Ceylon Chamber of Commerce and the Politics of Commerce

The banner headline of the financial section of The Island on Monday last week, caught this writer’s attention.  The headline went as follows: "Exporters raise red flags, ask for GSP+".  This article quoted a comment by the outgoing chairperson of the export section of the Ceylon Chamber of Commerce, Ms Dawn Austin, addressing the 16th AGM of the Exporters’ Association last week to the effect that the exporter community had been excited at the news that the government was planning to re-apply for the EU GSP+ which would enable the country ‘to regain its competitive edge’ and ‘recover lost ground’. She is even reported to have described GSP+ as ‘the mantra’ for Sri Lankan exports. She had also commented on how disappointed the exporter community was when they learnt that the government had no plan to reapply for GSP+.

In that context, she was quoted as saying; "Unfortunately, this excitement died like a damp squib when an announcement was made that the application for review of GSP+ was not in the pipeline. The benefits would have energized the export sector like no other incentive can ever achieve. This would be a dream come true for many sectors and if there is any possibility, I would urge the authorities to consider this facility as a special case which would, without a shadow of a doubt, result in exponential growth."

This writer phoned Dawn Austin to get a comment from her about this matter but she was unable to do so at that moment and anyway she said that it would be best for us to speak to the present office bearers of the Ceylon Chamber of Commerce Export Section which will be meeting on Monday (tomorrow).  Since this writer is unable to do that, we would like to set out our views on this matter for the consideration of the Export Section of the CCC. At the outset we have to say that the business community is the unsung hero of this country. It is largely the private sector that kept the country afloat through the decades of war and political turmoil. The exporters and especially those exporting non-traditional goods are the heroes who rank highest in the hierarchy because they do the most difficult job.

It is no easy task to break into an export market and maintain market share. Recently, at the inaugural address of the new Chairman of the Ceylon Chamber of Commerce, Suresh Shah said that "We are a small nation both in terms of population and size of economy. Too small in fact, to achieve sustainable growth by doing business amongst ourselves.  We are also an import dependent country. Both of these suggest that prosperity will come to us only if we become an export centric nation." Very true words indeed. But a comment has to be made about the way suggested by the outgoing chairperson of the CCC Export Section to regain Sri Lanka’s competitive edge and to revitalize the export sector.

She had described GSP+ as the ‘mantra’ of the Sri Lankan exporter community. That shows that the exporter community is unaware of what GSP+ is, which is why we are penning this note for the use of the CCC Export Sector. The following are some basic facts about GSP+.

1. The GSP+ scheme of the European Commission was created in 2005 and Sri Lanka was one of the first recipients of GSP+. At present the scheme has only 15 members -  Armenia, Azerbaijan, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Georgia, Guatemala, Honduras, Mongolia, Nicaragua, Peru, Paraguay and Panama.

2. Of the above mentioned countries, only three countries Armenia, Azerbaijan, Georgia and Mongolia are genuine members of the GSP+ scheme who have applied and got in through the front door. The other eleven, - all Latin American countries - got in through the back door because they all happen to be countries producing narcotics. Prior to 2005, the EU had a special scheme of GSP preferences for countries affected by drug production and all these eleven countries were in that scheme. When the GSP+ scheme was created, they were all shifted to the GSP+ scheme.

3. Even though GSP+ recipients have to ratify 27 international rights conventions and are required to answer questions put to them by the EU, these drug producing countries are given GSP+ with no questions asked because the EU is desperate to wean them away from producing narcotics and exporting same to the EU countries. Sri Lanka was kicked out of the GSP+ scheme because of non-compliance, but those 11 lucky countries don’t have to comply with anything to continue receiving GSP+.

4. The EU has three GSP schemes, the General Scheme which at the moment benefits about 176 countries, the GSP+ scheme which benefits 15 countries and the zero duty scheme for the least developed countries which benefits 49 countries. After being kicked out of the GSP+ scheme, Sri Lanka is now in the General GSP scheme with 176 other countries, getting a rebate of something like two thirds of the normal tariff into the EU.

5. Technically, all 176 countries in the general GSP scheme are eligible to receive GSP+ provided they meet the conditions. But in the eight years since its creation, only five countries (including Sri Lanka) joined the GSP+ scheme.  None of the exporting nations in Asia have applied for GSP+. India, Indonesia, Thailand and Vietnam and other such countries are eligible to apply for GSP+ but none of those countries ever will, because the terms and conditions to receive GSP+ are such that it will have serious implications regarding the sovereignty of the recipient nation.

