Business

GSP+ withdrawal: How would it impact Sri Lanka’s economy?

Published

4 years ago

2021/10/1

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.

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Business

UN Global Compact Network Sri Lanka amplifies industry leadership

Published

21 hours ago

2025/04/19

Thilina Walpola

A UN Global Network Sri Lanka dignitary at the signing event making an address

UN Global Compact Network Sri Lanka is introducing a transformative patron structure for its Working Groups, set to take effect in 2025. This initiative strengthens the Network’s commitment to advancing corporate sustainability by amplifying the leadership of select companies within their respective issue areas. The Memoranda of Understanding (MoUs) were signed on March 20, 2025, at the 80 Club, in the presence of the Network’s Board Members.

Network Sri Lanka’s Working Groups have long provided a platform for businesses to exchange knowledge and drive industry-wide progress on sustainability. With this new structure, leading companies will take on an enhanced role in guiding participants within their Working Groups, offering mentorship, strategic insights, and best practices to drive collective action.

As Patrons, these companies will host events, provide guidance, and shape the direction of their respective Working Groups, ensuring that discussions translate into tangible, scalable solutions aligned with national and global sustainability priorities.

Meet the Patrons and Their Areas of Leadership

MAS Holdings (Pvt) Ltd – Gender & Diversity

MAS Holdings will lead the Gender & Diversity Working Group, championing inclusive business practices, gender equality, and women’s leadership in corporate Sri Lanka.

A. Baur & Co (Pvt) Ltd – Business & Human Rights

A. Baur & Co will lead efforts within the Business & Human Rights Working Group, championing ethical business practices, human rights protections, and responsible corporate conduct.

Talawakelle Tea Estates PLC – Climate Emergency Task Force

Talawakelle Tea Estates will drive action within the Climate Emergency Task Force, supporting businesses in climate change mitigation, adaptation and resilience strategies.

Kelani Valley Plantations PLC – Water & Ocean Stewardship

Kelani Valley Plantations will support the Water & Ocean Stewardship Working Group, focusing on sustainable water management and conservation practices.

Dilmah Ceylon Tea Company PLC – Water & Ocean Stewardship & Sustainable Supply Chain & SME

Dilmah will take on a dual Patron role, sharing its expertise in sustainable supply chains and water stewardship, particularly in global supply chain sustainability and marine biodiversity conservation efforts.

Teejay Lanka PLC – Sustainable Supply Chain & SME

Teejay Lanka will support the Sustainable Supply Chain Working Group, bringing its expertise in ethical sourcing, circularity, and sustainable manufacturing.

“As a steward of A. Baur & Co. (Pvt.) Ltd.’s 127-year legacy, built on ethical governance and the unwavering dedication of our people. Ensuring a living wage is not just a moral imperative, it’s also a smart business strategy. When the employees have the financial security they need, they’re more productive, engaged, and loyal. We recognize that this transformative change cannot be achieved in isolation. By working together with other stakeholders, we can create a ripple effect that benefits everyone. Through our commitment to advocating for a living wage, we aim to inspire broader private sector participation, facilitate the exchange of best practices, and strengthen the ecosystem for equitable economic growth in Sri Lanka.” – Rolf Blaser, Managing Director / CEO, A. Baur & Co. (Pvt.) Ltd.

Network Sri Lanka is the Country Network of the UN Global Compact, mobilizing businesses to integrate sustainability into their core strategies. Through its Working Groups, the Network facilitates peer learning, collaboration, and collective action to drive meaningful change across industries.

Business

Assetline Finance entity credit rating upgrade highlights strategic growth and stability

Published

21 hours ago

2025/04/19

Thilina Walpola

Ashan Nissanka, Director & CEO, Assetline Finance Limited

Assetline Finance Limited (AFL), the flagship company of the Financial Services Cluster of David Pieris Holdings, has received an upgraded entity credit rating from Lanka Rating Agency (LRA) to A with a Positive Outlook, up from its previous rating of A- with a Stable Outlook. This upgrade, along with the improved outlook, reflects AFL’s strong financial fundamentals, sustainable growth trajectory, and the increasing confidence of the market in its long-term stability and performance.

This new rating reflects the Company’s unwavering commitment to prudent financial stewardship, a strong focus on sound risk management practices, and a strategic approach to value creation. During the year, the Company demonstrated steady growth in its asset base, surpassing LKR 50 billion and reinforcing its strong position within the industry. This growth was driven by strategic investments and a disciplined approach to capital management, which has consistently reinforced the Company’s liquidity and financial position. It clearly demonstrates AFL’s operational efficiency and its ability to generate long-term shareholder value.

Commenting on the upgraded rating, Ashan Nissanka, Director & CEO of AFL, stated: “Our favourable rating further positions us to unlock greater opportunities, drive progress, and strengthen stakeholder trust. It is not just a reflection of where we stand today but symbolises our path ahead towards a stronger future.”

Furthermore, the Company maintained a strong and well-managed capital structure, with a capital adequacy ratio significantly above the minimum regulatory requirement. It also successfully secured international funding from the Japan-based ASEAN Women Empowerment Fund (JAWEF), managed by BlueOrchard Finance Ltd., a globally recognized impact investment manager. Securing this funding affirms the Company’s financial resilience and its ongoing commitment to empowering women entrepreneurs. Through its Liyadiriya initiative, the Company continues to improve financial accessibility for rural women, contributing to inclusive economic development.

The Company also expanded its geographical footprint by opening four new branches, increasing its total branch network to 59 and establishing a nationwide presence. This expansion was aimed at broadening the customer base, particularly in underserved areas, to promote financial inclusivity. It aligns with the Company’s strategic intent to support women entrepreneurs across Sri Lanka. Additionally, the Company’s lending focus remains aligned with national priorities, particularly in the renewable energy and SME sectors, which are seen as key drivers of long-term development.

Business

Sampath Bank partners with COYLE to champion SME growth and entrepreneurship

Published

21 hours ago

2025/04/19

Thilina Walpola

Sampath Bank recently formalised a strategic partnership with the Chamber of Young Lankan Entrepreneurs (COYLE) by signing a Memorandum of Understanding (MOU) at its Head Office. This partnership highlights Sampath Bank’s ongoing commitment to promoting innovation, driving business growth, and empowering Sri Lanka’s entrepreneurial ecosystem.

Through this collaboration, Sampath Bank will serve as the official banking partner for the COYLE Awards and the Young Lankan Program, two flagship initiatives that recognise business excellence and nurture emerging leaders. Supporting these initiatives allows the Bank to create a strong pipeline for SME engagement, provide access to tailored financial solutions, and build meaningful relationships with the country’s leading entrepreneurs.

Tharaka Ranwala, Senior Deputy General Manager – Marketing, Customer Care, and Card Centre, Sampath Bank (2nd from L), exchanged the MOU with Suren Chandraratna, Senior Vice Chairman, COYLE (2nd from R), in the presence of Anjali Goonetilake, Senior Manager – Marketing, Sampath Bank (1st from L), and Jayamal Gunaratne, Project Chairman, COYLE (1st from R).

The partnership further positions Sampath Bank at the forefront of SME development in Sri Lanka, distinguishing it as a long-term enabler of entrepreneurial success and a key driver of sustainable economic progress.