Sri Lanka could lose up to US$1.23 billion if it loses its Generalised Scheme of Preferences (GSP+) and (GSP+) trade benefits with the European Union (EU), a new study by the Institute for Policy Studies (IPS) has revealed.

Without preferential tariff regime, Sri Lanka risks facing a tariff increase from GSP+ concessions to most-favoured nation (MFN) levels, the report said, which could result in the loss of 36.7 percent of goods exported to the EU.

Titled ‘Who will lose? Impacts of GSP+ withdrawal on Sri Lanka’s exports and workforce’, the study set out to highlight several other economic and labour market consequences for Sri Lanka if preferential trade access to the EU is revoked.

“The erosion of GSP+ preference in the EU-28 market is a matter of concern as it will reduce the value of Sri Lanka’s exports and hinder its ability to diversify its export basket towards products with high technological content,” said the report, authored by IPS researchers Dr. Asanka Wijesinghe, Chaya Dissanayake and Rashmi Anupama.

The EU is a major market for high-tech products such as transformers, which accounted for 50 percent of Sri Lanka’s exports to the EU in 2019. The report said that transformer exports could fall by 10 percent if GSP+ is lost.

The garment sector has also been identified as an industry that could be hit hard, as tariffs could rise by about 10 percent even if the sector does not fully utilize GSP+.

This decline in exports will also have major consequences for employment, particularly for Sri Lanka’s formal manufacturing sector, where about 4.99 percent of the industrial workforce could be vulnerable to adverse labor market conditions due to reduced demand in the EU.

This includes 13.47 percent of garment workers, who could lose their jobs, the report said.

Based on the number of jobs linked to imports by the EU-28, the report estimates that a total of 73,574 workers could be at risk due to reduced imports under MFN tariffs, of which 65.65 percent would be women and low- or medium-skilled workers.

While Sri Lanka may eventually outgrow its eligibility for GSP+ as it moves up the economic ladder, the study stressed that losing it at this stage of development would be much more damaging than at a later stage when the economy is stronger.

“Sri Lanka has a strong economic incentive to comply with the agreed conventions that are a condition for tariff preference. Despite the variation in utility rates, the export impact of preference erosion would be significant,” the report said.