The European parliament’s recommendation to suspend Sri Lanka’s GSP+ status comes as a huge blow to the country’s apparel industry – which accounts for 47 per cent of the nation’s exports and 15 per cent of its industrial employment. As per a Daily News report, the Generalized System of Preferences or GSP, a preferential tariff system of the EU, helps Sri Lanka enhance export competitiveness in the apparel industry. The scheme also helps Sri Lanka create new jobs besides reducing the disparity between rural and urban incomes and increasing the participation of female employees in the workforce. It is a special incentive arrangement aimed at sustainable development and good governance in vulnerable, low and lower-middle income countries. The arrangement led to a reduction in custom duties to zero for EU countries in 2019.
Loss of GSP+ to make exports expensive
The loss of GSP+ status would make Sri Lankan exports to the EU 9.5 per cent more expensive than it is now. Already, Sri Lankan apparel is more “expensive” than its competitors. The loss would also threaten many small and medium enterprises exposing them to greater macro-economic vulnerability. Loss of GSP+ may also wipe out Sri Lanka’s razor thin profit margins in the apparel industry by making exports 9.5 per cent more expensive than its competitors.
Making Sri Lanka a self-reliant manufacturer
The Sri Lankan government has started negotiating with the EU to review its GSP+ facilities. It plans to highlight the progress made in implementing the conditions required to restore GSP+. Efforts to preserve trade agreements are likely to boost investors’ confidence in the Sri Lankan apparel industry. Sri Lanka will also benefit from growing technological prowess, ethical manufacturing, sourcing and sustainable manufacturing practices. Its apparels will become the preferred choice for customers in Europe, the United States, etc.
The Sri Lankan government needs to do everything in its capacity to restore the GSP+ benefits. This will provide it with sufficient time and resources to help to build and strengthen its apparel manufacturing capacities and make it self-reliant in this core market.