What, if we lose the GSP Plus?
Well known economist Dr.
Saman Kelegama looks at the issue
Such “end of the industry” fears were
expressed in the past: (i) when an embargo on certain categories
of our apparel exports and countervailing duty were imposed by
US in 1993 (it was a temporary imposition), (ii) before NAFTA
came into operation in 1994, (iii) when AGOA ( African Growth
and Opportunity Act) of the US Congress gave preferential access
to apparel exports from Sub-Saharan African countries, (iv)
before MFA came to an end at a time of increase competition from
China, and so on; but we did not witness such “ end of the
industry”. The industry will survive but the industry will have
to work harder/smarter and the government will have to remove
existing impediments to the industry
The issue of whether Sri Lanka will lose the GSP -Plus
(Generalized System of Preference) facility which particularly
has helped the garment exports to the European Union markets
ever since the end of the quota system has created a certain
amount of fear in the industry. At the bottom of this issue has
been the allegation that human rights situation has been
deteriorating with the resumption of the war in the north and
the east. This has also led to much debate and discussion in the
In this back drop The Nation Economist spoke to Dr. Saman
Kelegama, an eminent economist who also heads the Institute of
Policy Studies which is an independent think tank. Dr. Kelegama
is of the view that governance issues in developing countries
cannot be addressed by trade penalties. He says that there are
enough examples around the world to show that trade sanctions
and embargoes cannot be used to solve non-trade issues.
He says that such measures will in fact aggravate the situation
with regard to the rights of the people who are employed in the
apparel industry. It would adversely affect approximately 1.2
million livelihoods that are dependent on the apparel industry.
According to him such measures would keep Sri Lanka off track
from achieving its Millennium Development Goals by 2015.
Following are the excerpts of the interview.
Q: In the case of a worst scenario where Sri Lanka ends up
losing GSP +, what would be the alternatives available apparel
sector will have?
A : If Sri Lanka does not get the extension to the GSP plus
scheme, we would be still entitled to benefit from tariff
concessions under the EU General Scheme - so we would still have
access to the EU market at preferential terms but not on duty
free terms. It is also important to note that the US still
continues to be the major export market for Sri Lankan apparel
exporters and account for some half of Sri Lanka apparel exports
though its share has declined since 2005 while EU has managed to
increase its share over time.
Sri Lanka will have to hold on to its share in the EU market by
becoming more competitive. This is by no means an easy task when
cost of production is going up due to both domestic and
international factors. But firm levels of innovative methods
will have to be found to cut cost by reducing overheads and
wastage, using energy saving methods, etc. Given that the
apparel sector is a key employment generator in the country, the
government should also consider a relief package to assist the
sector to hold on to the existing markets in the EU.
Q: Many say that loosing of GSP+ will be the end of the thriving
Sri Lankan apparel sector. What is your opinion?
A: Obviously the loss of duty free access to the EU would
have adverse implications on the industry, as Sri Lanka exports
would not be as competitive as before but to state that it would
be the end of the thriving apparel sector would be to overstate
the problem. It is important to also bear in mind when one looks
at the implications of the withdrawal of the concession, it is
also important to examine to what extent Sri Lanka has been able
to make use of the concessions to date. In this regard, it’s
important to look at the utilisation rate. The utilisation rate
of concessions under the GSP plus scheme for textiles and
garments stands at about 60 per cent in 2006, meaning that Sri
Lanka has not been able to make 40 percent of the concessions
extended due to various reasons such as inability to meet the
stipulated Rules of Origin for example. While Sri Lanka
increasingly benefited from GSP plus scheme, Sri Lanka has not
made the full potential of the agreement.
Such “end of the industry” fears were expressed in the past: (i)
when an embargo on certain categories of our apparel exports
and countervailing duty were imposed by US in 1993 (it was a
temporary imposition), (ii) before NAFTA came into operation in
1994, (iii) when AGOA ( African Growth and Opportunity Act) of
the US Congress gave preferential access to apparel exports from
Sub-Saharan African countries, (iv) before MFA came to an end at
a time of increase competition from China, and so on; but we did
not witness such “ end of the industry”. The industry will
survive but the industry will have to work harder/smarter and
the government will have to remove existing impediments to the
But let me say this. The Minister of Export Development and
International Trade together with the Ministry of Foreign
Affairs and the Ministry of Enterprise Development and
Investment Promotion have been working very hard to ensure that
Sri Lanka will continue to benefit from the GSP-plus scheme.
