The Real Risk of Losing the US GSP Trade Concession

by Arujuna Sivananthan, Colombo Telegraph, June 2, 2012

GSP+ on LaborRights blog

With approximately 5 percent of Sri Lanka’s exports to the Unites States benefitting from its Generalised System of Preferences (GSP) many senior figures in the Office of the United States Trade Representative are baffled by its dogged defence of this concession. One senior trade representative expected an outright rebuff by the Sri Lankan government when it initiated a review of this concession.

The reality is that the loss of the GSP will have an impact which is trivial to the point of vanishing on bilateral US – Sri Lanka trade. Variables such as the exchange rate, cost of labour and other inputs into the production process, and, infrastructure have a greater impact.

Dr. Arujuna Sivananthan

The petition to withdraw the GSP concession has been filed by the American Federation of Labor & Congress of Industrial Organisations (AFL-CIO). AFL-CIO first filed the petition to exclude Sri Lanka from GSP eligible beneficiary countries in 2008. It was updated in 2009 and supplemented by pre- and post-hearing briefs in 2010. Further submissions were made in 2011 and 2012. It levels very serious allegations that work practices in Sri Lanka were and continue to be in breach of International Labour Organisation (ILO) conventions. They include numerous cases where the government has failed to enforce its own laws, repeated breaches of internationally recognized worker rights, a dysfunctional labour inspectorate, and, a hostile Board of Investment (BOI) that is responsible for administering export processing zones.

In the December 2011 update AFL-CIO cites the following event as further evidence of ongoing breaches of ILO conventions; “On May 30, 2011, approximately thousands of workers from several factories in the Katunayake Free Trade Zone protested the government’s proposed private sector pension proposal, which had been developed without adequate input from either workers or employers. When police arrived, the demonstration turned violent, with the police beating demonstrators, firing tear gas, and finally shooting live ammunition at the unarmed workers. Various sources put the number of injured demonstrators as high as 460, five of whom were shot with live ammunition, and one of whom, Roshen Chanaka, died”. It also highlights the exploitation of workers in the former war zones stating that “The AFL-CIO is especially concerned about violations of labor law in the North and East (Tamil majority areas) as factories begin to open and hopes that the current situation of uniform wages, as controlled by the Wage Board, continues to apply to the country as a whole”.

Suffice to say that the Sri Lanka’s government has countered this with several submissions and a detailed action plan to deal with such breaches. Sri Lanka’s foreign minister during his most recent raised this issue again.

However, it is not just in the US where allegations of Sri Lanka being in breach ILO conventions have been made. Trade unions and journalists in the European Union (EU) have raised this issue as well. A leading British newspaper, the Independent has alleged that workers “in Sri Lanka allegedly receive poverty wages and are forced to work excessive overtime and to meet unrealistic, ever-increasing targets” with management in factories “threatening to sack” workers if they joined a trade union.

The PLAYFAIR 2012 campaign run by the British Trade Union Congress has also highlighted several violations of ILO conventions by Sri Lankan exporters. And, like the US, the EU too has withdrawn its GSP trade from countries which it deemed to have violated ILO conventions, e.g. Belarus and Myanmar.

With Sri Lankan exporters already confronting several headwinds including a prolonged economic downturn in the EU and a 15 percent fall in the value of the Euro, such an action would prove catastrophic. With over 90 percent of Sri Lanka’s exports to the EU benefitting from the GSP concession, it would effectively shut-off Sri Lanka from its second largest export market. This should also be viewed in the context of Sri Lanka’s major export competitors still retaining the GSP+ trade concession which it lost in 2010.

It is this fear which perhaps explains why the Sri Lankan government has mounted a zealous defense of its work practices to the Office of the United States Trade Representative. Ignoring the AFL-CIO petition no matter how trivial the impact, the loss of GSP on bilateral US – Sri Lanka trade would be to acknowledge that it is in violation ILO conventions. And, it would have brought it in sight of the crosshairs of European trade unions seeking to improve work practices in countries which export to the EU. Of course, it is not just trade unions which have taken note of this but also human rights organisations which continue to pressure Sri Lanka on accountability, opposition parties and diaspora activists as well.