26 October, 2020

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Post-Brexit Opportunities: Prospects For Strengthened Ties Between Sri Lanka & The European Union 

By Udeshika Jayasekara

Udeshika Jayasekara

The United Kingdom (UK) formally left the European Union (EU) on 31st January 2020 and is now in a transition period till 31 December 2020 during which certain agreements such as trade and freedom of movement with the remaining EU27 (henceforth EU) are discussed and finalized. The EU and the United Kingdom are important economic and diplomatic partners of Sri Lanka. Four years on from the Brexit referendum, the future relationship between the UK and EU however remains unclear. It is therefore of strategic importance for Sri Lanka to tap into the opportunities presented through the re-alignment of economic and diplomatic relationships in Europe and to develop a stronger relationship with the remaining EU member countries.

This blog aims to give an overview of Sri Lanka’s relations with the EU in the post-Brexit period and to identify how Sri Lanka can going forward strengthen ties with the EU. First, this blog identifies the current economic ties with the EU and secondly analyses why Sri Lanka can benefit from deeper linkages with the EU. Thirdly, it highlights policy initiatives to further links with the EU.

Current Relations Between Sri Lanka and the EU

Diplomatic ties between the EU and Sri Lanka have grown closer during the last few years, with high-level institutional dialogues having taken place regularly between Colombo and Brussels. The EU-Sri Lanka Joint Commission seeks to build an equal partnership between the EU and Sri Lanka by discussing bilateral and multilateral matters such as economic and development cooperation. 

Germany, Poland, the Netherlands, and Denmark are currently sharing military ties with the Sri Lankan Army. In the post Brexit period, most of the EU member countries have already announced to strengthen military ties with Sri Lanka to secure their spot in the Indian Ocean and to benefit from Sri Lanka’s strategic position. 

The EU and Sri Lanka are closely interlinked economically. Said economic ties however leave room for deeper integration. Sri Lanka alongside other developing countries has historically benefited from the EU’s Generalized Scheme of Preferences (GSP) since its inception in the 1970s. This scheme reduces import duties from products entering the EU market in exchange for Sri Lanka abiding by international values and principles, including labor and human rights[1]. In 2010 Sri Lanka lost access to the GSP+ scheme due to the non-effective implementation of the UN human rights conventions but regained access in 2017[2].  

The EU is by far the biggest export market for Sri Lanka. In 2019, the country exported goods worth USD 2.2bn to the region (22% of total exports to the world) and imported goods worth USD 1.7bn from the EU (8% of total imports from the world). Out of the EU member countries, Sri Lanka boasts a trade surplus with 17 member countries. In terms of total trade, Sri Lanka’s largest EU trading partners are Germany (25%), Italy (23%), France (13%), Belgium (10%) and the Netherlands (7%)[3]. 

Sri Lanka shares Bilateral Investment Treaties (BITs) with a variety of EU[4] countries including France, Germany, Denmark, Finland, Sweden, Czechia, the Netherlands, Romania and Italy. In 2018, Sri Lanka received US$ 90 million Foreign Direct Investment (FDI) from the EU, accounting for 5.6% of total FDI received. In comparison, India and China accounted for a 65% share respectively; highlighting Sri Lanka’s potential to attract additional FDI from EU member countries[5].

Tourism has long been an important element of Sri Lanka’s economy, delivering substantial foreign exchange and employment opportunities for the country. Sri Lanka received roughly 712,600 tourist arrivals from the Europe in 2018 (50.8% of total tourist arrivals), with Germany being the largest source market with 6.7% of total tourist arrivals[6]. About 300 Sri Lankans have immigrated to Europe in 2017, with the majority being “skilled” workers.

In terms of knowledge exchange and cooperation, the EU and Sri Lanka engage through a variety of science and education exchange programs such as ‘Horizon 2020’, the largest science and research program in the world; the ‘Erasmus Plus’ exchange program and other capacity building programs. What is more, Sri Lankans have been awarded a series of EU scholarships and the EU has supported ‘Colombo scope 2019’, a platform for local artists in Sri Lanka.

Over time, the EU has provided important development and humanitarian assistance to Sri Lanka. As such, EUR 40 million are provided to finance the capacity development of local authorities, EUR 30 million are granted to strengthen poor communities and develop, EUR 30 million is allocated for the modernization of the agriculture sector, whilst another EUR 15 million is provided for building institutional capacities and reducing language barriers to strengthen reconciliation efforts during the post Brexit period. In addition, the European Investment Bank (EIB) allocated EUR 50 million to improve and expand sewage networks in Colombo[7]. Against the COVID-19 outbreak and its significant health economic and social impact on Sri Lanka, the EU has provided a EUR 22 million grant to the country[8].

