GSP + may be restored but Sri Lanka

has to act fast to harness its full

benefits

Monday, 16 January 2017

A positive report by EU on Sri Lanka
A report published by the European Union or EU on 11 January
2017 (available at:
http://trade.ec.europa.eu/doclib/html/155236.htm ) has concluded
that Sri Lanka has completed all the requirements needed for it to
be granted GSP + status, known in full as EUs Generalised
Scheme of Preferences Plus.
This positive report on Sri Lanka has been filed by EU six years
after the suspension of the facility to the country by that powerful
economic bloc in 2010. Accordingly, European Commission or EC,
the governing body of EU, has proposed that Sri Lanka should be
upgraded from its current state of enjoying just GSP to GSP +.

However, it will take some more time to restore GSP +, at least

another six months, since European Parliament or EP and its
Council have up to four months to raise any objection to granting
GSP + to Sri Lanka.
As it is, unless there is a major political change in the country
during this period reversing its present progressive steps relating
to human rights and good governance, restoration of GSP + to Sri
Lanka from around the middle of 2017 appears to be a sure thing.
Euphoria of the ruling party members countered by
Opposition
The ruling party has been euphoric of the prospects as
pronounced by the leading figures in the Government. It has been
termed by them as a major diplomatic victory by the new Good
Governance Government.
At the same time, the lead figures in the Opposition have
downplayed the victory as irrelevant and unnecessary. However,
the private sector, specifically those representing the apparel
industry, would be buoyant about the new opportunities which
they might get if and once GSP+ is restored to the country.
Sri Lankas past performance is not satisfactory
Sri Lanka is one among the 30 developing countries which at
present enjoys EUs Standard GSP under which they get partial or
entire removal of tariff on about two-thirds of the products which
come under the GSP concession.
However, Sri Lankas track record in utilising this facility in the
past has not been very encouraging. According to the data
published by EU, in 2013, out of the total GSP eligible imports of
1.8 billion, Sri Lanka had utilised only 1 billion or 59%. In 2014,
the country had been able to maintain the same utilisation ratio
with comparable figures of 2 billion and 1.1 billion,

respectively.
However, this has fallen to 54% in the first six months of 2015,
indicating a marked decline in the utilisation rate. In comparison,
India, which also enjoys GSP facility from EU, had been able to
maintain an utilisation rate between 83% and 89% during this
period. Hence, Sri Lankas exporters have to go a long way to fully
harness even the facility which they presently enjoy with EU
before they think of harnessing the benefits of GSP +.

What is GSP Plus?

GSP is a special trade concession offered by EU to worlds poor
countries with no obligation on the part of the poor countries to
offer similar concessions to EU. So, the concessions are one way
from EU to the poor countries and not from the poor to EU.
It is being implemented by EU at three levels: the ordinary or
standard GSP, GSP Plus and Everything But Arms or EBA facility.
The first one is a trade arrangement which EU provides to 30
developing countries and territories to sell their products in the
EU market at reduced tariff rates.

GSP Plus is an enhancement of this facility to vulnerable

developing countries, numbering 13 qt present, offering
additional tariff reductions to enable them to attain sustainable
development and maintain good governance in their affairs. For
this purpose, they are required to ratify and implement a number
of international conventions which the global community has
prescribed for all its members. There are 27 such conventions
which EU has stipulated for the eligibility for GSP Plus concessions
and they cover a wide range of aspects applicable to human
freedom.
EBA is a facility with full duty free, quota free access for all
products except arms and ammunition for countries classified as
least developed countries or LDCs by the United Nations. There
are 49 such LDCs enjoying EBA facility from EU at present.
The Concerns of Human Freedom: Now a Global Concept
Human freedom is now recognised by economists and
policymakers as the ultimate goal of development. This is
because the development means the development of a perfect
individual and without freedom, whatever the material well being
attained by individuals in a society will become meaningless. The
concept of freedom encompasses from political to economic to
social to spiritual. Since the state, through the use of force, can
arrogate to itself the power to deprive people of freedom, in olden
times it was the merciful monarch and today the ruling executive
who was expected to guarantee all kinds of freedoms to the
people.
Amartya Sen: Justice in society is a must
The Nobel Laureate, Amartya Sen, has been a vociferous
advocate of human freedoms for development of mankind. He
argued the importance of freedom in two previous books titled

Development as Freedom and Rationality and Freedom.

