By: Staff Writer
April 20, Colombo (LNW): Sri Lanka stands to suffer a significant economic setback, with potential losses reaching up to US$ 1.23 billion if it loses access to the European Union’s Generalised Scheme of Preferences Plus (GSP+) trade benefits, according to a recent study by the Institute of Policy Studies (IPS). The preferential trade scheme has played a critical role in supporting Sri Lanka’s export economy, and its removal could trigger a dramatic shift in trade dynamics with the EU.
The IPS study warns that the withdrawal of GSP+ would force Sri Lanka’s exports to face Most Favoured Nation (MFN) level tariffs, resulting in a 36.7% drop in exports to the EU.
The erosion of GSP+ privileges would hamper the country’s efforts to diversify its exports into high-tech products, such as transformers, which alone made up 50% of Sri Lanka’s EU exports in 2019.
A loss of GSP+ could cause a 10% drop in transformer exports, directly affecting one of the nation’s more technologically advanced sectors.
Among the hardest-hit industries would be the wearing apparel sector. While it has not yet fully capitalized on the benefits of GSP+, this sector could face tariff increases of nearly 10 percentage points if the scheme is revoked.
This would not only reduce export volumes but also severely impact employment across the manufacturing sector.
The IPS report estimates that about 4.99% of Sri Lanka’s formal industrial workforce could be adversely affected due to the anticipated decline in EU demand. This includes a significant 13.47% of employees in the apparel industry.
In total, 73,574 workers could become vulnerable, with women and low- to medium-skilled workers accounting for 65.65% of those at risk.
Amid these warnings, the Pathfinder Foundation recently hosted a high-level Ambassador’s Roundtable with EU Ambassador Carmen Moreno, who highlighted the strategic importance of Sri Lanka’s continued engagement with the GSP+ facility.
She stressed that the GSP+ is not only a gateway for tariff-free access to the EU but also a framework built on mutual commitments, including the ratification and implementation of 27 international conventions related to human rights, labor standards, environmental protection, and good governance.
Ambassador Moreno emphasized that GSP+ beneficiary countries must move beyond merely signing these conventions—they must ensure proper implementation and consistent compliance. She further stated that Sri Lanka should adopt an industrialization-focused policy, rather than a purely trade-based approach, to effectively utilize the full potential of GSP+ by expanding and diversifying exports.
For Sri Lanka, the GSP+ facility has been a vital economic lifeline since 2005, particularly in maintaining its competitiveness in EU markets.
With mounting economic challenges and rising global competition, losing this preferential access could spell disaster for the island nation’s export economy, employment landscape, and future growth prospects. Immediate policy actions and strengthened diplomatic efforts are essential to preserve this critical trade relationship.
