Retailers which source product in Sri Lanka could face a 10% hike in the cost of clothing produced in the country following the European Union’s decision to suspend its preferential trade benefits.
The EU said that it will withdraw benefits in six months time after discovering “significant shortcomings” on human rights issues.
Retailers have been able to import clothes tax-free to the UK from Sri Lanka since 2005. Retailers including Marks & Spencer and Next have produced clothing in the country. It is unclear how they will be affected by the withdrawal of benefits.
The removal of the EU benefits, known as GSP+ (Generalised System of Preferences plus), could add up to 10% to the cost of clothing produced in Sri Lanka and is likely to prompt retailers to look to other countries for production.
The suspension of GSP+ benefits will be temporary and has been implemented by the EU as a “special incentive arrangement for sustainable development and good governance”.
It follows an investigation by the European Commission, which found that Sri Lanka has failed to implement three UN human rights conventions.
The EU said it would implement the suspension in six months’ time to give Sri Lanka extra time to address the problems identified. If sufficient progress is made during that time, it is likely that that the decision will be reversed.
EU trade commissioner Karel De Gucht said: “I would like to emphasise that I hope Sri Lanka will sit with us over the next six months in order to agree upon a set of measures that will result in rapid, demonstrable and sustainable progress in relation to the human rights shortcomings we have identified.”
In 2008, EU imports from Sri Lanka under GSP+ totalled €1.24bn (£1.08bn).
After temporary withdrawal of GSP+ takes effect, EU imports from Sri Lanka will instead be subject to standard GSP preferential treatment, under which Sri Lanka would still receive preferential access to the EU market but at a lower rate.