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

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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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DIMO CERTIFIED guarantees peace of mind for vehicle owners seeking a luxury upgrade

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DIMO, one of the leading conglomerates in Sri Lanka, is providing customers who are planning to buy pre-owned luxury vehicles, with speedy, hassle-free, trusted service, through its pre-owned vehicle sales arm ‘DIMO CERTIFIED’.

With the re-launch of DIMO CERTIFIED in 2019, the company has expanded its range of pre-owned vehicles beyond Mercedes-Benz & Jeep models by also offering hand-picked and well-maintained Luxury European vehicle brands registered within the past 10 years, under one roof.

With its 80 year history, DIMO offers unparalleled trust and reliability of expertise in the automotive industry where all vehicles come with a minimum of One Year warranty against unlimited mileage. All vehicles handpicked by DIMO CERTIFIED are guaranteed to have genuine mileage with precise servicing and maintenance since the day of import to the country. Vehicles that are bought from DIMO CERTIFIED are assured of a high resale value due to the comprehensive checks done at the time of purchase for resale and thereafter being refurbished to a standard ‘as Good as New’. In the event the new buyer is selling the vehicle at some point in the future, DIMO CERTIFIED also offers a guaranteed buy back facility.

Customers can avail themselves to attractive Personal Contract Plans with lowest interest rates from some of Sri Lanka’s leading financial institutions where they can drive away in their new Luxury European vehicle by making only a 30% down payment. In the event the buyer decides to upgrade to another vehicle prior to the end of the leasing period, DIMO will also step in to settle the balance payment immediately and extend the opportunity to trade-in for another vehicle of their choice.

The highly-reliable DIMO 24-hour Roadside Assistance provides customers ‘peace of mind’ wherever they travel in their vehicle as expert help during a rare breakdown is only a phone call away.

General Manager – DIMO CERTIFIED Pre-Owned Vehicles of DIMO, Tharanga Gunawardena stated, “We have been able to successfully elevate the pre-owned business to a whole new level through our DIMO CERTIFIED service. We have enhanced our services by adding several attractive features to set the benchmark for the automobile industry. Those who want to realize their aspiration of owning a Mercedes-Benz, Jeep or any other Luxury European vehicle need not look elsewhere.”

All the vehicles available at DIMO CERTIFIED along with special offers are displayed on the www.carsatdimo.lk website and provides a hassle-free way for prospective buyers to access all key details. Customers are assured of the best prices when purchasing their vehicle while special trade-in options are also available for regular customers. With highly-experienced technical professionals providing the best after-sales service, DIMO CERTIFIED customers can enjoy a hassle-free experience with their Luxury European vehicle. A dedicated WhatsApp number 0771449797 has been made available for customers to contact a Sales Consultant directly to enquire about any product or offer listed on the website.

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Chrissworld engages CDS for registrar services

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Central Depositary Systems (Pvt) Ltd (CDS), a fully owned subsidiary of the Colombo Stock Exchange (CSE), has strengthened its client base for the provision of registrar services with the addition of Chrissworld PLC. The CDS will provide the listed company with a variety of services such as share ledger maintenance, virtual AGM’s and all types of corporate actions. The CDS plays a role in driving innovation and offering cost effective solutions with value additions.

Speaking at the development, the CEO of the CSE, Mr. Rajeeva Bandaranaike, said, “We welcome Chrissworld PLC to the CDS portfolio. The CDS is uniquely positioned to offer value added Registrar services to listed entities in Sri Lanka, and the CDS is very confident that Chrissworld PLC will fully benefit from the services provided .”

Chairman of Chrissworld PLC, Mr. Christopher Perera stated, “We are very pleased to sign this agreement with the CDS as the registrar. The process of working with the CDS has been a rewarding experience for Chrissworld PLC, and going forward, we are confident that there will be excellent co-operation between the two companies and that the CDS will efficiently manage all our affairs. “

Chrissworld PLC was founded in 2013 and provides third-party logistics services specializing in warehousing, inventory management, distribution, and transportation. The company was listed on the Colombo Stock Exchange on May 18th, 2021, the first ever company to be listed on the Empower Board.