They are at it and will be putting all efforts to ensure that
the scheme continues.
Q: What are the other markets apart from US and EU that Sri
Lankan garments presently have a significant presence?
A: The US accounts for about 50 percent of garment exports
while the EU has a share of 45 percent. The rest is accounted
for by Canada and others, which is negligible.
Q: During the quota regime we thought loosing of quota will
be the end of SL apparel industry. But as we all know GSP + came
and proved itself better than quota. Don’t you think that losing
of GSP+ will pave the way for something better as the history
has a tendency to repeat?
A: First, I think it’s misleading to think that GSP-plus
scheme helped to shore up the industry after the phase-out of
quotas. Obviously getting such concessions helped the industry
to some extent at a time when quotas were withdrawn but one must
also acknowledge the various activities undertaken by industry
in preparation for the phase out and for coming up with
innovative solutions to better cater to their customers and
thereby keep Sri Lanka’s competitive edge.
Secondly, the silver lining in the phase-out of the MFA and the
impending possibility of Sri Lanka losing the GSP plus scheme
(if there is any) is that Sri Lanka industry needs to be
competitive and should be able to stand on its own ground and
not rely on quotas or non-reciprocal tariff concessions which
can be withdrawn at the whims and fancies of the grantor
countries. The GSP scheme is a voluntary scheme and grantor
countries such as the EU have no obligation to provide such
concessions to Sri Lanka or to the other beneficiary countries.
Even if we get an extension this time around, it would be up for
renewal in a couple of more years and so there is to some extent
uncertainty associated with non-reciprocal trade agreements. The
lesson which we could take from the GSP plus incident is that
country should strive to be competitive as much as possible
which obviously would mean that we have to improve the supply
side capacities in the country.
Q: Having the GSP + crisis in the backdrop, recently we have
been able to witness several apparel giants in the county namely
Brandix, MAS and Hirdramani are going for many new investments
of large scale. Can you please explain the rationale behind it?
A: This is not a recent phenomenon. Even before the end of
the quotas, Sri Lankan manufacturers set up factories abroad in
places like Bangladesh, Jordan, the Maldives to name a few to
make use of the quotas of these countries. But the reasons for
the large scale manufacturers such as MAS and Brandix to venture
abroad in recent times namely to India is due to many reasons;
1) increasingly customers are looking at India as their main
sourcing destination with companies such as Nike, and M&S which
are also customers of Brandix and MAS sourcing their needs from
India. Moreover, they are not only attracted by the huge and
growing retail market in India but its vertical production
structure, which is weak in Sri Lanka. India also happens to be
the world’s second largest producer and consumer of cotton and
has the largest spinning capacity in the world. In view of
capturing opportunities at its doorstep, both Brandix and MAS
have ventured into India and have set up textile and apparel
parks offering one-stop-shop solutions to its customers.
Dankotuwa breaks into
which already supplies many European markets, finally succeeded
in entering the German market as well. “We have been trying the
German market for sometime, because it is the most sophisticated
for porcelain, with a history of 250 years of using porcelain,
and are delighted that we finally succeeded,” said, Chairman,
Dankotuwa Porcelain, Sunil Wijesinghe. Manager, International
Market, Poorna Pemasena, says that Germany has the greatest
potential, with a population of 85 million. He adds that,
supplying to the German market is not easy because every German
knows how to identify good porcelain and can differentiate
between genuinely good quality and what appears to be good
quality at first glance. Bernd Hofmann, whose company is the
Dankotuwa agent in many European countries and who has helped
Dankotuwa over the last 20 years, to reach higher standards of
quality, says, “Germany had about 64 factories producing
porcelain, but they are almost all closed down and production
shifted to the East and Asia. However, the German people
understand porcelain and would never compromise on quality. It
is for this reason that Dankotuwa was able to interest German
suppliers, because of its very high quality”.
