By Mahinda Rajapaksa –
The European Union restored GSP+ to Sri Lanka on 19 May 2017. The EU has three GSP schemes. The GSP scheme for the least developed countries with a per capita income below USD 1,025 provides zero duty access to the EU market. The ‘general GSP’ scheme for lower-middle income countries with a per capita income between USD 1,025 and USD 4,035 allows access the EU market on payment of a concessionary import duty. These two EU-GSP schemes have undoubtedly helped many developing countries to build export industries. The EU’s GSP+ scheme allows lower-middle income countries which would normally be charged a concessionary import duty, to enjoy zero duty access to the EU market – but at a heavy price. Applicants for GSP+ must ratify 27 international conventions and place themselves under the political supervision of the EU. As a result, only nine countries including Sri Lanka have joined the GSP+ scheme.
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damage to a country’s political, legal and institutional framework, which is why my government allowed GSP+ to be withdrawn in 2010 without agreeing to the political demands the EU made for the continuation of GSP+ such as instituting war crimes inquiries against our armed forces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. After we lost GSP+ in 2010, we came under the general GSP scheme and our exports were charged a concessionary rate of duty by the EU. Since GSP+ was restored to Sri Lanka last month, the government has said that there will be a boom in exports of everything ranging from fisheries products to apparel and other industrial goods to Europe. Hopes have been generated of foreign investors flocking to Sri Lanka to make use of duty free access to the EU market. The government keeps telling the people that our entire future can be built upon GSP+. However, it should be understood that GSP+ offers only temporary economic benefits.
The EU’s GSP schemes are governed by Regulation No: 978/2012 of the European Parliament and the Council of 25 October 2012. A country can benefit from GSP+ only so long as it is a lower-middle income country with a per capita income less than USD 4,035. Upper-middle income countries above that threshold are not entitled to any EU-GSP scheme at all, and goods from such countries are charged the full import duty by the EU. Sri Lanka’s per capita income was USD 3,843 in 2015 and USD 3,835 in 2016 which means that we are just USD 200 away from the threshold of USD 4,035 which will make us ineligible for any kind of EU-GSP scheme. How close are to that threshold can be gauged from the fact that during my nine years in office, our per capita income grew by an average of USD 286 per year. After Sri Lanka reaches the USD 4,035 mark in a particular year, we will be under observation for a further two years and then given a grace period of about one year before being taken out of all EU-GSP schemes.
Georgia, which used to be a GSP+ recipient, crossed the USD 4,035 threshold and was declared ineligible for both the general GSP and GSP+ schemes by the EU with effect from 1 January 2017 by EU Commission Delegated Regulation No: 2015/1979 of 28 August 2015. The EU-GSP schemes were always designed to take a country gradually from zero duty to paying a concessionary duty and later to paying the full duty. Zero duty access or concessionary duty access under the EU’s GSP schemes was never meant to be perpetual. Countries lose GSP concessions as their economies grow. At times such concessions can be withdrawn by the donor countries for other reasons as well. In 2005, the quota system for apparel imports into the USA which countries like Sri Lanka relied on heavily, was abolished. Yet our apparel exports to the USA continued to grow. Our export industries have certain marketable strengths such as the absence of child labour, adherence to high environmental standards and comparatively good working conditions for employees. Buyers can thus rely on getting an untainted product from Sri Lanka.
Since we are very close to the USD 4,035 per capita threshold, we should prepare for a future without any GSP concessions from the EU, by building on the strengths we already have. Ironically, the transition to a future where we will have to pay the full import duty to the EU would have been easier if we had simply remained within the ‘general GSP’ scheme paying a concessionary duty until we cross the USD 4,035 mark. It should be borne in mind that because GSP+ was restored to Sri Lanka, once we cross the USD 4,035 mark, we will have to make a sudden transition from enjoying zero duty status to paying the full import duty. The government should inform the people and the export industries that we are on the verge of losing not only the recently restored GSP+ but the ‘general GSP’ concession that we had since 2010 as well.
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 modernize factories, tax incentives for expansion, upgrading the skills of the labour force may be some of the measures needed to facilitate this transition. It is hoped the government will give due consideration to these matters.