Further developing and codifying his ideas on freedom, he, in his
latest book, The Idea of Justice, has emphasised two
requirements that are essential for ensuring justice in a society:
the freedom to choose and the freedom to think with reasoning as
the guide. According to Sen: the freedom to choose our lives
can make a significant contribution to our well being, but going
beyond the perspective of well being, the freedom itself may be
seen as important. Being able to reason and choose is a
significant aspect of human life.
Just society being imposed by donors
Since it is widely alleged that many poor countries lack both these
requirements, the donor community has taken upon itself the
responsibility for ensuring a just society in aid recipient countries
by tying aid to a multitude of behaviour traits. These traits cover
such subjects as democracy, law and order, rule of law, good
governance, transparency and proper disclosure, human rights,
environmental preservation and labour conditions.
In addition, EU has the right to introduce any other requirement to
address other deficiencies which the donors would have observed
as prevailing in the recipients of aid programs.
Enforced good behaviour through aid packages
It seems that the West has interested itself in seeing a show of
enforced good behaviour by poor countries which are desirous of
receiving foreign aid. However, this has been subject to much
criticism and protest by aid recipients. Yet, there is an element of
justification, from the point of donors, in their tying aid with good
behaviour traits.
First, there has been mounting evidence of gross abuse of aid
flows by the power groups in poor countries, namely, politicians

and bureaucrats. The absence of anti-corruption laws, or when

such laws prevail, their weak application, has been found to be
the main cause of the proliferation of the alleged misuse of aid
flows in poor countries.
Second, with faster and more advanced communication systems,
information on abuse of power or money by poor country rulers is
now readily available to the citizens of donor countries. Since
donor countries use taxpayers money for granting aid to poor
countries, they have to listen to the collective wish of their
citizens: that the aid givers should ensure that the tax money
they sacrifice is put to proper use by the recipients.
Tariff concessions are also a form of aid
One may wonder how GSP Plus which is a special tariff concession
could become an aid flow. The aid flows to poor countries could
be classified into two categories.
One is the direct aid in the form of grants, concessionary loans
and assistance in physical form like technical support and food
supplies. The other is the indirect aid given in the form of
preferential tariff concessions extended to developing countries
through bilateral trade agreements to have larger market access
in developed countries. Both have added to poor country woes,
because they are linked to political affiliations, loyalty shown in
international fora and in recent times, the commitment to good
behaviour by aid recipient countries. The last string encompasses
a wide spectrum of national behaviour traits as explained above.
Sri Lanka has always upheld the principles underlying the
conventions
The conventions under reference are those ensuring all types of
rights of the citizens (civil, political, social, economic, cultural,
childrens, womens, collective bargaining, freedom of
organisation and freedom of association), prevention of

discrimination against race, gender, employment and occupation,

protection of citizens against torture, cruel, inhuman or degrading
treatment or punishment, ensuring the prevention and
punishment of the crime of genocide, abolition of child labour and
many conventions involving the protection of environment and
preservation of biodiversity.
These are all prerequisites for creating a just society as
pronounced by Sen in The Idea of Justice and therefore, it
behoves a country to do so voluntarily rather than under
compulsion. A plus point for Sri Lanka in this context has been
that it has always upheld the principles underlying these
international conventions and has raised its voice in international
fora many a time for proper adherence to them by all nations
without exception. Hence, there should not be any reason for Sri
Lanka to have objections to ratifying and implementing them as
required under the GSP Plus rules.
Adoption of conventions is no interference in sovereignty
Sri Lanka had agreed to ratify these conventions at the time it
sought the concessions under GSP Plus. But by mid 2009, it was
found that no action had been taken by the country to fulfil its
obligations.
Enforcing human rights by donors
Under EU rules, a beneficiary country is given a three-year period
to satisfy the requirement of ratifying and implementing all the 27
conventions involved. Since all these conventions are already
designed by the global community and readily available for quick
ratification and implementation, a period of three years cannot be
claimed to be a too short a period for a country to do so.
In view of Sri Lankas long commitment to these principles, the
failure of the country to do so as revealed in mid 2009 would have
been due to a breakdown of its management systems which

