The expiration of US Generalized System of Preferences (GSP) for Sri Lanka on 31 December has only marginal impact on the country’s exports to US. Meanwhile, Sri Lanka’s trade with US shows a positive trend this year in comparison to 2015 and ’16.
“What is important to understand is that this non-renewal of US GSP does not affect our US trade in a significant way” said the Minister of Industry and Commerce Rishad Bathiudeen on 29 December.
Minister Bathiudeen was clarifying on Sri Lanka’s US GSP expiration when he was meeting some top officials at his Ministry offices in Colombo 3 on 29 December.
The US Embassy in Sri Lanka said on 29 December that the United States Congress did not re-authorize GSP before adjourning for the year. “The immediate effect of GSP expiration is GSP eligible imports to the United States from Sri Lanka and other GSP beneficiary countries and territories will be subject to non-preferential duties beginning January 1, 2018” the Embassy stressed.
According to our Department of Commerce, the US is world’s largest buyer of Sri Lankan exports. Total Sri Lanka – US trade remained unchanged in both 2015 and 2016. In both 2015 and 2016, total bilateral trade was at $ 3.3 Bn. The US purchased 27% of our overall exports at an unchanged value of around $ 2.8 Bn, each year in 2015 and 2016. Apparel products were Sri Lanka’s biggest export item to US, taking 75% of Sri Lanka’s exports in 2016 (at $ 2.1 Bn). Interestingly, total US-Sri Lanka bilateral trade from January to November this year 2017 has increased to US $ 3.41 Bn in comparison to 2016’s entire annual trade total of $3.3 Bn. Of this year’s $3.41 Bn trade with US (to November), $2.64 Bn consists of exports from Sri Lanka.
“What is important to understand is that this non-renewal of US GSP (for 2018) does not affect our US trade in a significant way and impact is even lower when it comes to total national exports. Only one fifth of our exports to US could be temporarily impacted by this routine event” said Minister Bathiudeen.
Accordingly, Apparels, Sri Lanka’s leading exports to US at an annual value of $ 2 Billion is not at all affected since apparel exports to US do not come under GSP. Only some other exports, around 20-25% of total to US, come under GSP. Most such GSP eligible exports from Sri Lanka to US are smaller value items such as travel bags, certain leather products and some pneumatic tyre types. Also some Lankan exporters don’t claim the GSP entitlement and therefore the actual value of “affected exports to US” is around one fifth of total annual exports to US from Sri Lanka- around 20% at $500 Mn to $570 Mn.
The expiration is not only for Sri Lanka but includes many other countries, taking place at the same time. Sri Lanka has one of the highest US GSP utilisation rates among other US GSP beneficiaries -at around 85%.
Sources from the Department of Commerce confirmed despite the expiration, the issuance of US GSP entitlement certificates by the Department will continue as usual and with changes to the present procedure. It was also revealed that this GSP expiration appears to be another regular event since the US GSP is routinely reauthorized every year and “the expiration takes place before reauthorisation that arrives a few weeks later.” The direct beneficiaries of US GSP are US manufacturers who can avail input material for their productions at low or no duties, indirect beneficiaries being Lankan exporters. Once the reauthorisation takes place, the US importers who applied for the Certificates from Colombo and earned it, can submit their claims and collect benefits at their end retroactively.
According to the Department of Commerce, apart from apparels, the other Lankan export items to US in 2016 were tyres and tea. Main import items from US to Sri Lanka were preserved oils such as sunflower, soya etc, various technical instruments (Optical, photographic, precision, medical etc) and plastics. Total imports from US in 2015 was at $ 470.8 Mn and it increased by 15% to $ 540 Mn in 2016.
The GSP entitlement for Sri Lanka and other beneficiary countries could be renewed and returned as soon as the US Congress re-authorises it at any time.