GSP-Plus concessions were initially granted to Sri Lanka in 2005, after the Tsunami. Nevertheless, in 2010, Sri Lanka lost the preferential access it had under GSP-Plus to the European market due to the failures in adhering to the human rights standards as set out by the provisions of the scheme. Between 2005 and 2010, under the preferential market access, the island’s exports to the EU grew on average by 7.96% despite a decline in consumer demand in Europe because of the financial crisis in the region from 2009 to 2010. Contrastingly, during the 2010-15 period, Sri Lanka’s exports to the EU grew by a mere 1.02% with the direct tariffs being reinstated on Sri Lankan imports to the EU, making them uncompetitive compared to similar imports from other developing economies such as Bangladesh, India, and Vietnam.

The impact was particularly severe on medium-sized apparel producers, as they did not possess the technical and financial resources to adequately diversify their export portfolio compared to the larger firms. As a result, with regional competitors such as Bangladesh and Vietnam producing similar products, a significant volume of both domestic and foreign investment relocated to these countries seeking preferential access to the EU market.

Sri Lanka regained the GSP+ status from the EU on May 19, 2017, after it had been revoked in 2010 due to concerns about human rights. The then Prime Minister Ranil Wickremesinghe’s decisive diplomacy in 2017 was immensely responsible for the restoration of the critical trade concession. The Sirisena-Wickremesinghe administration, which came into power in 2015, set out a path of major reforms, which aimed at national reconciliation, respect of human rights, the rule of law and good governance principles, as well as sustainable economic development in order to regain the facility. Since Sri Lanka re-gained GSP+ in 2017, its GSP+ utilisation increased from 55% in 2017 to 63% in 2019 while Sri Lanka’s total exports to the EU increased from Euro 2.6 billion in 2017 to Euro 3.0 billion by 2019.

As per a recent study carried out by the prominent think tank Institute of Policy Studies (IPS), the tariff hike in the EU–28 (EU as it existed with 28 member states, from 1 July 2013, to 31 January 2020) would cause an export loss of $ 1.23 billion or 36.7% of EU–28 bound exports from the base year 2019 exports. Wearing apparel and processing fish sectors are expected to take the brunt of the effect and face significant export losses. The fall in import demand from the EU–28 would also make 4.99% of total industrial employees in Sri Lanka vulnerable to adverse labour market outcomes in line with the base year. The EU is Sri Lanka’s second-largest trading partner after China and its second main export destination.

In an environment where the US – Sri Lanka’s largest export market – is contemplating of imposing reciprocal tariffs on countries with which it has trade deficits, driven by flawed and irrational views of Donald Trump, the significance of the EU GSP+ benefit becomes amplified. The absence of the vital trade concession would make the realisation of the Government’s overly ambitious export target of $ 36 billion near impossible.