16 April, 2021

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The Current Situation With Europe Post-Brexit

The UK’s departure from the EU has cast a shadow over future trade for many months, with questions about whether a deal could be done. At the final hour, Britain and the EU managed to hammer out a tenuous agreement making the exit far smoother and less disruptive than it could otherwise have been.

Brexit has been a particular concern for Sri Lanka. The UK is an important trading partner for Sri Lanka, and being deprived of this market would have left a significant dent in the economy. The Brexit deal means this is not the case, but there are still concerns about whether the UK will be increasingly turning to other nations for exports.

This means that Sri Lanka must tighten trade links with Europe and develop alternative markets aside from the UK. Here’s a closer look at the current position between Sri Lanka and the EU.

Maintaining Trade With the UK

Although Sri Lanka should be looking to develop its trade links with other countries in Europe, ignoring the UK market would be an expensive move. The UK is the largest export country for Sri Lanka within the EU and its second-largest export region in the world, second only to the US.

Spread betting and tax-free trading in the UK offer notable potential returns for those trading on the financial market, and a change in export status would see commodity prices fall. However, the UK has confirmed that there will be a replacement for the current EU-GSP Plus deal, protecting Sri Lanka from an instant financial loss.

The UK GSP was implemented from 1 January 2021 and will run for Sri Lanka until 31 December 2023, the same date as the EU-GSP Plus was due to expire. This deal provides the same exemptions and preferential tariffs, protecting existing Sri Lankan trade in all its forms.

Other EU Partners

Sri Lanka has been actively pursuing a stronger relationship with the rest of the EU bloc, with meetings held between Brussels and Colombo. Already linked economically, the EU and Sri Lanka are seeking a closer connection for future security.

In 2019, the total value of exports to the EU from Sri Lanka was US$2.2 billion. The largest trading partners in the EU were (in descending order) Germany, Italy, France, Belgium and the Netherlands.

However, Sri Lanka has existing Bilateral Investment Treaties with many EU countries, including Italy, Germany, France, Romania, Sweden, Finland, Denmark, the Netherlands and the Czech Republic. A total of US$90 million Foreign Direct Investment (FDI) was received from the EU, making up 5.6% of the FDI received. This demonstrates the potential to increase capacity and attract greater levels of FDI from more EU member nations.

It’s not just trade deals that are important to Sri Lanka. There are several knowledge and science exchange programs in place, including the education scheme ERASMUS Plus and Horizon 2020, the world’s biggest science research program. The EU has also supported schemes in Sri Lanka, such as the Colomboscope 2019, an avenue for local Sri Lankan artists.

Although Sri Lanka will benefit from continuing to develop its close ties with the EU, it’s not a one-way affair. Denmark, the Netherlands, Poland and Germany currently share military ties with Sri Lanka, and many more are seeking to do so. This would enable them to benefit from the strategic location of Sri Lanka in the Indian Ocean, a position they would otherwise be unable to adopt.

All of this means that although the UK continues to be an essential trading partner for Sri Lanka, there are many opportunities within the EU to develop other links. This is not only desirable but vital, considering the preferential tariffs offered under EU-GSP Plus are due to finish at the end of 2023. Forging stronger links would ensure that Sri Lanka is able to maintain trade without suffering a loss to its economy when the agreement ends.

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