GSP+ Concessions and Job Losses

by Jayantha Gnanakone, October 6, 2009

The numbers are surprising and speak for itself.
Where are the job losses, if the volume of exports are still there?
2009 is still a good year for the rich factory owners and the GOSL and the workers.

Here are the figures from the SL Exporters Association

On a $40 billion economy and $8.1 billion total exports, the loss of GSP+ concessions is very negligible. The exporters can easily mitigate the losses without much problems.

I am sure the exporters will use their intelligence and experience to continue to make a profit, but are allowing everybody to get excited about the job losses, and foreign exchange losses so that they can squeeze everybody.

Tamils also have their  pants twisted over the GSP Plus.

I would also give the comparison between the GSP Plus  concessions and groceries for the purpose of the boycott meant to squeeze Sri Lankan exports.

The biggest canard that garment factory workers will loose over a hundred thousand jobs if the GSP+ concession is withdrawn. This is utter rubbish, resulting from the collective ignorance of the GOSL rather than an intention to lie.

The job losses would be possibly due to the reduced demand for apparel from the continuing recession, which might force the buyers to reduce their purchases by $136 million dollars, which is equivalent to a 10% reduction.

Statistics, and detailed breakdown:

The total garment exports from SL is $3.4 billion dollars.
Out of which 40% is to EU and UK.
Which means total value is = 1. 36 billion dollars.

That is 1,360 million dollars, and not like some ignorant people think, (Both Tamils and Sinhalese) and write that GSP Plus will affect $8.1 Billion dollars worth of export.

10% reduction in exports due to continued recession is $136 million dollars.
Total exports in 2010 would be approximately 1,224 million dollars, based on current figures.

If GSP is withdrawn, there will be an average 8% more duty on the garments into Europe and the UK, which means there is a cost of $94 million dollars has to be bridged, most or all of which has to come from Sri Lanka.

This is how the garment factory owners in Sri Lanka are going to overcome with ease the loss of GSP Plus concessions, without job losses.

The exporters have built a 25 year relationship with the buyers/retailers. Therefore considering the personal relationships, and the quality of the product, the brand recognition etc, the EU buyers will like to retain the same product in the market. There is also the issue of the supply chain, continuity, and stocks on hand. So they would or could absorb 4% of the increased costs, some of which will be passed on to the customer.

The balance 4% will be on account of the garment factory owners' profits. So the loss to the 200 garment factory owners would be only a maximum of 30-40 million dollars. Out of which, the GOSL would find a way to mitigate the losses through some Tax holiday, banking facilities and import benefits.

1. Exporters will want to first mitigate the losses by reducing the duty which could be around 8%. Therefore the value exported first and foremost will be reduced
approximately by $50 million dollars.
ie: Export value $1, 174 million dollars, thereby providing a huge benefit to the importer of $50 million dollars. So the duty gap is only $44 million dollars.

2. The customs duty will be paid by the importer/buyer.
$94 million dollars on export value of $1,174 million dollars

3. The buyers will have an extra  $  44 million dollars to find for the customs duty, since the garment exporters have already absorbed $50 million dollars.

4. The retailers will be forced to sell the garments by increasing sales prices by about 2.0% more.
Which is 40 US cents more on a $20 dollar wholesale value. The customer would not even feel in Euro cents of $0.30 cents per garment.
That would bring in  $23.4 million dollars.

5. The importers (buyers)  and retailers will contribute some funds to maintain the brand name and friendship/relationship with the exporter .
They will contribute maybe 1% each.
$11.74 Million dollars each = $23.48 Million.
(This is nothing compared to $1,174 Million turnover.)

6. They will squeeze and negotiate some lower freight rates from the shipowners.
Maybe $10 Million dollars.

7. Excess funds in hand  for  the  buyers in Europe would be  $23.40 Million, + $23.48 million = $46.88 Million

8. The garment factory owners will have to show fifty million dollar less profits in Sri Lanka.
Most of them have been in business for an average of 20 years and have now exhausted their tax free holidays.
They will save 20% in Taxes or more which is equivalent to $10 Million dollars.
With the shipping freight rate saving and excess $2.88 million dollars available, the exporter can recover $22.88 million dollars.

The net loss to the exporter will be only just $27.12 million dollars.
When you divide that by 12 months and say 20 or 200 exporters, nobody would even feel it.

9. We haven't even discussed what compensation the GOSL will provide the garment factory owners with the loss of GSP Plus. They could provide the 200-250 factory owners slightly lower interest, banking facilities, some duty free benefits, and new tax holidays.

10. Therefore, the garment factory owners might even benefit from loosing the GSP Plus by squeezing the GOSL for benefits, factory  workers  for concessions,
raw material suppliers for reductions, and shipping companies for reduction in freight. Colombo port authorities are also prepared or considering to provide
lower container handling fees. (THL).

That means only $27 Million dollars per year without any benefit from the GOSL, workers, and raw material suppliers, as well as the bankers.

Therefore due to collective ignorance, the Sri Lankans are killing each other and screaming that there is a huge loss of jobs. (Includes editors, ministers, and economists)

What a canard, by the four former UNP Ministers, Milinda Moragoda, G L Peries, Sarath Amunugama and Rohitha Bogollagama, as well as the UNP itself.
Now the President's brother Basil and Treasury Secretary are also pitching and pleading the EU, that there would be thousands of jobs lost, foreign exchange lost, and prestige lost for Sri Lanka and garment factory owners.

