The announcement which the country had been expecting for long was made by a European Union Parliamentarian herself last week. At a press briefing at the conclusion of a visit to Sri Lanka, the Green Party Member for London in the European Union Parliament, Jean Lambert, said that “GSP Plus concessions to Sri Lanka is now a closed book” because Sri Lanka Government has no intention of applying for it. (available at:
http://www.newsfirst.lk/index.php?option=com_content&view=article&id=16478:gsp-plus-to-lanka-a-closed-book-says-jean-lambert&catid=97:news-items-2&Itemid=294)
There was neither confirmation nor denial of her announcement by the Sri Lankan authorities.
The opinion of Sri Lankans on the GSP Plus issue is a mixed one. Some support, some oppose and some are apathetic.
The Supporters demand “GSP Plus”
The industry magnates who have been the beneficiaries of GSP Plus, particularly those involved in garments, porcelain – ware, and fish products, had been clamouring for long for the extension of the concessions for a further period. Their main argument has been that Sri Lanka‟s entry to European Union or EU as a major export destination was very much facilitated by the GSP Plus concessions. Hence, any abrupt cancellation of the concessions will impede the country‟s move toward diversifying its export destinations.
This claim is borne out by Sri Lanka‟s export performance in the last few years.
For instance, in 2005, Sri Lanka‟s exports to EU amounted to $ 1961 million or 31 percent of total exports, slightly less than its exports to USA which stood at $ 1988 million. By 2008, EU had overtaken USA by a significant margin. In that year, EU‟s absorption of Sri Lanka‟s exports amounted to $ 3034 million or 37 percent of Sri Lanka‟s total exports. In comparison, Sri Lanka‟s exports to USA had risen only to $ 1869 million in 2008 accounting for 23 percent of its exports.
Thus, EU is Sri Lanka‟s Number one export destination today.
The Opponents view GSP Plus as Sacrifice of Sovereignty
Holding a contrary view, Sri Lanka‟s leaders, top policy makers and a section of the community have opined that, while the country welcomed GSP Plus, that would not
be at the expense of the country‟s sovereignty. As reported by asiantribune.com, the Minister of Export Development and International Trade in 2008, G.L. Peris, has said in an interview with the website, that Sri Lanka was not happy about EU‟s insistence of investigation of certain matters relating to the country (available at:
http://www.asiantribune.com/?q=node/13725).
Accordingly, GSP Plus has not been viewed as an economic or trade issue, but an issue involving the country‟s pride and sovereignty. Many Sri Lankans too holding the same view have hailed this stand in comments posted to blog sites that carried this news.
However, the majority of Sri Lankans, who are totally apathetic to the issue, carry on their daily chores without knowing even what GSP Plus is.
What is GSP Plus?
GSP or the Generalised System of Preferences is a special trade concession offered by EU to world‟s poor countries with no obligation on the part of the poor countries to offer similar concessions to EU. So, the concessions are one way from EU to the poor countries and not from the poor to EU.
It is being implemented by EU at two levels: the ordinary GSP and GSP Plus. The first one is a trade arrangement which EU provides to 176 developing countries and territories to sell their products in the EU market at reduced tariff rates. GSP Plus is an enhancement of this facility to vulnerable developing countries offering additional tariff reductions to enable them to attain sustainable development and maintain good governance in their affairs. For this purpose, they are required to ratify and implement a number of international conventions which the global community has prescribed for all its members. There are 27 such conventions which EU has stipulated for the eligibility for GSP Plus concessions and they cover a wide range of aspects applicable to human freedom.
The Concerns of Human Freedom: Now a Global Concept
Human freedom is now recognised by economists and policy makers as the ultimate goal of development. This is because the development means the development of a perfect individual and without freedom, whatever the material well – being attained by individuals in a society will become meaningless. The concept of freedom encompasses from political to economic to social to spiritual. Since the state, through the use of force, can arrogate to itself the power to deprive people of freedom, in olden times it was the merciful monarch and today the ruling executive who was expected to guarantee all kinds of freedoms to the people.