6. GSP+ is a death trap in economic terms as well. The whole General System of Preferences scheme was originally conceived as a scheme whereby the poorest countries will be given zero duty access to the EU market, and after they attain a certain economic level, they will lose the zero duty status and move up to the general GSP scheme. When Sri Lanka was a poor country we too had zero duty access to the EU market but after becoming a middle income country, we moved up to the general GSP scheme. There is nothing called remaining at the zero duty level for ever because that would mean that the export sector of that country is not competitive.

7. The three genuine entrants to the GSP+ scheme - Azerbaijan, Armenia and Georgia are not really exporting nations by any stretch ofimagination and the only reason they may have applied for GSP+ is for whatever prestige and veneer of international respectability that may bring these new countries.

8. The Sri Lankan case in fact provides the best example of what can happen to a country if they apply for GSP+. Before Sri Lanka got GSP+ in 2005, the export sector was doing OK, and nobody was asking for zero access to the EU market. At that time, even though SL had to pay a tariff to the EU, exports were growing year by year.  But after just five years of GSP+ from 2005 to 2010, the Sri Lankan export sector is now unable to do without it. This is precisely why no exporting nation in Asia ever applied for GSP+. The UNP government of 2001-2004 and the Chandrika Kumaratunga government of 2004-2005 did not know whether they were sitting or standing in relation to many matters - including GSP+.

9. Even though Dawn Austin refers to GSP+ as the ‘mantra’ of the export sector, the EU’s GSP schemes are not written on stone. The EU changes the law from time to time and no one knows whether any of these GSP schemes will be in place a few years hence – especially given the uncertain economic environment in Europe. So by being so dependent on the GSP+ scheme, Sri Lankan exporters will be living on borrowed time.

10. The government should not under any circumstances reapply for GSP+ and the exporters should be informed enough not to ask the government to apply for GSP+  for two reasons - the first being that no nation can comply with the  conditions set out for GSP+ without a serious loss of sovereignty. The second reason is that making the export sector of a country dependent on zero duty access to the EU market, is the surest way to destroy the competitiveness of the export industry.

11. A lot of exporters in Sri Lanka have a tendency to take Bangladesh as a country that gets zero duty access to the EU and they complain that we cannot compete with Bangladesh on that account. Saying such things is misleading to the general public. Bangladesh is not a recipient of GSP+. They get zero duty access to the EU market because they are one of the 49 least developed countries in the world. Bangladesh is lucky because they get zero duty access to the EU with no questions asked and they will continue to get that facility so long as they continue to be in that state. The only way for Sri Lanka  to get what Bangladesh is getting, would be to ask the JVP to burn all the factories, destroy all the buildings and hotels and kill a good proportion of the skilled workforce in Sri Lanka so that we are reduced once again to the level of a least developed country. The other way would be to give the European mafia land in the Vanni to cultivate narcotics. That will being the EU to us on their bended knees and they will give us GSP+ for drug producing countries with no questions asked. The bottom line is that no government in its proper senses will ever apply for GSP+. Exports are no doubt important for the country but exports exist for the country, they country does not exist for exports. Our exporters too have to face the existing realities. For example, when Suresh Shah made his inaugural address as Chairman of the Ceylon Chamber of Commerce, he said "To our north lies what is potentially one of the world’s most powerful economies. India could be to Sri Lanka what China was to Hong Kong, what ASEAN was to Singapore." But when Dawn Austin, the Chairperson of the Export Section of the same Ceylon Chamber of Commerce, made her speech at their AGM just four weeks after Shah, she said the following: "While India is recorded to be Sri Lanka’s largest trading partner, despite the FTA being in place, there are inexplicable and insidious non-tariff barriers implemented to dissuade Sri Lankan exporters from tapping into the vast Indian retail market." Since that is the case, why was the CCC Chairman Shah even talking about India? The Indian situation is not going to change ever, and they will never be a China or an ASEAN to us. So there is no point in salivating after the Indian market.   It’s the same with regard to GSP+. There is no doubt that Sri Lanka has to keep exporting. But SL’s export strategy will have to factor out the Indian market and zero duty entry to the EU through GSP+.

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