Business
GSP+ withdrawal: How would it impact Sri Lanka’s economy?
By Asanka Wijesinghe and Eleesha Munasinghe
Sri Lanka’s preferential access to the vital European Union (EU) market faces fresh challenges after the European Parliament’s special resolution adopted in June 2021. The resolution calls for an assessment on “whether there is sufficient reason, as a last resort, to initiate a procedure for the temporary withdrawal of Sri Lanka’s GSP+ status.”.
The GSP+ is a non-reciprocal trading arrangement whereby Sri Lanka does not have to lower tariffs in return but is required to implement certain non-trade related conventions to benefit from preferential access. The GSP+ arrangement slashes import duties to zero for vulnerable low and lower-middle-income countries that implement 27 international conventions related to human rights, labour rights, environment protection, and good governance. This article assesses the impact of a hypothetical withdrawal of GSP+ on Sri Lanka’s exports to the EU: the largest single trading bloc, with the United Kingdom (UK), accounting for 30% of Sri Lanka’s exports.
The Impact
A possible withdrawal of GSP+ will increase the tariffs for Sri Lankan products up to the Most Favoured Nation (MFN) tariffs. Consequently, products coming from Sri Lanka will be more expensive in the EU market, directly reducing the export demand from Sri Lanka. However, Sri Lanka’s competitors that continue to benefit from the EU’s GSP will face zero preferential tariffs. Thus, in addition to the trade destruction effect, with the relative price of goods from Sri Lanka being higher, the trade will be diverted to those competitors. Using a partial equilibrium analysis, one can ex-ante quantify these effects of GSP+ withdrawal. Assuming the UK will follow the EU lead, and Sri Lanka will face the lower bound of relevant MFN tariffs, partial equilibrium estimates show that Sri Lanka’s exports to the EU will fall by 627 USD million The simulations are done taking 2019 as the base year.
The worst-hit sectors are apparel (HS 61 and HS 62), tobacco (HS 24), seafood (HS 03), and rubber (HS 40) sectors. The combined loss for the apparel sector will be as much as 494 USD million, and it is 79% of the total estimated trade loss. In addition, the seafood sector is deemed to lose 20 USD million or 17% of the sector’s 2019 exports to the EU. Thus, losing preference to a vital market will be hard for the recovering seafood industry
There are two caveats of an ex-ante impact assessment of this kind. The first is that the analysis is based on assumed elasticities. However, the assumptions are not overly restrictive. The second is that all the eligible exports from Sri Lanka do not utilise the GSP+ facility. Thus, the actual impact will be contingent upon the utilisation ratio. However, after Sri Lanka regained GSP+ preference in 2017, the utilisation ratio increased, reaching 61.8% in 2019, improving from 55.1% in 2017. Therefore, the increasing utilisation ratio makes the potential impact still significant.
Notably, there is a variation of the utilisation rate within the HS chapters, .
The apparel sector will be relatively resilient to a loss of preference as its utilisation ratio was 52% in 2019. However, a loss of preference will halt any industry drive that aims to increase the utilisation rate and then expand the market share in the EU. Further, the 2010 loss of GSP+ inflicted high costs to the industry. As seafood, rubber products, and footwear sectors utilise more than 90% of GSP+ preference, those sectors will be more vulnerable to the shock. Indeed, the difference between GSP+ preferential tariff and MFN tariff for seafood is higher -zero versus 7.5% respectively aggravating the impact.
Future Steps
The losses from GSP+ preference will be significant and heterogeneous across sectors. The GSP+ also opens the door for EU investments as outsourcing production to preference receivers is beneficial to the EU. In addition, sectoral losses may spillover to the overall economy exacerbating poverty and income inequality. Thus, avoiding such losses should be a political priority for policymakers. Less dependence on the EU market is a widely suggested strategy. Diversification is indeed beneficial when it is done for economic reasons. However, ad-hoc moves to diversify to escape from unresolved political issues will not do much good. The EU market is a high-end export destination for Sri Lanka. The quality improvements, product standards, and consumer preferences positively challenge the Sri Lankan exporters to improve product quality and competitiveness.
Additionally, a non-reciprocal preference for various products incentivises product diversification away from traditional exports into more complex products like electronic equipment, including semiconductors (HS chapter 85). Therefore, while Sri Lanka should work to secure the GSP+ resolving the current political issues and focus on fully utilising GSP+ preference in the short run. In the long run, as GSP+ is contingent upon income level, Sri Lanka will lose it someday, and as such should enter into reciprocal trade agreements with the EU and other high-end markets, including the US.
Link to blog: https://www.ips.lk/talkingeconomics/2021/09/28/gsp-withdrawal-how-would-it-impact-sri-lankas-economy/
Asanka Wijesinghe is a Research Economist at the Institute of Policy Studies of Sri Lanka (IPS) with research interests in macroeconomic policy, international trade, labour and health economics. He is also interested in the impact of adjustment costs of trade, gravity modelling in trade, econometrics and the trade origins of populist politics. He has undertaken efficiency analyses, particularly public spending efficiency, using parametric and non-parametric efficiency analysis approaches.
Asanka holds a BSc in Agricultural Technology and Management from the University of Peradeniya, an MS in Agribusiness and Applied Economics from North Dakota State University, and an MS and PhD in Agricultural, Environmental and Development Economics from The Ohio State University. His latest research focused on the effect of global trade-induced labour market changes on voting behaviour in recent US elections, including the 2016 presidential election.
Eleesha Munasinghe was a research intern at IPS. She is currently an undergraduate (Economics and Finance) at New Castle University in UK.
