SRI LANKA: Mixed Reactions to EU Threat to Cut Trade Concessions

COLOMBO, Oct 23 (IPS) - When the European Union announced last year that it was seeking an investigation into alleged human rights violations in Sri Lanka as a precondition for extending concessionary tariff rates for exports from the island state, the government promptly cried foul.

Thus began the posturing as the two sides sparred off. The state’s pronouncement conveying its refusal to cooperate in the investigation exacerbated an already tense situation. This month the year-long build-up to this complex drama has finally reached its end. The reckoning day has come.

Based on a yearlong investigation that concluded in September, the EU this week made its findings public: Sri Lanka has been remiss in its human rights obligations, according to its report.

The EU said that the Sri Lankan government could make representations to the 27-member bloc or appeal its case until Nov. 6. It added that the decision to extend its concessions now rests with its member states.

The adverse findings could have a telling impact on the local apparel industry worth 3.5 billion U.S. dollars in 2008 and employing tens of thousands of young labourers. The EU investigation report said that Sri Lanka fell short of a full implementation of the International Covenant on Civil and Political Rights (ICCPR), the Convention against Torture (CAT) and the Convention on the Rights of the Child (CRC).

In its report released on Oct. 19, the EU noted the government’s claim that "it has effectively implemented the three Conventions." Yet, citing "facts and information available, including relevant materials and information provided by the government of Sri Lanka (although outside the formal context of the investigation)," it concluded that "neither the ICCPR, the CAT, nor the CRC, nor the legislation incorporating the obligations under these Conventions have been effectively implemented in Sri Lanka during the period covered by the investigation."

The EU report specifically said that the delay in implementing the 17th Amendment that would make the appointments of the Attorney General, the Inspector General of the Police, the Chief Justice and other Judges of the Supreme Court and the Court of Appeals subject to a recommendation from, or approval of, the Constitutional Council had undermined credibility of institutions set up to protect human rights. The appointments are now being made directly by the President.

The EU was the single largest export market for Sri Lankan goods, notably apparel, in 2008, amounting to 2 billion U.S. dollars, according to the EU. A preferential tariff regime known as Generalised System of Preference (GSP) Plus allowed the goods to receive a tax waver of around 100 million U.S. dollars in 2008. The potential breach in the implementation of the conventions now put GSP Plus extension in the balance, the EU said.

"The report comes to the conclusion that there are significant shortcomings in this area and that Sri Lanka is in breach of its GSP Plus commitments," EU spokesperson for trade, Lutz Güllner, said soon after the report was released. "We will now consult with Member States on whether to prepare a proposal with a view to temporarily suspending these additional trade benefits."

The report is the culmination of a long-running battle of words between the EU and the Sri Lankan government over rights abuses and alleged lack of investigations within the state. The EU and some of its member countries have been some of the staunchest critics of the Sri Lankan government’s conduct of the last phases of its two-and-a-half decade bloody conflict with the militant organisation Liberation Tigers of Tamil Eelam (LTTE).

Sri Lanka has famously staved off such criticism in international fora like the United Nations Security Council and the U.N. Human Rights Council with the help of Asian countries like India and China alongside other allies.

Despite the critical report, the EU said it still wanted to maintain a dialogue with Sri Lanka. "We very much want the ongoing dialogue with Sri Lanka to continue and make a positive breakthrough," EU Ambassador to Sri Lanka Bernard Savage told IPS.

The Sri Lankan foreign ministry said that it, too, wanted to continue its cordial relations with the EU and would be studying the report carefully. Sources within the government indicated that the government could make representation to the EU before the Nov. 6 deadline, although there has been no official word yet.

Publicly, however, government ministers have been maintaining a tough stance. "It is fundamentally wrong and, in any event, demonstrably incompatible with the conceptual framework of this trade regime to use this [the EU report] to coerce the Government," Export Development and International Trade Minister, G. L. Peiris, told the Sri Lankan parliament on Oct. 20.

The minister had previously said that the government would not open its doors to any investigation and looked at such a move as an infringement on Sri Lanka’s sovereignty.

"We have every reason to protest vehemently against the threatened use of GSP Plus as ‘a powerful weapon’ against our country for any purpose whatsoever," he said.

Peiris was part of a group of four ministers appointed by the President to lobby for the extension of the tariff concessions. He had earlier urged the EU to take into account efforts taken by the government to develop and bring back normalcy in areas formerly held by the now defunct LTTE. "The EU and the international community should give credit where credit is due," he said in September.

The real effects of losing the 100 million U.S. dollar-tariff concessions from the European bloc would only be felt if they were removed, but so far opinions and expert assessments appear to be divided. The Central Bank, for instance, has observed that Sri Lankan exports could still prove to be competitively priced even if it were to lose the concessions, citing the Sri Lankan rupee’s depreciation and stabilisation against the euro and the pound.

In its latest report on the external trade sector released on Oct. 20, the Bank said the loss arising from a withdrawal of the concessions was not enormous, saying the 100 million U.S. dollar-duty wavers amounted only to 1.4 percent of Sri Lanka’s total exports in 2008.

"Therefore, the loss of preferential duty margin by around 6-7 percent arising from a potential withdrawal of the GSP Plus facility is not expected to have an adverse impact on Sri Lanka’s exports," added the report.

But such optimism does not resonate with other experts. Sirimal Abeyaranthana, an economics professor at the Colombo University, fears that while larger and more competitive apparel manufacturers could survive the absence of concessions, smaller operators may not be that lucky. "The small timers don’t have the strength to withstand such a sudden increase," he said.

On the macroeconomic front, the World Bank said the uncertainty over GSP Plus was a risk to sustaining economic growth. In a report titled ‘Sri Lanka Economic Update’ released on Oct. 21, the Bank noted that the GSP Plus incentive was instrumental in increasing Sri Lankan imports in to the EU and the apparel sector grew at a rate of 6.3 percent between October 2008 and March 2009.

"The GSP Plus scheme accelerated an already existing trend of increasing garment exports to the EU. By 2008, EU became Sri Lanka’s biggest export destination for garments, surpassing the U.S.A," the report added.

How events will play out in the coming days or weeks is putting everyone on edge, ardently wishing the denouement to this otherwise intense drama will be a happy one.

(END/2009)

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