The European Union withdrew the GSP+ tariff concession granted to Sri Lanka under special privileges to economically vulnerable developing countries since 2005, on 15 th August, 2010 in relation to what was regarded as shortcomings in Sri Lanka record on implementation of 27 International Conventions which is an integral part of the trade benefit.
The last nail to the coffin seems to have been driven when Mr.Bernard Savage, EU Ambassador in Colombo has stated recently that the Government and the EU are not involved in fresh talks to revive the GSP plus trade benefits for the country. He has categorically stated that the government had not made any approach to resume negotiations on the issue and so the matter was now closed. (Source – The Island – 09th November 2010)
During the recent past, one of the most crucial trade concession Sri Lanka received was the granting of GSP+ status in the EU market, following the "Tsunami" of 26th, December, 2004. This provided duty-free access for 7200 items and the most beneficiary of the concession is the Apparel sector. Few countries provide such an attractive Import Duty concession except under a Free- Trade-Agreement. (FTA)
Garments industry was promoted as an engine of development in Sri Lanka. It certainly brings dollars.
This provision of duty free access to EUmarket is regarded as having facilitated substantial growth in the country’s exports and especially apparel, in the region since its implementation in year 2005.
Major impact
Apparel exports alone to the WU, climbed from US$997 million in 2004 - the year before Sri Lanka was granted GSP+ benefits- to US$ 1,647 million in 2009 an increase of 65.2 percent and thus EUbecame the top market for Sri Lanka’s apparels in 2009 replacing the United States who had been the top market since the inception of the apparel industry in early 1980’s.
Its export share which was 37.6% in 2004 also climbed to 52.9% in 2009. It is widely accepted that the withdrawal of GSP+ will have a major impact on the apparel industry. The fear is that the growing number of European buyers will find Sri Lanka’s apparel increasingly uncompetitive and shift their sourcing to rival producers.
The details of Sri Lanka’s Garment exports to the EU are as follows-
The above table also indicates that due to the EU- GSP+ concession, total apparel exports also gradually increased year after year, except for year 2009, where the entire global apparel industry was affected due to a world-wide economic recession.
During 2009-with Sri Lanka while enjoying EU-GSP+ concessions, was the 8th Leading exporter to EU Market. China topped with US$ 38,057 mn, followed by Turkey-US$ 9,967,mn, Bangladesh-US$ 7,126 mn, India-US$ 6,316 mn, Tunisia-US$ 3,185 mn, Morocco-US$ 2,813 mn, Vietnam- US$ 1,752 mn and Sri Lanka-US$ 1,687 mn and closely followed by Indonesia US$ 1,603 mn and Pakistan US$ 1,568 mn. Now with Sri Lanka not enjoying the GSP+ concession with effect from 15th August, 2010, Sri Lanka obviously will be at a disadvantage.
Further Pakistan which was behind Sri Lanka will probably receive the GSP+ in 2011 to 2013, will also be a threat to Sri Lanka. The above countries are the main competitors of Sri Lanka in the global apparel market.
(Source-World Trade Organization-WTO)
The country thus stands to lose millions of dollars worth of apparel exports to the 27 –nations EU market and the livelihood of thousands of apparel sector workers are at stake, as the withdrawal of the privileges is expected to affect large number of factories.
According to Industrialists, the loss of the GSP+ benefit will exert tight pressure of profit margin, for when the benefits are lost, sellers will have to bear the cost of additional tariff. Under the GSP+ concessions Sri Lankan goods entering the EU need to pay no duty; but now the privilege is lost and the standard GSP kicked in and thus Sri Lankan apparel became subject to concession of only 2-2.4% duty which is 20% of standard tariff averaging 10-12% as against zero duty which enjoyed prior to withdrawal of GSP+ in 15th, August, 2010.
Decline in Exports
Meanwhile, despite Sri Lanka enjoying the GSP+ privileges in the EU, Sri Lanka’s Apparel exports to EU market contracted by 8.4% during the first eight months of current year from the year ago level. The apparel exports to EU during Jan/August, 2010 was US$ 986 million as against US$ 1,077 million during same period 2009. The European Commission (EC) announcement of 15th February, 2010 of it’s intention to suspend the GSP+ concession granted to Sri Lanka with effect from 15 th August,2010 would have also have affected for above decline in exports.