This has been well – elaborated in the current policy document of the Government, The Mahinda Chinthana, with reference to the use of the executive powers of the Presidency. While denouncing the misuse of the executive powers in violation of the moral and ethical code in the past, The Mahinda Chinthana says that “…an open discussion on the Executive Presidency will be held with all parties. The Executive Presidency will be converted into a Trusteeship which honours the mandate given to Parliament by being accountable to parliament, establishes equality before the law, is accountable to the judiciary and enacts laws that are accountable to the judiciary, and is not in conflict with the judiciary” (p 56)
The implementation of this programme, enshrined in The Mahinda Chinthana, will certainly ensure human freedoms.
The Nobel Laureate, Amartya Sen, has been a vociferous advocate of human freedoms for development of mankind. He argued the importance of freedom in two previous books titled “Development as Freedom” and “Rationality and Freedom”. Further developing and codifying his ideas on freedom, he, in his latest book, The Idea of Justice, has emphasised two requirements that are essential for ensuring justice in a society: the freedom to choose and the freedom to think with reasoning as the guide. According to Sen, “…the freedom to choose our lives can make a significant contribution to our well – being, but going beyond the perspective of well – being, the freedom itself may be seen as important. Being able to reason and choose is a significant aspect of human life”.
Since it is widely alleged that many poor countries lack both these requirements, the donor community has taken upon itself the responsibility for ensuring a just society in aid recipient countries by tying aid to a multitude of behaviour traits. These traits cover such subjects as democracy, law and order, rule of law, good governance, transparency and proper disclosure, human rights, environmental preservation and labour conditions. In addition, EU has the right to introduce any other requirement to address other deficiencies which the donors would have observed as prevailing in the recipients of aid programmes.
Enforced Good Behaviour through Aid Packages
It seems that the West has interested itself in seeing a show of enforced-good behaviour by poor countries which are desirous of receiving foreign aid. However, this has been subject to much criticism and protest by aid recipients. Yet, there is an element of justification, from the point of donors, in their tying aid with good behaviour traits.
First, there has been mounting evidence of gross abuse of aid flows by the power groups in poor countries, namely, politicians and bureaucrats. The absence of anti – corruption laws, or when such laws prevail, their weak application, has been found to be the main cause of the proliferation of alleged misuse of aid flows in poor countries.
Second, with faster and more advanced communication systems, information on abuse of power or money by poor country rulers is now readily available to the citizens of donor countries. Since donor countries use tax payers‟ money for granting aid to poor countries, they have to listen to the collective wish of their citizens: that the aid givers should ensure that the tax money they sacrifice is put to proper use by the recipients.
Tariff Concessions are also a form of aid
One may wonder how GSP Plus which is a special tariff concession could become an aid flow.
The aid flows to poor countries could be classified into two categories.
One is the direct aid in the form of grants, concessionary loans and assistance in physical form like technical support and food supplies. The other is the indirect aid given in the form of preferential tariff concessions extended to developing countries through bilateral trade agreements to have larger market access in developed countries. Both have added to poor country woes, because they are linked to political affiliations, loyalty shown in international fora and in recent times, the commitment to good behaviour by aid recipient countries. The last string encompasses a wide spectrum of national behaviour traits as explained above.
Sri Lanka has always upheld the Principles underlying the Conventions
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The conventions under reference are those ensuring all types of rights of the citizens (civil, political, social, economic, cultural, children‟s, women‟s, collective bargaining, freedom of organisation and freedom of association), prevention of discrimination against race, gender, employment and occupation, protection of citizens against torture, cruel, inhuman or degrading treatment or punishment, ensuring the prevention and punishment of the crime of genocide, abolition of child labour and many conventions involving the protection of environment and preservation of biodiversity.
These are all prerequisites for creating a just society as pronounced by Sen in The Idea of Justice and therefore, it behoves a country to do so voluntarily rather than under compulsion. A plus point for Sri Lanka in this context has been that it has always upheld the principles underlying these international conventions and has raised its voice in international fora many a time for proper adherence to them by all nations without exception. Hence, there should not be any reason for Sri Lanka to have objections to ratifying and implementing them as required under the GSP Plus rules.
Adoption of Conventions is no interference in Sovereignty
Sri Lanka had agreed to ratify these conventions at the time it sought the concessions under GSP Plus. But by mid 2009, it was found that no action had been taken by the country to fulfil its obligations.
