Sri Lanka losses GSP Plus

The member states of the European Union decided on Tuesday, February 16, to suspend trade concessions under the Generalised System of Preferences Plus (GSP +) for Sri Lanka because of violations of human-rights agreements.

The announcement will trigger suspension only after 6 months from that date, providing "Colombo a fair opportunity to get the decision reversed," and preferences could still be reinstated if, at the European Commission's suggestion, a qualified majority of member states so chose according to European media.

"We will look to work with Sri Lanka to identify concerted steps and actions which could help us to plot the course together that would enable Sri Lanka to regain GSP+," a EU diplomat is reported to have said.

Sri Lanka gains about 150 million dollars annually due to preferential tariffs, according to trade estimates. The island's clothing industry is the main beneficiary, using the tax breaks to sell to high street retailers in Europe.

The GSP+ gives 16 developing countries access to EU markets with preferential conditions in return for implementing international conventions on human rights, labour standards, sustainable development and good governance.

The decision came after an "exhaustive investigation... identified significant shortcomings in respect of Sri Lanka's implementation of three UN human rights conventions," the commission said in a statement.

The suspension of the GSP+ (Generalised System of Preferences plus) benefits will not take effect for six months "giving Sri Lanka extra time to address the problems identified," the EU executive added.

"I would like to emphasise that I hope Sri Lanka will sit with us over the next six months in order to agree upon a set of measures that will result in rapid, demonstrable and sustainable progress in relation to the human rights shortcomings we have identified," said new EU Trade Commissioner Karel De Gucht.

Sri Lanka criticised the decision by European Union nations claiming that the decision refers to the situation on the ground when the country was at war against Tamil Tigers and argued that the situation has much improved since the Tamil Tigers were defeated last year. EU diplomats dispute this view and say that the problems are not all linked to the Tamil situation.

Sri Lanka's foreign ministry said the European Union had set "unattainable targets" for the island to avoid withdrawal of trade benefits and added it will continue its dialogue with the Commission, but said discussions should be "sensitive" to the island's sovereignty.

Colombo maintains that any probe of its rights record will be a violation of its sovereignty.

According to Apparel industry sources, the main benefactors of GSP +,

the withdrawal of European Union trade benefits would increase costs and erode their competitiveness.

“It will have an impact on the industry,” said A Sukumaran, a clothing exporter who is chairman of the Joint Apparel Association Forum, an industry body.

“Over 50 percent of our apparel exports go to the EU. Whatever apparel qualifies for GSP Plus, costs will go up by about 10 percent. Many of our buyers have told us we have to bear the extra cost.”

Loss of the GSP (Generalised System of Preferences) Plus benefits would mean Sri Lankan exporters lose duty free access to EU markets and their shipments would be charged an import duty of about 9.6 percent.

Many analysts have said they fear factories would be forced to close, resulting in large-scale lay-offs of workers.

According to data just released by the Central Bank, earnings from apparel exports fell eight percent to 343.5 million dollars in 2009 from the year before.

A British Tamil activist commenting on the EU decision said: "The European Union states have been reluctant to pressure Colombo to work towards a just and fair political solution to the Tamils in the North and East,"

"We hope that this time the EU moves beyond rhetoric and takes concrete action," he added.