Why Should Sri Lanka Strengthen Ties with the EU?

The EU is the largest economy in the world, comprising 27-member states with diverse cultures, economies, and societies. It is the world’s largest trading bloc and leading trader of manufactured goods and services[9]. Further, the EU is one of the most open economies in the world and remains committed to free trade, with the average applied tariff for imported goods being comparatively low relative to other federations (e.g. NAFTA, MEROCSUR, ASEAN.)[10], emphasizing Sri Lanka’s opportunity to benefit from deeper economic integration with the EU. Sri Lanka can also benefit from the EU’s globally recognized standing as a science and knowledge hub and collaborate with the EU through targeted exchange programs. Other areas for cooperation comprise trade related assistance projects and financial aids programs.

Strengthening Ties with the EU

In order to strengthen ties with the EU, it is important to increase Sri Lanka’s presence in the region by adding to the already established 11 permanent diplomatic missions in the EU. These missions should engage in Sri Lanka’s Economic Diplomacy program and have access to personnel with good business knowledge, soft skills and fluency in prominent European languages such as German, Italian, Spanish and French. Currently, linguistic differences between Sri Lanka and EU countries impede bilateral commercial ties. Therefore, it is essential to develop language capacity and cultural awareness in Sri Lanka by providing specific training to students.

To enter and remain competitive in the European market, Sri Lanka needs to transform into a financial, technological, and economic hub in the Indian Ocean. To do so, Sri Lanka needs to improve the business environment for investments, encourage innovation, produce high-quality goods, move towards sustainable production concepts, improve the quality of infrastructure services in the country, and enhance the efficiency of cross-border procedures.

Designing and implementing a coherent trade strategy alongside promoting the National Export Strategy (NES) industries will help Sri Lanka strengthen its economic linkages with the EU.  NES seeks to improve firms’ abilities to export and compete in foreign markets, empowering the emergence of new export industries and services beyond the traditional export industries of apparel, tea, gems and rubber. 

Sri Lankan companies should move forward by implementing sustainable production concepts such as green production and organic production. Sri Lanka should produce high quality products, whilst following ethical practices. Small and Medium Enterprises need to be encouraged to work more efficiently[11]. Moreover, Sri Lanka should address infrastructure deficiencies with regards to roads, air travel, and marine transportation. 

Further, Sri Lanka loses GSP+ scheme access in 2023, increasing the relative prices of Sri Lankan exports to the EU. Therefore Sri Lanka needs to make sure that preferential rates are provided post 2023. 

Additionally, and to boost inbound tourism, Sri Lanka should develop better air connectivity and promote the island as a favorable tourist destination. 

Conclusion

Brexit and the spread of COVID-19 trigger countries to rethink their current linkages with other partners in the world. The EU is one of Sri Lanka’s major and longstanding development partners. Sri Lanka has the potential to leverage on its existing ties with EU nations for deeper integration, also helping the island country to navigate the uncertainties associated with the global COVID-19 pandemic. Additionally, Sri Lanka should also seek to extend ties to non-EU member countries such as Norway and Switzerland to diversify its economic and diplomatic ties, thereby spreading systemic risk. In this regard, a well-coordinated approach and policy directive is required by the Sri Lankan government and associated authorities.

[1] European Commission. (2020). Generalized Scheme of Preferences (GSP). [Online] Available at: https://ec.europa.eu/trade/policy/countries-and-regions/development/generalised-scheme-of-preferences/ [Accessed 30 June 2020].

[2] Julin, A. (2019) EU-Sri Lanka Trade Relations – eccsl. [Online] Available at:  http://www.eccsl.lk/sites/default/files/Presentation%20EUSri%20Lanka%20Trade%20relations%20-%20Andreas%20Julin%20DG%20Trade%20European%20Commssion.pdf [Accessed 20 April 2020].

[3] International Money Fund. (2020).  Direction of Trade Statistics – IMF Data. [Online] Available at:  https://data.imf.org/?sk=9D6028D4-F14A-464C-A2F2-59B2CD424B85 [Accessed 12 April 2020].

[4] This includes investments from the Netherlands, Italy, Austria, Sweden, Belgium, Germany and France.

[5] Board of Investment of Sri Lanka. (2019). Foreign Direct Investments (FDI) Inflows – Country-wise Breakdown [Online] Available at: https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2019/en/15_Appendix.pdf [Accessed 01 July 2020].