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Women in Management, IFC and Government of Australia recognise inspiring women from Sri Lanka and Maldives

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The ‘Top50’ Professional and Career Women Awards 2021 – hosted by Women in Management (WIM), in collaboration with Women in Work, a partnership between IFC and the government of Australia – recently honoured inspiring professional and career women in Sri Lanka and Maldives making a mark in their respective fields.

The 11th edition of the awards ceremony celebrated women representing a wide array of professions from industries including hospitality, banking and finance, logistics and supply chains, entrepreneurship, and media and law, among others, for excellence in either their chosen careers or for inspiring women in their community. The awards also lauded Sri Lankan corporates that have supported the growth and empowerment of women in the workplace.

Top awards were conferred to Dr. Maheshi Ramasamy (Inspirational Professional Woman of the Year), Prof. Nadira Karunaweera (Inspirational Woman of the Year), Aruni Goonetilleke (Trail Blazer), Randhula De Silva (Game Changer of the Year) and Dr. Vajira Chithrasena (Judges Award). The full list of awardees is listed below.

“The 2021 awards are a celebration of resilience, optimism, hard work and growth. As we step into a third year of a pandemic, this year’s winners remind us of the possibilities and opportunities that can exist in adversity,” said Dr. Sulochana Segera, Founder/Chairperson of Women in Management (WIM). “They also remind us of the extraordinary potential women in Sri Lanka and the Maldives are capable of, especially in challenging the status-quo for greater good. Women are often hesitant to take their spot in the limelight, but over the past decade, the Top50 Awards have created a platform helping them showcase their talents and achievements, and importantly to inspire others.”

With over 470 past award winners, the ‘Top50’ Professional and Career Women Awards aim to showcase the significant role women play as leaders, employees, entrepreneurs, and stakeholders in contributing to sustainable and inclusive economic growth in the country.

Marking IFC’s seventh consecutive year in co-hosting the event, Victor Antonypillai, Acting Country Manager for IFC Sri Lanka and Maldives said, that “To ensure a resilient recovery, the path should be gender inclusive – women should be at the heart of the path to recovery. We need to ‘build forward fairer’ for economies and societies to build back better.” Supported through the IFC-DFAT Women in Work program, this year’s Top50 Awards aims to showcase the resilient leadership Sri Lankan women have shown, amid a pandemic.

Also, speaking at the event, David Holly, Australian High Commissioner to Sri Lanka and Maldives remarked that, “Over the years, the ‘Top50’ Awards have shown the power of women in business inspiring many others in leadership and in society more generally. The 2022 Awards are a tribute to the resilience of Sri Lankan women, particularly throughout the COVID-19 pandemic.

The ‘Top 50’ Professional and Career Women Awards 2021 were powered by Dialog, along with Gold Sponsors Salota International and Singer. Silver sponsors for the awards included Lanka IOC, Unilever, Vision Care and Aitken Spence. Maliban and Sampath Bank were also sponsors of the event, and the gifting Partner for the award ceremony was New Vivya.

Speaking of the award winners, Nadija Tambiah, Head of Legal, Secretarial and Corporate Social Responsibility at John Keells Holdings and Chair of 2021 Judging Panel, said that the “quality of the women who were nominated or who applied this year was impressive. We were forced not only to look at the accomplishments of these women in their chosen vocations but also what impact they have had in the industry and what they have done for women in their organisations.”

This year’s Judging Panel—chaired by Nadija Tambiah—included Jayanthi Dharmasena, Managing Director of Hayleys Agriculture Holdings Ltd; Kishu Gomes, Group MD/CEO of Dreamron Group of Companies; Nisthar Cassim, Founding Editor and CEO of Daily FT; Rohantha Athukorala, CEO of Clootrack Sri Lanka/Maldives & Pakistan; Sandra De Zoysa, Group Chief Customer Officer at Dialog Axiata PLC; Sandya Salgado, Strategic Marketing Professional; Santosh Menon, CEO of KL.LK; Amanda Jewell, Acting Australian High Commissioner for Sri Lanka; and Sarah Twigg, Program Manager for Women in Work at IFC.

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