Blog: Leonie BarrieAt last a decision on Sri Lanka’s GSP+

Leonie Barrie | 18 December 2009

Having lived for the past couple of months with the threat of the EU’s withdrawal of its GSP+ trade benefits, at least Sri Lanka’s apparel makers now know where they stand.

While the decision may not have been the one they hoped for, some degree of uncertainty has at least been lifted after the EC this week made the – not entirely unexpected – recommendation to take away the country’s duty-free concessions.

The judgement was in retaliation for alleged human rights abuses during the final stages of Sri Lanka’s civil war, but was also exacerbated by the government’s stubborn refusal to cooperate with the Commission’s subsequent investigation.

The decision will clearly come as a blow to the local industry. Apparel exporters have already admitted that business has moved away from the Indian Ocean island on the basis of uncertainty alone, while international buyers who continue to source there are asking local factories to absorb the cost of the new duties at a time when margins are already wafer-thin.

Some estimates suggest this could amount to tens of millions of euros, since most garments will revert back to 9.6% duties when landed in Europe.

But it is not all doom and gloom. Sri Lanka’s strengths lie in garments like bras, on which the EU will charge duty of just 5.2%. And around a third of the garments it sends to Europe don’t qualify for duty-free entry at all.

The EU won’t remove GSP+ duty-free concessions until June 2010 at the earliest – so no garments currently in production or under negotiation will have their duty concession withdrawn.

And there’s even a slim chance that the EU Member Council, which has two months to vote on the EC’s proposal, might decide to throw the recommendation out after all.

Intriguingly, the wording of the EC’s decision document also stresses the “temporary” nature of the withdrawal. Which seems to offer a glimmer of hope that the decision might even be reviewed at some point in the current beneficiary period, which runs until 31 December 2011.

And according to local reports the Sri Lankan authorities have indicated their willingness to cooperate with the EU on retaining the scheme.

Which begs the question: why didn’t they agree to this in the first place to avoid all the subsequent heartache? Maybe fears ahead of the presidential elections on 26 January were the catalyst that’s needed.

INSIGHT: EU to continue GSP+ dialogue with Sri Lanka


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