should have advised the Government to do the needful at the

appropriate time. Hence, it is most unfortunate that a set of
international conventions meant for ensuring justice, freedom and
the wellbeing of its citizens is portrayed as unnecessary
interference in the sovereignty of the country by outside forces.
Satisfaction of right requirements has been made during
previous two-year period
According to the EU Report published on 11 January 2017, Sri
Lanka has been able to comply with the requirements for GSP +
only after the new good governance government was voted to
power in January 2015.
There are four requirements that have to be satisfied by a country
that seeks GSP + facility. First, the countrys economy should be
vulnerable to external shocks due to a heavy concentration of
export products in a few product types and that concentration
should be more than 75%. In the case of Sri Lanka, according to
the report, this concentration is at 92%.
Second, the applicant country should ratify all the 27 conventions
specified by EU for that purpose and Sri Lanka has ratified all of
them. Third, there should not be any reservation of the ratified
conventions and Sri Lanka has met that requirement too.
Fourth, there should not be evidence of serious failure of human,
womens and childrens rights as guaranteed by the prevailing
legal, constitutional and administrative systems. In this respect,
there are certain weaknesses in Sri Lankas case. However, the
report has noted that Sri Lanka has already started important
legislative processes to correct them effectively. Thus, the report
concludes that the shortcomings do not amount to a serious
failure to effectively implement the Convention that would
prevent Sri Lanka from joining the GSP+.
Accordingly, in terms of the undertaking which Sri Lanka has

given, the report has concluded that Sri Lanka has satisfied all the
requirements for getting GSP + from EU.
Sri Lanka may have to naturally exit GSP + by 2020
However, GSP + is available only to low income and lower middle
income countries as defined by the World Bank. A country should
be in either of the two categories for the last three year period to
become eligible for the facility. In terms of this requirement, when
a country gains the upper middle income country status, there is
a natural exit from GSP +.
According to the World Bank classification, done in 2016,
countries with a per capita income of $ 1,025 or less are
categorised as low income, those between $ 1,026 and $ 4,035 as
lower middle income, countries between $ 4,036 and $ 12,475 as
upper middle income countries. Sri Lanka with a GNI per capita of
$ 3,836 in 2015 is pretty much close to this threshold of natural
exit from the facility. With the current projected growth rates, it
will pass the threshold easily by 2018. Since it should be observed
for a three-year period, Sri Lanka will have to exit GSP + by 2020.
As such, there is only a very brief period of time available for Sri
Lanka to enjoy the benefits of GSP +.
Sri Lanka has spent six long years in its unsuccessful negotiation
with EU for GSP + since it was suspended in 2010. That loss
cannot be recovered now. But, it can now plan to harness the
benefits in full during the remaining four-year period.
In this context, Sri Lanka cannot rely on its apparel industry to
provide continued benefits to the country for two reasons. One is
that apparel industry has already reached its saturated point and
its further development, except in niche products, is unlikely. The
other is that Bangladesh, its biggest competitor, is enjoying more
favourable concessions under EBA facility.
It has, therefore, to transform its economy into high tech products

so that even after it exits GSP + naturally by about 2020, it can

continue to harness the benefits by getting integrated to the
larger world economy.
(W.A. Wijewardena, a former Deputy Governor of the
Central Bank of Sri Lanka, can be reached at
waw1949@gmail.com )
Posted by Thavam