Business
SLTDA launches NTSP campaign to elevate national tourism quality and standards
by Claude Gunasekera
The Sri Lanka Tourism Development Authority (SLTDA) officially launched its nationwide capacity-building campaign, “Grow your Tourism Business with National Tourism Skilling Programme (NTSP),” August 31, from the scenic regional hub of Ella. Directed under the leadership of the Tourism Deputy Minister, Prof. Ruwan Ranasinghe, the comprehensive initiative aims to transform micro, small, and medium enterprises (MSMEs) by accelerating their digital readiness and business formalization across the local hospitality ecosystem.
The entire islandwide operation is under the direct coordination of Ms. Tharanga Rupasinghe, the SLTDA Director of Standards and Quality Assurance, ensuring that all rural operators align seamlessly with international hospitality standards. By utilizing the framework of the NTSP, the campaign focuses on delivering essential digital payment tools, modern online marketing insights, and compliance frameworks directly to village-level enterprises, handcraft artisans, and independent tour operators. Speaking at the launch event in Ella, Tourism Deputy Minister Prof. Ruwan Ranasinghe emphasised that sustainable growth in the travel sector relies heavily on empowering smaller stakeholders to become resilient, data-driven participants in the modern market. “True economic resilience in our tourism sector cannot be achieved through large-scale infrastructure alone, but must be built from the ground up by transforming our local communities and regional MSMEs into direct, digitally enabled beneficiaries of global travel traffic,” Prof. Ranasinghe noted. Through this synchronized, localized training approach, the SLTDA intends to systematically protect cultural heritage while elevating the service quality benchmarks of regional travel hotspots nationwide.
Regional hospitality groups, led by the Ella Tourism Association, have strongly welcomed the launch of the SLTDA national skilling campaign, calling it a vital step toward safeguarding the destination’s international reputation. Local operators noted that rapid commercial growth in the Uva Province has highlighted an urgent need for structural standardization, making the arrival of the National Tourism Skilling Programme (NTSP) highly timely. The grassroots response focused heavily on the benefits of formalization and digital integration for the region’s diverse service sector. The Ella Homestay Owners Collective praised the focus on digital payment tools, noting that transition support will help smaller vendors capture direct bookings and reduce their reliance on third-party booking commissions.
The Uva Tuk-Tuk and Adventure Guides Association highlighted that the safety and compliance training will build trust with high-spending international travelers, effectively raising service quality benchmarks across the town. Local association leaders emphasized that having Ms. Tharanga Rupasinghe, SLTDA Director of Standards and Quality Assurance, directly coordinate the field training ensures the program addresses practical, local challenges rather than just theoretical rules. Following the initial rollout, regional committees have pledged to work alongside the SLTDA to ensure that even the smallest village artisans and micro-enterprises achieve official registration, positioning Ella as a model hub for high-quality, community-driven sustainable tourism.
Business
Sri Lanka–Indonesia Business Council holds 3rd Annual General Meeting
The Sri Lanka–Indonesia Business Council of The Ceylon Chamber of Commerce held its 3rd Annual General Meeting recently, bringing together Council members and key stakeholders to review the Council’s activities and priorities for the year ahead. The AGM was graced by Dewi Gustina Tobing, Ambassador of Indonesia to Sri Lanka and Patron of the Council
Delivering her address, Dewi Gustina Tobing, Ambassador of Indonesia to Sri Lanka, provided a comprehensive overview of Indonesia’s political and economic landscape, highlighting the country’s focus on promoting economic independence, strengthening sectoral resilience, improving public welfare, and facilitating both inbound and outbound investment.
Re-elected as President of the Council for 2026/27, Sheamalee Wickramasingha, Chairman / Group Managing Director of Ceylon Biscuits Ltd. acknowledged the instrumental role played by the Ambassador in the re-establishment of the Council and reflected on the Council’s key achievements during the past year. She highlighted the successful Sri Lanka–Indonesia Business Delegation to Indonesia, which provided valuable opportunities for Sri Lankan businesses to engage with Indonesian counterparts and explore avenues for commercial cooperation.
Business
LAUGFS Supermarkets opens 46th outlet in Kotahena
LAUGFS Supermarkets has further strengthened its growing retail presence with the opening of its 46th outlet at No. 78, K.B. Christy Perera Mawatha, Kotahena. The new outlet operates 24 hours a day, offering customers a wide range of products together with bakery and hot food options, providing greater convenience and accessibility to the surrounding community.
The new Kotahena outlet further expands LAUGFS Supermarkets’ growing network and reflects the Group’s continued focus on strengthening its presence in strategic locations across the country. The opening ceremony was attended by the Group Chairman, Group Executive Vice Chairman, Acting Group Managing Director/Group Executive Director and senior management.
Commenting on the opening, the Sector Managing Director/CEO – Retail, Niroshan De Silva, said, “The opening of our 46th outlet reflects the dedication, teamwork and determination of our people, who have worked exceptionally hard to bring this outlet together. The new Kotahena outlet is designed to offer customers greater convenience, with an inbuilt bakery and hot food facility that provides freshly prepared food alongside our wide range of products, all under one roof. Our focus is to ensure that every LAUGFS Supermarket operates to the highest standards and consistently delivers quality, convenience and service excellence to our customers.”
The opening of the Kotahena outlet marks another significant milestone in LAUGFS Supermarkets’ ongoing expansion, bringing its products and services closer to more customers while further enhancing its 24-hour retail offering. With its growing network of outlets and continued focus on customer convenience and service excellence, LAUGFS Supermarkets remains committed to strengthening its presence and creating greater value for customers across Sri Lanka.
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