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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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CIPM to host World HR Congress 2021 from December 6 – 8 in virtual mode

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Officials at the head table (L to R): Priyankara Seneviratne-Hony. Secretary CIPM, Dhammika Fernando-Chairman World HR Congress 2021, Jayantha Amarasinghe-President CIPM, Prof Ajantha Dharmasiri-Co-Chairman, World HR Congress 2021 and Chairman-Technical Committee World HR Congress 2021, and U. A. C. Obeysekera-CEO, CIPM

CIPM Sri Lanka – the Nation’s leader in human resource management together with the World Federation of People Management Associations (WFPMA) and Asia Pacific Federation of Human Resource Management (APFHRM) announced that the world’s most premier people event “World HR Congress 2021” will be held from December 6 to 8 2021 as a virtual conference experience in Colombo, Sri Lanka.

The theme of the congress “Exalting People Professionals Amidst a Planetary Pandemic: Explore, Expand and Excel” is aptly selected as the people factor is at the pinnacle of limelight amid the planetary pandemic. The 3 value-packed days will deliberate on digitalization, disruption, diversity, and diligence regarding the distinct dimensions of human resource management with a select panel of world-renowned speakers lined up to share insights and thought-provoking ideas enabling thought leadership in the new world of work. The prospectus, registration, numerous sponsorship opportunities available, and more information can be found at https://wfpmacongress.com/ which is the dedicated website for Word HR Congress 2021.

“We take pride in hosting this prestigious people event in Sri Lanka. In a world disrupted by the pandemic, we need resilience as well as inspirational leadership to proceed into the future. New expectations and challenges have emerged in a new world of work and life. Innovation, best practices in people engagement, and trust are critical to achieve sustainable growth and rebuild our future. The World HR Congress 2021 is the apt place to deliberate the challenges and opportunities to strategize the New HR Agenda” said Jayantha Amarasinghe-President, CIPM Sri Lanka.

“The World Congress is an opportunity to bring together the continental federations and the national associations of 93 countries which make up the WFPMA. As the premier federation of people management associations, we are a globally recognized authority to support the people management profession throughout the world. Blending thought-provoking speakers with networking opportunities, this is a ‘must-attend’ congress that presents some of the best and brightest minds in the global people profession who will share the latest practices, research, and innovations to develop your knowledge and help you shape your organization’s future” said Bob Morton – President, WFPMA inviting people professionals and business leaders to participate in the Congress.

The virtual conference will consist of 4 plenary sessions, 4-panel discussions, and 4 rounds of concurrent technical sessions. The line-up of 21 experienced international panel of speakers, presenters, and panelists includes Johnny C. Taylor, Jr – President and CEO, Society for Human Resource Management-USA, Peter Cheese – CEO, Chartered Institute Personnel Development-UK, Sunita Bhuyan-Violinist & HR Practitioner on Wellness, Prof. TV Rao – Chairman, TVRLS-India, Paul Mills – Chief People Officer Mercedes AMG Petronas F1 Team, and Dr. Archana Arcot – Assoc. VP HR Business Leader, Infosys McCamish-USA amongst many more experienced speakers.

“The World HR Congress is being held at a very crucial juncture of mankind. We are dealing with many complexities on top of this pandemic, juggling with people, planet, and profits. The new industrial era has already dawned, and we are on the brink of the next big thing, the 5th industrial revolution, where the human and machine will dance together as technology will help humans to vastly increase labor productivity and to align return on investment with purpose. However, it will require intentionality and moral clarity. Now that we are grappled with the corona pandemic, we shall overcome by getting used to the next normal where the world of work is challenged the most. The World HR Congress 2021 premier people event will explore, expand and excel in what matters in the new world of work and life” said Dhammika Fernando-Chairman, World HR Congress 2021 and Immediate Past President-CIPM Sri Lanka, President- Asia Pacific Federation of Human Resource Management, Board Director- WFPMA.

“Despite the doom of a devastating pandemic, we see the boom of people factor in corporates with a deeper realization of the value of human wellbeing. World HR Congress 2021 invites people professionals to engage in a cutting-edge learning endeavor towards expansion” said Prof. Ajantha Dharmasiri, Co-chair of the World HR Congress 2021, who as a Past President of CIPM was instrumental in receiving the hosting rights during the previous World HR Congress, held in Chicago, USA in 2018.

With the impressive line-up of speakers and panelists sharing insights and experiences, networking opportunities with like-minded professionals to share best practices in people management in the new world of work, the World HR Congress 2021 provides a rare opportunity for people professionals and business leaders to mitigate the risks and challenges in a new world of work.

