Despite benefiting from the European Union’s (EU) GSP+ trade preference scheme, Sri Lanka is not fully leveraging its advantages, limiting its export competitiveness and economic growth, claims an article by The Institute of Policy Studies’ Rashmi Anupama, Chaya Dissanayake, and Dr Asanka Wijesinghe titled ‘GSP+: Can It Drive Inclusive Growth In Sri Lanka?’
The GSP+ provides Sri Lanka with reduced or zero tariffs on exports to the EU, conditional on compliance with 27 international conventions covering labour rights, human rights, environmental protection, and good governance.
Sri Lanka’s exports to the EU and the UK amounted to $3.63 billion in 2023, representing 30% of total exports—key sectors such as apparel, rubber, seafood, and tea benefit from tariff reductions under GSP+. Apparel exports account for more than half of Sri Lanka’s shipments to these markets, employing many low- and medium-skilled workers, particularly women.
However, Sri Lanka is not fully utilizing GSP+ benefits. In 2019, only 52.3% of knitted and non-knitted apparel exports to the EU and UK qualified for GSP+, despite the sector facing an average preference margin of over 10 percentage points compared to Most Favoured Nation (MFN) tariff rates. Rules of origin, which require a certain percentage of local value addition, pose compliance challenges for exporters. In contrast, rubber products had a 96.4% utilization rate.
If Sri Lanka loses GSP+, exports could decline by an estimated $1.23 billion, with the apparel sector facing the largest impact—a potential loss of $996 million that could put 73,574 jobs at risk, with women and low-skilled workers most affected, the IPS analysis showed.
To retain GSP+ benefits and improve utilization, Sri Lanka must comply with EU-mandated conventions and push for greater flexibility in rules of origin. In the longer term, negotiating a free trade agreement with the EU could provide a more sustainable solution to maintain market access.