from the impending India-EU agreement, is uncertain.

“Impact on garment exports would depend on what concessions the EU is willing to give India, because the EU is very sensitive about ready made garments. Anyway, over the next 2 years or so, until the agreement is finalised, there is time. Also under a bilateral agreement it will not immediately be duty free access. It will be a gradual reduction of tariffs. We will still have time to use the GSP+ during this period. So we must make maximum use of the GSP+ now,” said Executive Director, Institute of Policy Studies, Dr Saman Kelegama.

However, outside of impacts on exports, a bilateral agreement between India and the EU could reduce Sri Lanka’s GSP+ advantages in other ways as well. For instance, by diverting foreign investments.

“Some Indian investors have come to Sri Lanka to use the GSP+. The moment this deal is worked out with the EU, there will be no need for them to come here. In that sense there will be an impact on investments into Sri Lanka. So we must use the GSP+ now, to attract Indian investments. Our entrepreneurs must also work out how to increase GSP+ usage despite the rules of origin issues,” said Kelegama.

However, outside the garment sector, local businesses for the most part have been slow to use the GSP+. “Our businesses are still not exploiting the GSP+ to the extent it should be. One reason could be lack of awareness, especially outside Colombo. Another problem is the small scale of our small and medium businesses. They can’t break into a market like the EU with such small production levels. It requires marketing as well. Except for the garment industry, the other sectors are also not very well organised. In general, companies that are doing well have foreign collaboration for technology and marketing,” said Chairman, Exporters Association of Sri Lanka, Mohan Mendis.