Dankotuwa will shortly make its first shipment through Michael
Fischer oHG, one of the largest distributors in Germany. Edmund
Staniewski of the Company, was here recently to check out the
factory and complete the deal. Negotiations with them commenced
during the Ambiente Trade Fair in Frankfurt, Germany, last
February. Ambiente is the most popular fair for many household
products, including tableware and gift items and Dankotuwa
participates in this every year. Eighty-four countries
participated at this fair and included over one thousand
exhibitor stalls relating to tableware, kitchen and household.
“The initial discussions with Michael Fischer, during the fair,
was the starting point and they were very impressed with the
quality of the samples we showed,” explained the Chief Operating
Officer, Dankotuwa, Sarath Mallawa Arachchi, adding that the
Company has also obtained the services of a specialist German
designer and an expert modeller to assist the Company in serving
this new customer.
Michael Fischer supplies to Department stores, Supermarkets,
Discount stores, Furniture stores, retailers and also sells its
products by mail order. Dankotuwa products will be mainly at the
upper end and will include well-known German Department stores
such as Karstadt, which has about 90 stores, and Kaufhof
Galleria, which has about 120 stores. Staniewski explained that
the new trend is to display porcelain in furniture shops with
its huge space advantage. On average, the German furniture
stores have about 60,000 square metres of space and they are
able to provide adequate space to display porcelain well.
Furniture stores have many events during weekends and attract
around 25,000 visitors, with bus services to bring in customers
from afar as 250 km. They have good restaurants and have become
a full day shopping experience for customers, especially during
weekends. This is the new trend he said.
Staniewski says he was astonished by the number of manual
quality checks in the factory and was impressed with the manner
in which the production process takes place and the cleanliness
of the factory and premises. He has already ordered two 20 foot
containers per month, for the next several months. He warned,
however, that future orders will depend on punctual delivery. He
will start with white-ware and migrate to more value added
decorated-ware later. “This would be our challenge” said Mallawa
Arachchi, adding that “Dankotuwa is structured to produce high
quality porcelain with difficult shapes and surface designs and
this means that, our production cost is high, and therefore, we
need customers who value our quality”.
Talking about his first impression of Sri Lanka, Staniewski says
that people are very friendly, it is a beautiful country. The
only negatives are the hot climate and the presence of the
military. “If not for the war, this would be paradise” he added.
Chairman Wijesinghe says that the approach of the Company is to
have good business partners with long term benefits to both
parties, and this is one more partner under this strategy.
Need of the hour
Although the government charges fees in dollars from foreign
tourists in places such as the national wildlife conservation
parks, it does not pass on any of the benefits of those dollar
earnings to the local community living around those areas, said
the President of the Sri Lanka Eco-tourism Foundation, F.De S
Palitha Gurusinghe at a function to meet Marion Hammerl,
President, Global Nature Fund – an award winning Eco-tourism
promoter, at the Mount Lavinia Hotel, last week. The meeting was
organised by EMACE (E-Environmental Science, M- Manpower and
skills, A-Adult and Parenthood Assistance, C-Child care and
Womanhood and E-Education and Culture).
Gurusinghe observed that Eco-tourism which the tourists are now
very keen to enjoy, could be sustained with the help of the
local community living around those eco- tourist attractions. He
also pointed out that the government by establishing these
national parks which were encroaching into large extents of
crown land, was depriving the local community of land for their
He said that in places like Kerala, in India, some people had
two to three houses in various eco- tourist destinations which
they rented out to tourists, and were able to earn as much as
200 U.S. dollars per day. On the other hand, in Sri Lanka if
people bordering jungle area were lucky to own additional
houses, they would use these houses to hide from the marauding
elephants which posed a threat to their lives .
He reiterated that Sri Lanka should adopt Eco-tourism quickly
since competitors like India, Malaysia, and Indonesia were fast
developing this aspect of tourism.. The best way to preserve the
environment around these tourist areas, was to offer part of the
benefits derived from tourist activities in such areas to the
indigenous people, and encourage them to preserve nature and
help sustain it by not cutting down dwindling forest cover etc.
