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EU Sri Lanka trade partnership Is there scope for further expansion

EU  Sri Lanka trade partnership Is there scope for further expansion

July 20, 2017, 9:37 pm

by Malik Samarawickrama,
Minister of Development Strategies & International Trade


The European Union (EU) reinstated the EU GSP Plus facility to Sri Lanka with effect from May 19, 2017. This will provide opportunity for 66% of the total EU tariff lines/ products to enter into the EU on duty free basis. We thank the Hon. Prime Minister, European Union, Ministers and Ministries for all their effort.


Importantly, this will provide Sri Lankan exports a level playing field with other countries such as our neighbours from Bangladesh & Pakistan, and several countries from Africa and South America who enjoyed the EU GSP+


The Importance


of the EU Market


• Sri Lanka having a small domestic market of 20m people, export is vital for its economic development.


• EU is Sri Lanka’s largest trading partner, major export destination worth US$ 3.1bn or 30% of total exports. Main export sectors consist of apparel (61%), pneumatic and retreaded rubber tyres (5.7%) tea packets (2.5%), Industrial & surgical gloves (2.3%), Manufactured tobacco (1.9%), Processed food (1.5%), Hard rubber products such as gaskets, washers and sealers (1.3%) during the year 2016.


• A major source of imports accounting for 12% of countries total imports.


• Sri Lanka’s dependence on two major markets – EU & USA and the limited export basket concentrated on with few products such as garments, tea and diamonds, making up 58% of total exports, makes Sri Lanka vulnerable.


Benefits of GSP+


The GSP+ will offer complete duty free market access for a product range of these tariff lines which will offer opportunities to diversify the product ranges that are being exported to the EU.


Producing higher quality products and following ethical practices have become key strengths for Sri Lanka. Further, Sri Lankan companies are progressively moving towards and practicing sustainable production concepts such as the organic produce, green production, as well as Fair Trade practices which are highly valued by the consumers world over and in particular in the EU. The ability to penetrate the EU market as a strong country respecting basic human rights, rule of law and good governance would send a strong signal to the international investor community which will facilitate the attraction of FDI.


The GSP+ scheme encourages increased value addition within Sri Lanka, and thereby promotes backward integration, resulting in the setting up of new industries, and creating new employment opportunities in the country.


With the new National Export Strategy under development with support from the EU’s International Trade Centre, new innovative product lines such as electronics, light engineering products, electrical items, wellness products and certain agricultural products, such as spices are expected to be promoted in a focused manner all of which can enter the EU market on a duty free basis.


Agriculture expansion


Considerable gains are expected through the exports in agriculture product categories such as fresh and processed vegetables and fruits, processed food including coconut related products.


Benefits of GSP-Plus status will need to trickle down to Sri Lanka’s rural workforce. The concessions under GSP+ are likely to have assisted the financially less privileged farmers who are engaged in agriculture and fisheries industry in Sri Lanka. New export opportunities will eventually develop the livelihoods and raise income levels of the farmers.


The fruit and vegetable industry expects that the benefit accrued through the GSP+ facility would split among the customer, exporter and the farmer with as much as 50 percent of it going to farmers. Such benefits would definitely strengthen the supply-base to sustain the supply for the EU exports. This demonstrates the possible impacts on rural livelihoods from regained GSP Plus concessions.


Sri Lankan exporters in these sectors can also exploit the potential for agro-based processed food exports in collaboration with European companies through joint ventures and transfer of technology. Small and Medium Enterprises (SMEs) need to be encouraged to work more effectively and be part of the value chains of larger companies.


Fisheries sector expects a substantial growth through the regained EU GSP+ facility. They expect that the demand for fisheries products would double the current export value, whilst employing sustainable and responsible fishing practices. For 2017 YTD January to May fisheries exports are up by over 40% compared to the same period last year. The industry plans to have new projects such as fish farming and deep sea fishing to increase the production capacities to meet the increased demand from the EU envisaged through the GSP+.


Apparel expansion


It is estimated that there will be an annual increase in Apparel exports of US$ 500m as a result of the GSP+ benefit creating approximately 20,000 jobs. It is now expected that more EU customers would change their sourcing strategy in favour of Sri Lanka in comparison with other duty free beneficiaries such as Bangladesh and Cambodia.


Given that Rules of Origin under GSP Plus requires fabric to be sourced from Sri Lanka or from an area that qualifies for regional cumulation in order to qualify for GSP Plus, there will be an increase in demand for fabric sourced from Sri Lankan fabric mills, rather than from countries such as China.


Industry expansion


Ceramics & porcelain, footwear, bicycles, leather products, light engineering product sector are all set to benefit. The GSP+ scheme encourages increased value addition within Sri Lanka, and thereby promotes backward integration, resulting in the setting up of new industries, and creating new employment opportunities in the country.


Further, increased demand from the EU Region for the Sri Lankan Industrial products will give the necessary impetus for industries to grow with increased capacities.


Exporters of bicycles to the EU market noted a likely 50 percent boost in orders and the exporters of porcelain and ceramic ware expect GSP Plus to boost exports by 5 to 10%.


EU investment


We would encourage and invite FDI from the EU. In addition, to GSP+ we are in the advance stages of negotiating a FTA with China, and expanding our current FTA with India through Economic and Technology Cooperation Agreement (ETCA). ETCA can increase Sri Lanka’s competitiveness in industrial exports and also increase our supply capacity, to better utilise the market access to India.  In addition, ETCA negotiations are addressing outstanding non-tariff barriers in the Indian market as well as many of the existing procedural barriers and delays in Indian ports of entry, particularly through Mutual Recognized Agreements. Together the Chinese FTA and Indian ETCA will give Sri Lanka preferential access to a market of 2 billion people and an emerging middle class larger than the whole of the EU.


The Government of Sri Lanka is aware of the possible trade disruptions that can occur during the transition period and therefore we are looking at providing a trade adjustment package for local industrialists to upgrade machinery and introduce new technology so that these industries can be more competitive and serve the local market as well as export to the regional and global markets.


My Ministry is committed to improving the Ease of Doing Business in Sri Lanka under the theme ‘SriLanka Means Business’. We have set the ambitious task of jumping 40 places in the World Bank’s Ease of Doing Business index by 2020 and are conscious that other countries are not remaining still. Together with the World Bank we have developed a road map to eliminate unnecessary regulatory and procedural obstacles.


Under this backdrop, GoSL has recognized that its policies and behaviours play a critical role in shaping the investment climate and is committed to creating an environment in which firms and entrepreneurs have opportunities and incentives to invest productively, create jobs, enhance private sector competitiveness and thereby contribute to strong economic growth.


Sri Lanka has enormous potential as a tourism destination. In 2016 we achieved record tourist arrivals of 2 million but are far behind the region. Investment opportunities are considerable in this sector. Leading brands such as Shangri-La and Movenpick have set up operations in Sri Lanka and others like Hyatt, Marriott & Radisson, ITC are set to follow.The benefits of the EU investing in export driven trade with Sri Lanka include its resilient economy, supportive Government policies, its educated workforce, strategic location, preferential access to large markets, fast developing infrastructure and increasingly vibrant business environment. All of this will be further enhanced by GSP+ and the trade agreements underway.


Finally, we as a government will do everything possible to facilitate trade and expect the SriLankan business houses and entrepreneurs to take the lead in economic development of our country.

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