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Sri Lanka Tourism kicks off film tourism promotions with Indian cinema

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The Indian Cinema is considered to be one of the busiest entertainment industries in the world by making over 2000 films per annum. While Mumbai based ‘’Bollywood ’’ leads the table (15 % from all Indian film productions), collectively Southern Indian Cinema contribute a higher proportion of film productions (Telugu 14%, Tamil 12%, Kannada 12%, Malayalam 11 % ). In 2015, Indian Cinema had the box office gross of USD 2.1 Billion, which is the third largest in the world. Overall revenue in 2019 was USD 2.7 Billion. The combined revenue of Southern Indian Cinema Industry (Telugu, Tamil, Kannada and Malayalam film industries) represent over 50-60 % of the total revenue of Indian cinema.

In recent years, the industry trend of shooting Indian films abroad has taken attention of many international destinations. As it is contributing a lot to their local economies, many international destinations are competing to attract Indian films to film in their locations by offering various incentives and destination promotional packages.

Such films shot abroad: Kabali (Tamil), Singaporenalli Raja Kulla (Kannada), Orange (Telugu), Diamond Necklace (Malayalam), Jab Tak Hai Jaan (Hindi), Zindagi Na Milegi Dobara (Hindi) had a great attention from the local Indian fans while making commercial success. Growing number of Indian film directors are in search of fresh international destinations to shoot their upcoming films.

In fact, famous Indian film directress Zoya Akthar visited Sri Lanka in the month of October 2021 in search of fresh locations for her upcoming movie. Directress of Gully Boy ( Main Cast: Ranveer Singh & Alia Bhatt) , Dil Dhadakne Do (Main Cast : Anil Kapoor, Shefali Shah, Priyanka Chopra, Ranveer Singh and Anushka Sharma) and many other blockbuster films , arrival of Zoya Akthar shows the film tourism potential lies in with destination Sri Lanka.

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Extensive investment promotion activities in China for Hambantota Port’s Industrial Park 

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January 2021 – Shanghai – Visiting Stone Finishing Enterprise

A comprehensive promotional plan has been put in place by the Hambantota International Port Group (HIPG) to position the Port and its industrial zone as a haven of opportunity for setting up light industries. Many potential investors have been reached and discussions are ongoing for direct investment into the zone.

HIPG’s expert Port Investment team has been stationed in China for about a year, to inform and educate potential investors about new opportunities in Sri Lanka.  “We have approached more than 100 enterprises and public institutions which include investors, government sector and industry associations in Beijing, Tianjin and Hebei, East China, the Yangtze River Delta and the Pearl River Delta region etc.

“Our industry research and investment promotion activities have shown us that although potential investors know Sri Lanka as a tourist destination, they know little about the Hambantota Port and the opportunities, the country can open up from a more industrial and business related perspective.  They are unaware of the investment environment in Sri Lanka and HIP for overseas investment, a situation we intend to remedy,” says Justin Zhang, General Manager of Port Investment Services, HIPG.

“What is of primary concern to these investors is the supply chain, both upstream and downstream.  “They are familiar with market conditions where there are a multitude of raw material suppliers for different industries that can make market conditions competitive, which goes towards mitigation on the volatility of the supply of materials for production.  This is something HIP is working on parallel to bringing these investments into the country, which is in our Master Plan,” says Tim Xiao, Senior General Manager, Port Investment Services and General Affairs.

“Currently the HIPG Port Investment Services team is on the ground promoting the zone to diverse industries that will fit into the port’s Master Plan in upstream and downstream connectivity in port related industries. The preferred industries are rubber and tire, electric vehicles, electronic equipment, home electrical appliances, new materials for building, nano materials, etc. The investors are being made aware of what Sri Lanka has to offer in terms of tax incentives, low costs of labour, utilities, etc., as well as benefits arising from the country’s Free Trade Agreements. The strategic location of the Hambantota Port is another advantage for investors in terms of proximity to their markets coupled with the multifunctional logistics, port facilities and the added benefits from an industrial park adjacent to the port.

“Our endeavour in bringing FDIs into Sri Lanka, is to connect Sri Lankan and foreign partners in various industry sectors so that the country will realize its full potential. When approaching investors, we usually introduce the “HIP Speed” concept which includes our professional and efficient project team in Sri Lanka and China and the One-Stop Service facility. We also showcase projects such as our ‘Park in Park’ manufacturing operation, the Ceylon Tire Manufacturing Project and SeaHorse Yacht building as examples of how “HIP Speed” operates,” says Johnson Liu, CEO, HIPG.

HIPG says the future holds great opportunity for the South of the country, both in terms of skilled and semiskilled employment and for Sri Lankan investors to set up factories to strengthen the supply chains that will create win-win solutions for everyone. “One of our main objectives is to make HIP a Gateway Port for the Southern hinterland.  This requires more industries to be integrated into a smoother supply chain that could be developed, to cater to a massive export market for Sri Lanka,” says the CEO of HIPG.

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