The impact on Sri Lanka at worst could be a loss of $27 Million in profits (Foreign Exchange), less the possible reduction in the cost of raw materials from overseas, which could be substantial, while the factory owners plead poverty and job losses of the poor workers. Currently the raw materials component could be at least 50%, and possibly 60%.
At 50%, the total is $587 million dollars.
A reduction of 2% would bring a saving of $12 million
dollars, and 3% would be $18 million.
The factory owners are clever enough to secure reduction for all $3.4 billion garment exports.

Leave that to the rich and smart factory owners who are pleading poverty, and crying on behalf of the factory workers here.

So where is the loss of jobs or even of profits for the the factory owners who are already profitted for at least 20 years and are still profiting? With all the concessions and reductions in raw material costs, the garment factory owners might even come out more profitable. There is the 1% contribution of the buyers, and retailers, 2% from the retailer customers, reduction in freight rate which anyway is at nearly lifetime lows, reduction in raw materials, assistance from the banks via the GOSL, Tax holidays and duty exemptions for vehicles, etc, and better wage negotiations with unions or even reducing benefits, bonuses, overtime, and even wages, frightening the hell out of the workers/unions.  This process will help the factory owners become more efficient, reduce overtime and increase their productivity, and profits. 

What a canard and red herring on job losses!

There is NO collective punishment of the Sinhala Buddhist workers as many a minister, diplomats, ex-diplomats, and editors have articulated for months. In this instance if there is any punishment, it is the Europeans who might absorb the slightly higher prices, such as .30 Euro cents per garment, the Sindhi, Borah, Colombo Chetty, Muslim, Malay and some Sinhala garment factory owners, (editors and GOSL know the big 3 or 4 exporters), and small loss of foreign exchange to the GOSL. A government which spends 2 billion dollars on defense expenses even after the fighting is over with the LTTE, what is the loss they are talking about? The GOSL and SLA are also forced to spend 2 million dollars a day on the internment camps and transit camps that are being operated, and 300,000 Tamils being non-productive from the Vanni.  

Another benefit for Sri Lanka could occur from the UK and EU, when they collect the 94 million dollars customs duty from Sri Lanka. They can rebuild part of the 70,000 homes of Tamils destroyed by the Sinhala army due to wanton shelling and bombings which would anyway cost at least $350 million dollars. 

They are already contributing millions of dollars for demining of SL army mines, feeding, clothing, educating, and proving health care to the 300,000 detainees in the internment camps. There is a silver lining to every dark cloud. EU should ensure that there should be no subsidizing of the GOSL expenses but real benefits like livelihood assistance, (Agricuture, Dairy Farming, Fishing)
assistance and home rebuilding should be provided to the detainees.

If not for the ill treatment, inhuman and cruel treatment of the detainees, killing and torturing of over 20,000 Tamil civilians in 2 weeks there would never have been even a discussion today of withdrawing the GSP Plus concessions. No Tamil organization or groups, or INGO's would be lobbying for withdrawal of the GSP. Despite the war crimes and crimes against humanity, if only the GOSL and SLA had made genuine efforts to release the Tamil detainees from internment camps in 150 days (5 months or more), the EU would have reviewed the withdrawal of the concessions in a sympathetic manner. The arrogance, temerity, cussedness and callousness of the GOSL have left the  EU with only a Hobson's choice. 

The good part is the Sinhala Buddhist workers in the South and other Sinhala areas would not loose their jobs due the the GSP Plus facility being lost, but only to attrition while the current recession continues.

COMPARISON OF SRI LANKAN GROCERIES BOYCOTT WITH LOSS OF GSP PLUS FACILITY: 

The main factor one has to consider is that 60% of the garment exports' cost is sent out by way of raw materials, sales and marketing costs, and profits, since some factories are foreign owned. (Part of it via JV), whereas 100% of grocery exports sales are retained in Sri Lanka.

Therefore, if there is 100 million dollar sales of garments that is equivalent to 40 million sales of groceries.  

So the groceries boycott will have more serious ramifications on the GOSL's foreign exchange earnings than the GSP Plus concessions, where the loss is hardly of any significance. I do not know why the Sinhalese are making such a huge hue and cry, when they can easily manage with the normal job attrition out of their 200,000 work force. That does not mean that Tamils should not lobby against the  Sri Lankan garments and get the GSP Plus concession withdrawn. But Tamils have a more powerful and potent card in their hand with the direct purchase or boycott of groceries.

Immaterial of the GSP, 1 million Tamils in EU, UK, Canada and USA need to lobby the importers, distributors and customers of garments not to buy the "Garments tainted or soaked in Tamil blood" and reduce the $3.4 Billion dollars in exports of the garments. 

There would be hardly any loss of jobs as exaggerated by Ministers and UNP's deputy leader Karu Jayasuriya, unless all buyers decide to reduce the purchases from Sri Lanka due to the gross and blatant human rights viiolations, extra judicial killings, (Channel 4 video), rapes as a weapon and tactic of war, (Secretary Clinton in the UN), and disappearences, etc.