Under EU rules, a beneficiary country is given a three year period to satisfy the requirement of ratifying and implementing all the 27 conventions involved. Since all these conventions are already designed by the global community and readily available for quick ratification and implementation, a period of three years cannot be claimed to be a too short a period for a country to do so. In view of Sri Lanka‟s long commitment to these principles, the failure of the country to do so as revealed in mid 2009 would have been due to a breakdown of its management systems which should have advised the government to do the needful at the appropriate time. Hence, it is most unfortunate that a set of international conventions meant for ensuring justice, freedom and well being of its citizens is portrayed as unnecessary interference in the sovereignty of the country by outside forces.
EU is Significant for Sri Lanka‟s Exports
Whatever the reason, now GSP Plus is not available to Sri Lanka. Hence, it has to compete in the EU market with those countries which have the advantage of preferential treatment. The annual export flow to EU from Sri Lanka has remained around $ 3 billion or some 38 percent of total exports during the three years from 2007 to 2009. This is a significant volume and with Sri Lanka‟s renewed growth potentials, it represents a market that provides immense opportunities to Sri Lanka‟s exporters. Hence, EU cannot be written off by Sri Lanka quite conveniently as some, including top policy makers, have casually chosen to do in the run-up to the withdrawal of GSP Plus. While the non availability of GSP Plus will not bring the country‟s exports to EU to a zero level as feared by some, it will definitely retard or stunt their growth which the country now plans to promote vigorously. Hence, all systems have to be directed by Sri Lanka in the short to medium term to overcome the obstacle created by its own failures and become competitive in the long run so that it could acquire a bigger market share in EU.
With a trade deficit exceeding $ 5 billion in 2010 and bound to grow phenomenally in 2011 due to the unexpected rise in the oil prices, exports are Sri Lanka‟s life – saving elixir.
Now go for Trade and wean away from Aid
Raúl Prebisch, the reputed Argentinean economist who headed the United Nations Conference on Tariff and Trade in 1950s, is credited to have coined a very popular slogan emphasising the wishes of poor countries. That slogan was that poor countries expected “trade, not aid” from rich countries. This is because trade makes them equal partners, while aid makes them complaisant slaves.
Since Sri Lanka is not interested in GSP Plus any more, Raúl Prebisch‟s slogan, „trade, not aid‟ comes handy to Sri Lanka at this point of time. The development economists of Prebisch‟s generation believed that free trade among nations will improve the welfare of all. But what they meant by free trade is the trade conducted without preferential treatment so that it would enable a country to improve its own productivity and comparative advantage. Hence, it is a golden opportunity for Sri Lanka to restructure its export industries to win the long run war, though it may lose the short run battles. This essentially requires exporters to cut costs, improve labour productivity, introduce cutting edge technologies, raise management competencies, use new production techniques and adopt new marketing strategies. As Peter Peterson, a former US Trade Secretary and CEO of Lehman Brothers, has mentioned in his autobiography, The Education of an American Dreamer, „every problem has to be viewed as an opportunity‟ by innovative people. Such an approach will help to wean the exporters away from the long afflicted aid syndrome associated with GSP Plus.
Support Export Sector through Prudent Macroeconomic Policies
The restructuring of the export industry should be a joint exercise by both the government and the exporters. All export firms which adopt the innovative methods outlined above should be supported by the government. Since many industries that export to EU live on thin margins, cost cuttings and productivity improvements are essential in order to survive in a fiercely competitive market. For instance, in the case of garment and apparel firms, unbundling of different procurement, logistical and production steps to outsiders, even to foreigners, must be positively considered and the government should extend the necessary exchange control liberalisation to them. The adherence to a macroeconomic framework that aims at long term price stability in the economy will help the exporters to keep the overall wage bill under control. The reduction of the budget deficit and government‟s borrowing requirements will make available a larger volume of funds to the private entrepreneurs. The long term price stability will also help the country to maintain stable exchange rates thereby helping the exporters to keep import costs under control and avoid agitations for higher wages that lead to increases in costs.
Sri Lanka should open free trade globally
In a previous column of My View – Economics Matters on the Comprehensive Economic Partnership Agreement or CEPA with India, I expressed the view that Sri Lanka should look in all directions, north, north east, west, east and south east in improving its trade relations. This is because free trade is essential for Sri Lanka to become a nation of worth through improved prosperity and wealth (available at:
http://www.ft.lk/2011/02/21/reviving-cepa-%E2%80%93-act-swiftly-and-decisively/).
Hence, I am of the view that Sri Lanka should now open trade everywhere to compensate for the stunted export market in EU due to the non - continuation of GSP Plus.
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