By

C.A.Chandraprema

The government has begun negotiations to get back the GSP+ trade concession offered by the EU. As of now, only four nations – Armenia, Cape Verde, Georgia, and Mongolia – have applied and obtained GSP+. None of these are exporting nations in the proper sense of the term. The question that the government should ask itself is why none of the exporting nations of Asia have thought fit to try and gain an advantage over their competitors by applying for GSP+.

In addition to the four countries mentioned above, there are six narcotic producing countries that have been given GSP+ as an incentive to get their people off the production of drugs. The countries falling into this category are –  Bolivia, Costa Rica, Ecuador, Paraguay, Pakistan and Peru.

The EU used to have a special GSP scheme for drug producing countries which gave them unconditional zero duty access to the European market. But around 2002, when Pakistan was included in this scheme, India went before the World Trade Organization claiming discrimination and they won the case and got the entire special incentive scheme for drug producing countries scrapped.

All the countries that were displaced as a result of the WTO ruling were accommodated in the GSP+ scheme which was initiated around that time. Pakistan too has now got into the GSP+ scheme. The question that will inevitably be asked is if GSP+ is good for Pakistan, why is it bad for Sri Lanka?

The GSP+ trade concession is given on the basis of certain conditions such as the ratification and implementation of 27 international conventions. When a country applies for and obtains GSP+, it agrees to allow the EU to monitor its compliance with the 27 international conventions thus giving the EU a handle over the country in question.

 Among the international conventions that have to be ratified and implemented to qualify for GSP+ are the International Covenant on Civil and Political Rights, the International Convention on the Elimination of All Forms of Racial Discrimination, the International Covenant on Economic Social and Cultural Rights, the Convention on the Elimination of All Forms of Discrimination Against Women, the Convention Against Torture and other Cruel, Inhuman or Degrading Treatment or Punishment and other such conventions that give infinite opportunities for the EU to interfere in the internal affairs of the GSP+ recipient country.

Sri Lanka experienced this when GSP+ was withdrawn in 2010 on the charge of violating human rights in fighting terrorism. Had the then government thought about retaining GSP+, the war against the LTTE would never have been won. All exporting nations in Asia have steered clear of GSP+ because zero duty access to the EU market comes with the distinct risk of losing control over their internal affairs. The reason why Pakistan will not have the same worries as we do, is because it falls into the category of a narcotics producing country. The EU will (if it suits their purposes) implement the conditions to the letter in relation to the normal applicants while the narcotic producing countries will have no problems even if they violate all 27 conventions in broad daylight. Despite anything that may happen in Pakistan’s fight against the Taliban, the EU will not withdraw GSP+ from Pakistan because heroin finds its way into Europe through that country and they want it stopped. The EU is more scared of the narcotics producing countries than the latter are of the EU. Sri Lanka however does not have that kind of leverage over the EU.

These conditional trade concessions are actually instruments of colonialism. Take for instance the Cotonou Agreement which gives African nations duty free access to the European Union. One of the conditions in this agreement is that recipients have to sign the Rome Statute which established the International Criminal Court. As a result of this, the incumbent president and vice president of Kenya are now before the ICC in the Hague! That is just an example of what can happen when sovereignty is compromised in exchange for trade concessions.

We should also have a realistic understanding of what GSP+ can do for the country. Many people think that when the EU gives a country GSP+, anything that we export simply goes into the EU free of all import duties. The reality however is very different. The EU has stringent ‘rules of origin’ criteria to prove that the goods originate in the GSP+ recipient nation. Goods produced with raw materials imported into a GSP+ recipient country can qualify for the duty concession if it can be proved that the raw material has been sufficiently worked or processed to qualify as an item produced in that country.

In the garment industry for example, for an item to qualify, it is not enough for the garment to be sewn in the recipient country. It has to be preceded by at least two or three other processes such as the weaving of the fabric, printing, bleaching, shrink resistance processing etcetera. Besides, there is the condition that the value of the unprinted fabric should not exceed 47.5% of the ex-factory price of the finished product. So it’s not easy to qualify for duty free status in the EU. The EU’s regulations allow for raw material originating in the South Asian region in countries such as Bangladesh, Bhutan, India, Maldives, Nepal and Pakistan to be considered to have originated in Sri Lanka. But how many garment manufacturers in Sri Lanka use fabric manufactured in countries like India and Pakistan? Because of the rules of origin limitations very few garment factories in this country would have actually been enjoying the full benefit of GSP+.

This is why the industry did not fall when the GSP+ concession was removed in 2010.  Quite on the contrary, the industry continued to expand despite the withdrawal of GSP+. The Sri Lankan garment industry was doing well before GSP+ was obtained in 2005 and it continued to do well after 2010 when the GSP+ concession was withdrawn. So the question is why do we need this concession? We will in reality be putting our sovereignty on the line for nothing. Besides, the principle on which the GSP+ concession is based is in itself a perversion of the original philosophy behind the Generalized System of Preferences that was mooted by UNCTAD in the late 1960s. The idea then was to give the least developed countries duty free access to the EU and as a country develops, it would move up to paying a concessionary import duty and at the final stage, the usual import tax would be charged once the country is a developed nation.

When the garment industry first began in this country, we were at the first stage of receiving duty free access as one of the least developed countries. Now we are on the second tier – the ordinary GSP scheme paying a concessionary import tax when our goods enter the EU market. That is the normal progression. If you have an export industry that is unable to make it through this natural progression and is perpetually dependent on zero duty access to foreign markets, that is not a sign of progress. This is why none of the great exporting nations in Asia have applied for GSP+ because it can condemn a nation to perpetual dependency on concessions which can unilaterally be withdrawn by the EU at any time.

Furthermore, the garment industry in this country is already a sunset industry with many factories moving to locations such as Bangladesh which can offer lower labour and energy costs. Even the factories that remain are facing serious labour shortages because workers are not satisfied with the salaries on offer. That situation is not going to change even if Sri Lanka gets GSP+ back.

It should be understood that GSP+ is not an incentive given to the garment producers at the Sri Lankan end. It is a concession given to the importer at the European end so that the importer’s profit margin will increase when importing from a country that qualifies for zero duty access. When the importer gets a higher profit from importing from Sri Lanka because of GSP+, he does not pass on that extra margin of profit to the Sri Lankan producer because the whole idea of GSP+ is to give the European importer an extra incentive to import from a particular country. If the European importer is compelled to pass on that extra profit to the producer in Sri Lanka, he gets no special incentive to import from Sri Lanka!

So we have to realize that Sri Lankan garment factories will not get anything more than what they are now getting per piece of clothing even if GSP+ is restored. Thus even if GSP+ is restored, garment manufacturers will not be able to increase the salaries of workers to retain people in this industry.

Someone may argue that it is not just the garment industry that benefits from GSP+ and that many other items like  tea, coconut products, fish, cut flowers, vegetables, fruits and ceramics can be exported duty free to the EU if GSP+ is restored. GSP+ will no doubt help the exporters of such items especially because exporters of produce like cut flowers and vegetables will not be hamstrung by rules of origin issues. But how much can SL export of these items? And will the quantity of such produce exported make any difference to SL? The limited quantities of such items exported can easily be sent to other locations such as the Middle East. Furthermore there is the practical consideration that items like fish, vegetables and fruit cannot be exported in quantities that will starve the local market.

 So this whole idea of re-applying for GSP+ should be thought over carefully. Is it worth jeopardizing our very sovereignty for a trade concession that may not bring any real benefit to the country?

Courtesy:Sunday Island