ECONOMYNEXT – The European Union’s Generalised Scheme of Preferences Plus (GSP+) scheme becomes more important for Sri Lanka amidst growing global trade uncertainties as US President Donald Trump looks to impose reciprocal tariffs, a Colombo think tank has said.
“With a reported visit by EU representatives to assess GSP+, it is important to note that in the absence of the current tariff preferences, Sri Lanka will face a tariff increase up to Most Favoured Nation (MFN) levels, likely resulting in export losses and associated negative labour market effects,” the Institute of Policy Studies said.
The IPS’ latest study titled “Who Stands to Lose? The Effects of GSP+ Withdrawal on Sri Lanka’s Exports and Labour Force” estimates the export loss of Sri Lanka due to a hypothetical tariff increase from GSP+ rates to MFN rates.
Who Stands to Lose The Effects of GSP Withdrawal on Sri Lanka’s Exports and Labour Force
A tariff hike will significantly affect exports and employment as the combined market of the EU and the United Kingdom (UK), known as EU–28 before Brexit, is a major export destination of Sri Lanka, IPS said.
“The tariff hike in the EU–28 will cause an export loss of United States Dollars (USD) 1.23 billion (Bn) or 36.7% of EU–28 bound exports from the base year 2019 exports.”
In 2023, Sri Lanka’s exports to the EU–28 were 3.63 billion dollars, or 30.08% of the total export revenue and spanning 1,301 products, according to the IPS report.
Major exports include ready–made garments, rubber products, coffee, tea, spices, and fishery products.
“The GSP+ preference erosion in the EU–28 market is worrying, with an estimated USD 1.23 Bn or 36.7% export loss of the base year export value for Sri Lanka.”
The apparel and processing fish sectors will be the hardest hit and may face significant export losses, IPS said, warning that a drop in EU–28 import demand will make 4.99% of total industrial employees in Sri Lanka vulnerable.
“An average loss of preference margin by more than ten percentage points for key export sectors of Sri Lanka, like wearing apparel and processing fish, is heading for a significant export loss.
“A potential GSP+ withdrawal will dwindle Sri Lanka’s export value while impeding the diversification of Sri Lanka’s export product basket towards products with high technology content.
“Although Sri Lanka may lose the preference with gradual economic growth, at the current growth stage of Sri Lanka, GSP+ is an important tariff preference in promoting growth and generating jobs.” (Colombo/Mar20/2025)