{"id":15787,"date":"2013-02-02T18:42:13","date_gmt":"2013-02-02T23:42:13","guid":{"rendered":"http:\/\/dbsjeyaraj.com\/dbsj\/?p=15787"},"modified":"2013-02-02T19:34:13","modified_gmt":"2013-02-03T00:34:13","slug":"why-inability-to-compete-in-european-market-is-forcing-sri-lankan-factories-to-close-down","status":"publish","type":"post","link":"https:\/\/dbsjeyaraj.com\/dbsj\/?p=15787","title":{"rendered":"Why Inability to Compete in European Market is Forcing Sri Lankan Factories to Close Down"},"content":{"rendered":"

By
\nC.A.Chandraprema<\/strong><\/p>\n

\"\"<\/a>\"\"<\/a><\/p>\n

O<\/strong>ver the past week, we have seen front page news items in English newspapers to the effect that several factories have closed down due to their inability to compete in the European market due to the loss of the GSP+ facility in 2010.<\/p>\n

This has been raised in parliament and political parties including the JVP have released statements about the closure of factories. Two factories Crystal Sweater Lanka (Pvt) Ltd and Firefox (Pvt) Ltd have been specifically mentioned in these news reports as having shifted their production facilities to Bangladesh to make use of the zero duty concessions available to that country. This is seen as the fallout from the withdrawal of the European GSP+ facility to Sri Lanka in 2010.
\n
\nNothing is more dangerous than half truths and this is a classic case. What Sri Lanka lost in 2010 was the GSP+ facility – a little used special concessionary trade\/governance arrangement. This country enjoyed the GSP+ facility for just five years between 2005 and 2010. GSP+ gave the country zero duty access to the European market. Before we got the GSP+ concession, we enjoyed the ordinary GSP concession which is enjoyed by 176 other developing nations which provided access to the European market at a concessionary rate of duty. We have not lost the ordinary GSP facility and with the withdrawal of the GSP+ facility we have only reverted back to the position we were in before 2005. Our goods still have access to the European market at the ordinary concessionary rate of duty available to all ordinary GSP beneficiaries.<\/p>\n

Usually a zero duty rate is accorded by the EU only to the least developed countries (LDCs) which are less than 50 in number. After a country\u2019s per capita GDP increases to something like 1,100 US$, and meet certain improvements in social indicators, they cease to be categorised as LDCs and then they automatically lose the zero duty facility. Sri Lanka lost the zero duty facility given to LDCs a long time ago. Then we fell into the ordinary GSP scheme and had access to the EU market at a concessionary rate of duty.<\/p>\n

GSP+ was a scheme set up by the EU to give zero duty access to countries that are not LDCs, but are willing to toe the political line of the EU. Among the things that countries had to do to qualify for the GSP+ facility was to sign 27 western sponsored international conventions and submit to periodic reviews to see whether they were behaving as the EU wanted. Technically, all 176 countries that were benefiting from the ordinary GSP scheme were eligible to apply for the GSP+ concession, but very few did. GSP+ was a death trap. To obtain zero duty access to the EU market nations were expected to barter away their sovereignty. From the time the GSP+ scheme was created in 2005, there have been only 16 recipients of this facility. Now that Sri Lanka was removed from the list, there are only 15 recipients. Of this, eleven Latin American nations, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Peru, Paraguay and Panama were given the GSP+ facility on a platter as an incentive to wean those countries away from cocaine and heroin production. These countries were in a pre-2005 special incentive scheme for drug producing countries and when the GSP+ scheme was created, they were moved en masse into the new scheme. The EU will give them anything to stop those countries from producing and exporting drugs into Europe so they get GSP+ with no questions asked. There are only four real GSP+ beneficiaries, who came in through the proper channels \u2013 Azerbaijan, Armenia, Georgia and Mongolia. None of these are major exporting nations.<\/p>\n

None of the other 176 eligible countries applied for GSP+ because they would end up losing their sovereignty. (The Latin American countries that receive GSP+ have not lost their sovereignty because they do not need to submit to periodic reviews since they will continue to get that concession so long as drug production persists in those countries.) It was a colossal folly for SL to have applied for the GSP+ facility. Sri Lanka\u2019s garment industry for instance would have benefited from zero duty access to the EU at its incipient stages over three decades ago when SL was a least developed country. Today, it\u2019s a mature industry and the country itself has moved forward. The Sri Lankan garment industry should not be dependent on zero duty access now. Countries like Bangladesh to which most of these production facilities from Sri Lanka are moving have zero duty access to the EU because they are still categorised as an LDC. There are two ways in which Sri Lanka can continue to enjoy zero duty access to the EU with no loss of sovereignty. The first method is of course to burn down half the economic infrastructure in the country and become an LDC again, with a per capita GDP of less than 1000 US$.<\/p>\n

The other method is to allow hard drugs like cocaine and heroin to be grown here and exported to the EU in which case the EU will come to us on their bended knees with an offer of zero duty access to their market no matter what our per capita GDP is. Applying for GSP+ is not an option for any country. Not a single exporting nation in Asia has applied for GSP+ even though it provides a clear advantage over competitors. The reason is that the loss of sovereignty is too high a price to pay for zero duty access. The other reason of course is that if a country gets accustomed to zero duty access to the EU market for survival, it will never evolve the efficiencies and productivity levels that will enable it to survive without such access. So if certain factories are closing down because zero duty access to the EU is no longer available, those are industries that should never have been in SL in the first place \u2013 because we did not have duty free access to the EU before 2005.<\/p>\n

Some industries in this country that were doing fine before 2005, may have got used to free loading on the duty free regime and now cannot survive without it. That is another reason why wiser nations have avoided GSP+ like the plague. The duty free regime can destroy industries that were competitive earlier. When a mature industry gets used to surviving on duty free access, that has the same effect as an industry surviving on subsidies. Duty free access to the EU market was supposed to be a scheme to help poor nations to get a foot in the door and not to help uncompetitive industries to exist in nations that are not LDCs. Even if industries are moving from Sri Lanka to Bangaladesh, this does not mean that we should ever apply for GSP+ access to the EU again. We obtained a concession that we were not entitled to enjoy and there is no alternative but to take the consequences and bear the withdrawal pains as best as we can. As Europe faces an uncertain economic future, there will be further restrictions on duty free access to the EU market. From 2014 onwards, the 176 countries that enjoy the concessionary rate of duty under the ordinary GSP scheme that we are in now, will be halved with only 89 countries being entitled to that benefit. Besides more and more products are going to be taken out of the duty concession scheme. In the USA, even at present, ready made garments are not included in the preferential duty scheme. So the EU also may take it out in 2014. Sri Lanka will have to face up to this reality sooner or later.COURTESY:SUNDAY ISLAND<\/em><\/p>\n

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By C.A.Chandraprema Over the past week, we have seen front page news items in English newspapers to the effect that several factories have closed down due to their inability to compete in the European market due to the loss of the GSP+ facility in 2010. This has been raised in parliament and political parties including …<\/p>\n

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