The Chairman of the Joint Apparel Association Forum, Mr.Sukumaran has said recently that it is most likely that the apparel exports, which is Sri Lanka’s key industrial exports, would come down by 10-15 percent this year, reaching US$2.7-2.8 billion, as compared to last year.
(Source - Fibre2Fashion News Desk – India)
Further according to Mr.Rohan Masakorale Secretary General - Joint Apparel Association Forum around 250 factories may get affected due to this withdrawal.
Sri Lanka’s second largest apparel export market is United States. In this market also it is seen the exports are gradually declining. The details are as follows-
It is seen from the above table the apparel exports to USA has declined by from US$1,556 million in 2004 to US$ 1,297 million in 2009, which is a drop of 16.6 %.The share also has dropped to 41.6% in 2009 from 58.7% in 2004.
The apparel exports to USA market during first eight months of 2010 declined by 4.6% over the same period year ago. The exports during the period Jan/August, 2010 was US$833 million as against US$ 873 million during Jan/August, 2009.
The major global market for apparel imports right throughout are EU and USA. In 2009, EU (US$ 160 billion) and USA (US$ 72 billion) totaling US$232 billion and these two markets accounted for 73% of global total apparel imports.
Similarly Sri Lanka’s two major apparel export markets are EU (US$ 1,65 billion) and USA (US$1.3 billion) and both these markets accounted for 94.5% of total apparel exports in 2009.
Cheaper Sources
In today’s market place, it has become a norm to source clothing from countries with low costs. Furthermore the buyers are being forced to look for cheaper sources in order to satisfy consumers who are increasingly demanding, while competition in the retail level continue to get tougher. However, there is still a gap in the market for manufacturers based in Western Europe and the United States who produce goods in their own country for sale in the domestic market and for export.
Of course, production costs are usually much higher in developed countries. Indeed labor costs alone in Western Europe can be over many times as high as those in Asian countries, Nonetheless, manufacturing in developed countries bring in number of benefits. One benefit is flexibility in being able to offer smaller production runs and short delivery times. While distant suppliers may be cheaper, buyers often demand minimum quantities which can be economically not possible. Furthermore, the buyers are looking increasingly to source from factories which adhere to Corporate Social Responsibility –CSR programmes in general-and fair labor practices in particular. Our "Garments Without Guilt" is well known both locally and internationally as superior garments.
Future Looks Bleak
On the employment side-media reports quoted that the future looks bleak and fears of retrenchment are worrying the workers, but the figures can rise with the withdrawal.
Thus causing loss of job opportunities in the apparel industry it will also no doubt affect the inflow of foreign currency from export earnings. Sri Lanka has gained a reputation of exporting top brands to leading buyers in the world but will soon lose that status if we don’t regain the GSP +.
International Textile Manufacturing Federation-ITMF, at its annual meeting in Brazil expressed its concern about the soaring cotton prices and their negative implications for the international cotton textile value chain from fibre to retail. The ITMF stated that the textile industry all over the world is not in a position to absorb any longer cotton price increases of unprecedented dimensions recorded during the past months without risking its own existence.
(ITMF-Press Release-8th
Further in addition to above stated facts, increases in prices of cotton, freight cost, currency fluctuation and competition from other countries with GSP+ with all this taking place in the global apparel industry and with an additional payment of 9.6% to 12% duty on Sri Lankan products makes Sri Lanka extremely expensive compared to our competitors.
Any decline in apparel exports will also affect the Local Textile Industry as obviously requirements from apparel industry will be gradually reduced.
The EU Ambassador Mr. Bernard Savage’s recent statement that the government and the European Union (EU) are not involved in fresh talks to revive the GSP plus trade benefits for the country, no doubt comes as a fresh blow to a dying industry thus intensifying the shock.
The EU this year decided to suspend Sri Lanka’s preferential trade status over allegations of human rights violations.
The EU said that Sri Lanka had not demonstrated that it had taken the steps that would allow it to retain or regain the GSP+ status.
(Source – The Island – 09th November 2010)
Therefore taking above facts into consideration, if the GSP+ status is not restored in the near future, the Sri Lanka’s apparel industry which is the major foreign exchange earner of the country for many decades may have to face bad times with decline in exports and employment opportunities.
Therefore the outcome will not be good for the economy of the country and thus the Government and the EU should pursue its dialogue without any further delay and both arrive at a win-win situation and ensure the restoration of the GSP+ at the earliest. If not one could imagine what would befall our Garment industry and its workers.
5:31 PM
Ajith
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