Sri Lanka defiantly refused to allow a European Union (EU) investigation into rights abuses callit an "infringement of Sri Lanka's sovereignty, self respect and dignity', and announced plans to support the garment industry financially if existing trade concessions are not renewed by EU.

The EU recently warned it may not renew the GSP Plus (Generalised System of Preferences) trade scheme after it expires in December because of continuing human rights abuses stemming from Sri Lanka's civil war.

The EU had asked to send an investigating team to ensure Sri Lanka was complying with human rights standards.

"What the cabinet has decided is not to agree with investigations that are required by the EU to renew GSP Plus," Minister of Export Development and International Trade G.L. Peiris told reporters at a press conference held on Monday, October 20, at the Central Bank to brief the media on the GSP Plus Scheme.

According to the minister, the Government will not betray Sri Lanka's sovereignty to obtain economic benefits from other countries.

"The Cabinet has decided to reject the investigation and we have instructed our Ambassador in Brussels to inform relevant authorities on our decision. We are ready for open discussions with the Commission regarding the issue,"

Many in the island's garment and textile industry, which employs hundreds of thousands of mostly rural poor, fear a downturn if the special trade terms are axed.

However Peiris said the effect would be limited.

"We only get $150 million from GSP Plus. We are not ready to betray our country through this investigating," Pieris said.

"We should not betray our dignity and respect for US$ 150 million. We have to develop our strength and resources. In every sense we have capabilities to fulfil our task.”

At the same press conference, Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka announced the government would provide a subsidy to offset any shock the loss of the concession may cause in an industry that in 2007 was its top foreign exchange source.

"The government has decided to provide a subsidy equal to the total GSP Plus concession of $150 million to the garment industry," Cabraal told reporters.

GSP Plus benefits

GSP Plus is an EU trade concession that has helped Sri Lanka's garment industry, its top foreign exchange earner last year, to boost export revenue since mid-2005.

The trade scheme helped Sri Lanka net a record $2.9 billion from EU markets last year, 37.5 percent of total export income.

Garments last year were the country's top source of foreign exchange followed by remittances of $2.5 billion and tea export earnings, which brought in $1 billion.

In 2007, Sri Lanka exported US$ 2.8 billion worth of products to the EU.

Around US$ 1.4 billion of this was apparels, of which the majority was exported under the GSP. In other words, apparels sector is the biggest beneficiary of the GSP, though other sectors like fisheries and industrial products also use the facility. Assuming that the tax concession granted was around 10% across the board - the EU has said it’s between eight and 18 per cent - the benefit accrued by the apparel industry is roughly around US$ 150 million. The amount Sri Lanka is willing to offer as a relief measure if GSP Plus is lost.

Human Rights

The proposed EU probe is widely seen by political analysts as a tool to get the government to address alleged human rights abuses and lack of humanitarian help for thousands of civilians stranded in northern Sri Lanka where Tamil rebels are fighting to save their last strongholds.

In July, the EU said Sri Lanka's failure to address human rights concerns, including a "frightening" number of abductions, could cost it the lucrative concession.

Rights groups have reported hundreds of abductions, disappearances and killings blamed on government security forces and Tamil Tiger rebels since a ceasefire in the 25-year-old civil war evaporated in 2006.

The U.S., Britain, Germany and many western nations have raised concerns over a major humanitarian crisis in the northern Vanni region where the military says it is close to capturing the town of Kilinochchi, the last bastion of the Tamil Tigers.

The situation worsened last month when all international humanitarian agencies were ordered to leave the area. Only government supplies through local level officials are going through for thousands of people who have been displaced.

“We are following closely Sri Lanka’s compliance with all relevant international conventions, including the UN human rights conventions. The Commission pays very close attention to the proper application of the GSP system and, therefore, whenever the Commission receives information about non-compliance with the GSP Plus eligibility criteria it takes this very seriously.” an EU official told BBC recently.

