Sri Lanka’s exporters last week expressed serious reservations over the government’s plans to end the moratorium on capital punishment which could lead to the loss of the GSP Plus preferential trade concession granted by the European Union. According to exporters representing a cross-section of industries, the loss of the EU’s Special Incentive Arrangement for Sustainable Development and Good Governance, also known as GSP plus will result in major negative economic consequences, including, job losses.
“There is a 100% possibility that if you impose the death penalty, GSP plus would be taken off, which would in turn severely impact the garment industry,” Deputy Chairman, Sri Lanka Apparel Exporters’ Association, Rehan Lakhany told the Sunday Observer.
Although Sri Lanka was denied GSP Plus status in 2010 after failing to meet rights obligations, the facility was restored by the EU in May 2017 after a seven-year hiatus following reapplication by the new government. However, with the reported resumption of capital punishment, heads of delegations of several Western states, including the European Union, wrote to the Sri Lankan President, Maithripala Sirisena expressing their opposition, last week.
“If Sri Lanka resumes capital punishment, Colombo will immediately lose the GSP-Plus status,”international news agency, AFP said in a report last week, quoting an unnamed EU diplomatic source.
According to a joint statement issued by the EU, the diplomatic missions have requested the President to maintain the moratorium on the implementation of the death penalty and uphold Sri Lanka’s tradition of opposition to capital punishment.
“The death penalty is incompatible with human dignity, does not have any proven deterrent effect, and allows judicial errors to become fatal and irreversible,” the joint statement by the delegation of the European Union, the missions of the EU Member States in Sri Lanka as well as the diplomatic missions of the Governments of Canada and Norway in Sri Lanka, stated.
Conditions of the GSP plus scheme
The GSP plus consists of the full removal of duties on over 66% of EU tariff lines, covering a wide array of products, including textiles and fisheries. Apart from Sri Lanka, the only eight countries eligible for GSP+ arePakistan, the Philippines (Asia), Cape Verde (Africa), Armenia, Kyrgystan, Mongolia (Europe, West Asia), Bolivia and Paraguay (South America).
The incentive arrangement is based on meeting 15 core human and labour rights UN/ILO Conventions (including a 1984 Convention Against Torture and other Cruel, Inhuman or Degrading Treatment or Punishment) and 12 Conventions related to the environment and to governance principles. The UN Convention against Torture, to which Sri Lanka is a signatory, classifies the use of the death penalty as an act of torture with the practice of capital punishment, violating obligations under international law. Upon entry into the GSP+, beneficiaries are expected to demonstrate at any moment a positive record of compliance with the commitments made.
“As far as I know, the condition of death penalty was in the original discussions from the beginning. That is a prerequisite for countries who are obtaining GSP plus from the European Union. So death penalty has been a no-no from the beginning,” Lakhany pointed out.
The EU website states that to be eligible for GSP+, the country must lodge an application and fulfil the Standard GSP conditions and two additional criteria. These include, the vulnerability criteria and the sustainable development criteria. Under sustainable development, the country must have ratified the 27 GSP+ relevant international conventions on human and labour rights, environmental protection and good governance.
“The applicant must not have formulated reservations which are prohibited by these conventions. The most recent conclusions of the monitoring bodies under those conventions must not identify any serious failure to effectively implement them,” the website points out.
Consequences from the loss of GSP plus
According to estimates by the Department of Commerce, if the GSP plus is denied to Sri Lanka, the island stands to lose a potential additional export income of around US$ 500 million as a majority of Sri Lanka’s leading export products to the EU are included among the 7,000 products eligible for EU GSP.
While the apparel sector, which accounts for approximately 60% of the country’s exports to the EU markets and almost 40% of Sri Lanka’s total exports, will be by far, the biggest loser, while other industries affected include exports of gherkin, footwear, tuna, seafood, ornamental fish, black tea, rubber items, activated carbon, tableware, wooden products and certain varieties of cut flowers and foliage.
“In the case of our company, around 95% of exports are to the EU, 100% of which rely on the GSP plus. So if we lose it, there will be a massive negative impact on our business,” says Lakhany, the Chief Executive Officer, Original Apparel (Pvt) Ltd.
He says, young companies like Original Apparel, which is a joint venture with an Italian firm had commenced businesses with the GSP plus in mind and have grown exponentially over the last two years.
“When we started, we had only about 350 employees but within 2 years, we have managed to increase our workforce to 1,500. We areplanning to expand our business at the same pace, but if the GSP plus is lost, we may have to turn course,” Lakhany highlighted.
He pointed out that as Sri Lanka is not known as a cheap apparel sourcing destination due to the high salaries and overhead costs (in comparison to competitors like Bangladesh, Cambodia and Vietnam) the only edge the island nation presently enjoys over rivals, is the zero duty access to the European market.
“When we lost the GSP plus, our growth in the GSP plus stagnated completely. People were just carrying on with their businesses to survive. Some factories were actually working on cost because they couldn’t close down. So, the moment we lose the zero duty access, definitely, export orders will shift to these rival countries given our costs being already high,” he elaborated.
Sri Lanka’s merchandise exports grew to an all time record of over US$11.4bn in 2017, surpassing the previous high of US$11.1bn achieved in 2014. Buoyed by the healthy growth of 10% recorded in the first four months of this year compared to the previous year, apparel manufacturers expect 2018 to be a stronger year.