The Sri Lankan office of the European Commission (EC) said on Friday (21 July) that changes to GSP+ rules will come into force sometime in 2007 and not this year.

Sri Lanka has been asking the EC for rules of origin relaxation, as most Sri Lankan garment exporters cannot use the GSP+ scheme due to the stringent rules.

The EC agreed to consider the request but one year after the GSP+ came into force the rules are still inflexible.

The EC said hasty relaxation of rules of origin may lead to trade diversion rather than trade creation, with benefits leaking to other countries instead of the Sri Lanka.

"Relaxing the rules too much may allow for example, Chinese companies, to set up factories here (in Sri Lanka) and export to the EU using the GSP+," explained the Trade and Economic Advisor to the EC Delegation in Sri Lanka, Roshan Lyman, speaking at a trade event at the Department of Commerce on Friday.

"As Sri Lanka has ratified a number of conventions to be eligible for the GSP+ scheme, the benefits must come to Sri Lanka and not to any other country," said Lyman.

One-and-a-half years after quota removal, Sri Lanka's garment trade is being strangled by price competition and escalating domestic costs.

As the EU is the island's second-largest export market, favourable rules of origin would help sustain the industry but the EC says changes can only be expected next year. 

"I am quite optimistic that by early next year Sri Lanka will have new rules of origin and they would be an improvement on the existing ones," said Lyman.

The EC also says expiry of the current GSP+ scheme in 2008 should not be a worry as it can be extended by another 3 years.

By Dilshani Samaraweera.