SL wants to source Indonesian fabric to maximise GSP Plus gains

By Nishel Fernando 
As the GSP Plus concessions are set to expire in 2023, following Sri Lanka’s recent graduation to the higher-middle-income category, the government has requested the European Union (EU) to expedite the approval to source high-quality fabrics from Indonesia, in order to maximise apparel exports to the EU under the concessionary scheme.    

Sri Lanka currently has a 58 percent utilisation level of the GSP Plus facility. However, apparel, which amounts to 60 percent of the country’s overall exports to the EU, has only a 46 percent utilisation rate, due to the rules of origin, which restrict sourcing fabrics from cross-regional countries. 

“The so-called double transmission requirements caused low level utilisation of GSP Plus in apparel exports. In order to overcome this drawback, the Commerce Department and JAAF have been working on a cross-regional cumulation agreement with Indonesia and South Korea,” Development Strategies and International Trade Minister Malik Samarawickrama said.
He made these remarks addressing a seminar themed ‘Sri Lanka’s exports to the EU: Impact of GSP Plus’, organised by the Commerce Department, Delegation of the EU to Sri Lanka and the Maldives together with the European Chamber of Commerce of Sri Lanka, in Colombo, yesterday. 

Samarawickrama noted that in June 2018, Sri Lanka together with Indonesian authorities made a joint submission to the European Commission seeking the approval to source fabrics from Indonesia for apparel exports bound to the EU countries. 

“There has been a considerable delay in granting the approval for the joint submission. We seek the European Union Delegation’s support for a quick and favourable 
outcome,” he said. 

As per the EU’s double transmission requirements, the beneficiaries of GSP Plus could source fabrics from cross-regional countries, which enjoy similar trade concessions from the EU. Indonesia is currently a beneficiary of the EU’s GSP programme. 

A significant portion of Sri Lanka’s apparel exporters currently source fabrics from China, where GSP Plus is not applicable. Therefore, the apparel exporters believe that Sri Lanka’s apparel exporters will be more competitive in the EU markets, if Sri Lanka is able to source fabrics from Indonesia.  

Commerce Department Acting Director General Nimal Karunathilake emphasised that Sri Lanka’s utilisation of the GSP Plus facility would be significantly increased once Sri Lanka receives the EU’s approval to source fabrics of Indonesia. 

He noted that Indonesia possesses sophisticated and high-quality fabrics, which can be utilised to manufacture apparel for high-end EU markets.

  
Karunathilake also proposed the EU to consider granting an exemption on double transmission requirements as Sri Lanka is scheduled to lose the GSP Plus facility in 2023. 
Further, the Commerce Department is also currently discussing with South Korea on the possibility of submitting a joint extended cumulation proposal to the EU, in order to source fabric, as South Korea has a bilateral 
FTA with the EU.

However, Karunathilake noted that the proposal has faced a bottleneck as South Korea doesn’t have the mechanism to certify the country of origin for extended cumulation.
Meanwhile, Delegation of the European Union to Sri Lanka and the Maldives Chargé d’affaires Thorsten Bargfrede urged Sri Lanka to focus on high-quality and sustainable production while diversifying the current export basket to maximise the benefits of the GSP Plus facility.

“Sri Lanka could move further towards sustainable production concepts such as organic produce, green production and fair trade practices. Such practices are highly valued by consumers around the world and in particular in the EU,” he said.

The EU remains as Sri Lanka’s largest trading partner and export destination by accounting for 16 percent of the country’s total trade and 30 percent of total exports in 2018.
After regaining the GSP Plus facility in 2017, Sri Lanka’s export earnings have increased by over 20 percent to date. 

“We thus believe that GSP Plus has worked well for Sri Lanka. However, GSP Plus still offers great future potential for Sri Lankan companies. The GSP utilisation rate is currently still relatively low. We hope that this will improve in the future,” Bargfrede said.