[6] Sri Lanka Tourism Development Authority (2019). Annual-statistical-report. [Online] Available at: https://sltda.gov.lk/storage/documents/0cb228cd03762f638bd515fe83edd453.pdf [Accessed 16 April 2020].

[7]  European Commission. (2020). EU – Sri Lanka development cooperation. [Online] Available at: https://ec.europa.eu/commission/presscorner/detail/de/MEMO_16_810 [Accessed 20 April 2020].

[8] European Commission. (2020). Covid-19: European Union provides EUR 22 million grant to Sri Lanka. [Online] Available at: https://eeas.europa.eu/delegations/sri-lanka/77364/covid-19-european-union-provides-eur-22-million-grant-sri-lanka_en [Accessed 30 June 2020].

[9] European Commission. (2019). EU position in world trade – Trade – European Commission. [Online] Available at: https://ec.europa.eu/trade/policy/eu-position-in-world-trade/ [Accessed 11 April 2020].

[10] Gowland, D. (2016). Britain and the European Union. Abingdon, United Kingdom: Taylor & Francis.

[11] Samarawickrama, M. (2017). EU – Sri Lanka trade partnership – Is there scope for further expansion?. The Island. [Online] Available at: http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=168567  [Accessed 02 July 2020].

*Udeshika Jayasekara is a Research Assistant at the Institute of National Security Studies Sri Lanka (INSSSL), national think tank under the Ministry of Defence. The opinion expressed is her own and not necessarily reflective of the institute. This article was originally published by Lakshman Kadirgamar Institute.

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Latest comments

  • 2
    0

    BREXIT is UK exiting the EU
    EU is still EU? and there are no changes to the trade agreement with EU for any countries let alone Sri Lanka.
    The trade agreement with UK that will be impacted by BREXIT. Sri Lanka should be focussing on that

    am I stupid or is the author typed for the sake of typing?

    • 1
      1

      Yes, an article poor in substance!

  • 0
    0

    I don’t know whether this article is for the benefit of govt. propaganda but her version of SL being able to capitalise from Brexit, as implied by her article, doesn’t hold water . In the event of a ‘no deal Brexit’, there will be tariffs on both sides on imports from each other but what can SL export to these countries to undercut the increased cost of newly tariffed products? Certainly, at least, UK, whose biggest trading partner is Europe, will be looking for new markets but the focus will be for British products. On the other hand, can SL compete with India, China, Vietnam, Thailand, Bangladesh & other such countries on agricultural & low value consumer goods? Even the bulk of tea now imported to Europe are from Africa, India & China.
    Considering the human rights allegations, European relations with SL have not been favourable. The British High Commission was downgraded under MR & the Rajapakse regime has shown 2 fingers to the UN & the Western World. Last time when MR & his entourage visited London, the British police refused to provide special security in the wake of Tamil protests & the only UK politician to pay a friendly (non official) visit was Liam Fox, who has visited SL unofficially on the invitation of MR a couple of times.

    • 1
      0

      Dear Raj-UK

      “propoganda” ??? realy????

      In the Brexit it is mostly the Indians who voted consistently for “leave” given the edge for breast disaster?? the what’s app circulation yet to be discussed in public in the UK to date??

      you want to through a cold water over this article regards to opportunities for the betterment of SL’s?? does not matter who they trade with??

      Do you think SL should be the extension the Singapore/Malaysian/Indian traders where it is them who are doing all the trading in SL goods bypassing the SL because they are too busy killing each other….times are changing…………

      • 1
        0

        Mr Venugopal

        The final paragraph of my comment has been omitted, presumably due to exceeding the word count. The point I was raising was that SL’s foreign policy under the Rajapakse regime has always been anti Western, therefore, support is unlikely, apart from the general policy of ‘third world aid’. Even travel companies & most tourists from developed countries support environmental sustainability & fair distribution of wealth among citizen from tourist income. In this light, SL is at a disadvantage when it comes to trade with Europe & direct investment, unless the Govt. comes up with a more pro European foreign policy. Therefore, I can’t see the purpose of this article as it is the govt. who should take the initiative to lay the groundwork.
        By the way, Brexit was all about Europeans coming over to UK. It was fear mongering that all asylum seekers from Europe will end up in UK. Some Indians thought that by ‘levelling the playing field’, with a point system, Indians will have a better opportunity to settle down in UK

  • 2
    1

    Gota’s hands are tied by China and India. That’s the bottom line. Sri Lanka exploring opportunities with EU and UK is subject to these two bullies’ whims.

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