“According to the GSP Regulation, if information received by the Commission points to possible non compliance with the GSP Plus criteria and gives sufficient ground for an investigation, the Commission shall initiate such an investigation and publish a notice announcing it. The Commission notifies the beneficiary country concerned.”

“If the country concerned does not cooperate, the Commission still has to continue the investigation and make the findings on the basis of the facts available. During the investigation the Commission invites all interested parties to make their views known in writing and provides the country under investigation with every opportunity to cooperate in the investigation.”

“The new GSP Regulation 2009-2011 envisages that a country under a GSP Plus investigation continues to benefit from the GSP Plus prefrences until the date of conclusion of such investigation. The final decision on the eligibility of a country under investigation for the GSP Plus 2009-2011 is suspended until the end of the investigation.”

EU response

Neil Kearney, general secretary of the Brussels-based International Textiles Garments and Leather Workers' Federation (ITGLWF), while visiting Colombo last month, told IPS that the EU position over a new agreement over GSP Plus is subject to rules and regulations governing human rights and worker rights.

"The EU will want to assess how far Sri Lanka has progressed in this field," he said.

He further added it was unfortunate that 'statements' (at that time) by some Sri Lankan ministers, that the country would not accept a EU mission to study these aspects, and that Sri Lanka prefers to lose the concessions rather than allow such a mission, complicated matters.

"I find this extremely shortsighted as a halt to these concessions would affect thousands of workers and their dependants. Workers in the transport, logistics and support services in the industry will be affected," Kearney said.

SL definace

However, Sri Lanka has taken a hostile attitude towards the EU in relation to GSP Plus, even though it is the beneficiary of the trade concessions.

Last month, Foreign Minister Rohitha Bogollagama told Benita Ferrero-Waldner, European Commissioner for External Relations, in New York that an EU investigation is “unnecessary and inappropriate”.

He insisted that government’s response to any proposed EU action on extending GSP Plus will take into consideration “the country’s national priorities and interests which are protection of the territorial integrity and fight against separatism, eradication of terrorism, restoring democracy and empowering the people”.

Earlier this month, Sri Lanka’s Ambassador to Brussels Ravinatha Ariyasinghe lashed out at Member of the European Parliament Robert Evans (from UK) after he presented a report on Sri Lanka that Ariyasinghe said was “replete with unsubstantiated allegations, deliberate distortions and blatant falsehoods.” The document had been prepared after a July visit to Sri Lanka by Evans.

This personal attack came after Benita Ferrero-Waldner released an open letter to Sri Lankan media rejecting personal attacks against the EC’s former Head of Delegation in Colombo Ambassador Julian Wilson. Ferrero-Waldner has repeatedly made strong statements about the situation in Sri Lanka, particularly with regards to humanitarian issues.

Garment industry concerned

Despite the bravado, the impact on Sri Lanka’s image of the GSP being withdrawn is serious - and seriously negative. Investor confidence is already low. With Europe becoming increasingly rights conscious, buyers are likely to think twice before associating themselves with a country rejected by the EU.

Whilst the Sri Lankan government is unconcerned, the garment industry is worried.

Trade unions have said the absence of EU trade concessions could impact thousands of garment workers and their families.

Anton Marcus, general secretary of the Free Trade Zones and General Services Employees' Union, said that if Sri Lanka loses the GSP Plus the impact will be on the workers and their families.

"Many factories will close down," he said.

Joint Apparel Association Forum (JAAF) officials say they are hopeful the rescue package of 150 million dollars will act as a buffer against any fallout on industries that benefit from the EU concessions.

“The government doesn’t want to compromise Sri Lanka’s sovereignty for 150 million dollars when they can perhaps subsidise the industry with a syndicated loan,” said a labour union source.

“Still, there’s a question of how the government will provide these benefits. Is it by waiving off the electricity cost of garment factories, or some such thing? Besides, where will the money come from?”