He said that they have identified several community based
tourism activities. Some of them were already in operation. The
potential for such community based Eco-tourism activities is
high, he stressed, and it was thus important to drive the
concept of community based tourism forward. Gurusinghe further
added that last month they had finalised the report on Community
based Tourism, and the Ministry has agreed to support this
project by way of funding assistance, and had pledged to assist
the project from other different sources too.
He said that retaining the earnings from tourism in the country
was essential. Although tourism has been identified as the
fourth largest foreign exchange earner for Sri Lanka, he noted
that around 60 to 70 percent of these earnings are drained back
to the originating countries, like Western Europe.
He pointed out that there were so many areas where tourism could
be further developed such as the cultural triangle, plantation
sector, coastal belt, national parks etc. He warned that if Sri
Lanka’s wealth of natural assets such as its forest cover and
bio-diversity diminished , tourist arrivals to the country would
When a forest is destroyed, it also destroys the flora, fauna
and wildlife which we can offer as Eco-tourism. This can be
prevented only through eco-tourism because Eco-tourism focuses
attention on all these natural tourism attractions. We have to
work with the community. Unless the community gets something
back, you cannot have community centered tourism, he pointed
sets up first logistic hub in Seeduwa
By Thulasi Muthulingam
The largest clothing retailer of the UK, Marks & Spencer, with
over 760 stores spanning 30 countries worldwide, opened its
first International logistics hub the world over, in Seeduwa
This is a BOI project, which has been developed with the hopeful
expectation of attracting further Foreign Direct Investment (FDI).
The BOI hopes to develop the country’s logistics and
infrastructure, in order to make Sri Lanka a business hub in
South Asia. Last week, Dr. Sarath Amunugama, Minister of
Enterprise Development and Investment Promotion, announced that
Sri Lanka had attracted US$ 734 million in FDI, which is the
highest level ever achieved in the country and the BOI is
hopeful of continuing the trend.
Sir Stuart Rose, the CEO of Marks and Spencer, who was in the
country recently to open two eco friendly factories that will
manufacture garments for M&S without harm being caused to the
environment, assured Dr. Amunagama on his request, that he would
be extending his support to the GSP + facility granted by the EU
to Sri Lanka.
RJV International will be the logistical partner for M&S
International stores and Global Park of Global Transportation
and Logistics (Pvt) Ltd is the nominated warehouse provider
handling all warehousing and value addition activities in Sri
Lanka from its 400,000 sq ft state-of-the-art warehouse complex.
Garments belonging to M&S will be imported and delivered to
Global Park by RJV international and subsequently these goods
will be divided into smaller lots for onward export to other M&S
International entities around the world.
The new venture has the potential to create at least 1000 more
jobs at Global Park which currently operates with a factory
staff of approximately 600. Some of the value added services
that Global Park will be providing Marks & Spencer apart from
warehousing are finishing, repairing, trimming, checking, button
attaching, pressing, folding, packing and needle detecting, said
Business Development and Infrastructure Manager, Priyanka
Dissanayake, “when garments are sent damaged from local
factories, we used to send them back for repair. Now with our
partner, RJV International buying from India and Bangladesh
outright and bringing them here, we can’t do that so we set up a
As pointed out by GTL in a statement, the considerable benefits
of moving production offshore have already been exhausted by
most multinationals. The industry must now find different ways
of minimising cost, and streamlining the supply chain, which is
one such alternative. GTL and Global Park offer M&S a channel to
minimise handling and transport procedures to provide a cost
efficient supply chain.
Present at the opening ceremony, were Simon Doyle, the Head of
International Operations of Marks & Spencer, Kieran Donovan, the
Project’s Manager of Marks & Spencer, Dhammika Perera, Chairman
of the BOI, Priyanka Dissanayake, Business Development Manager
of Global Transportation and Logistics (Pvt) Ltd and Chandana
Punchihewa, Director of RJV International.