September 2008 EU´s preferential Trade with Sri Lanka: Waste of Tax Money or Modern Development Policy? Friedrich-Ebert-Stiftung • The EU preferential tariff regime(GSP+), existing since 2006, grants a 100% tax waiver on 7200 export products coming from 15 developing countries. The garment industry of Sri Lanka has particularly profited by this regulation. Approximately 50% of all Sri Lankan ex­ports to the EU are garments. In return, the Sri Lankan Government ratified 27 UN and ILO conventions which are aimed at improving the status of human rights, labour rights and en­vironmental standards. • Unfortunately it is observed that the working and living conditions for workers in the Sri Lankan apparel sector didn’t improve under GPS+: Sweatshop conditions prevail. • Therefore the question is justified whether the EU should extend the preference conditions for Sri Lanka. Sri Lanka is expected to submit its application for the renewal of this preferen­tial tariff facility before the end of October 2008 and the EU has to make its decision on the GSP extension by the end of 2008. The benchmarks that were developed by the European and International Trade Union Confederations in consultation with the local unions should be considered in the evaluation of the GSP+-Case Sri Lanka. EU´s GSP System The EU member states’ and EU´s experience on development policy strongly indicate that tariff exemptions for imports from developing coun­tries will continue to be a counterproductive means of support to the developing world as long as it does not guarantee a fair distribu­tion of the fruits of the increased trade. Its success has to be measured by its ability to engage respective ground situations in devel­oping countries constructively. Following this understanding in 1971 the EU was the first to implement a‘Generalised Sys­tem of Tariff Preferences’ as recommended by the United Nations Conference on Trade and Development(UNCTAD) in 1968. It is a prefer­ential trading arrangement designed to extend privileged market access to developing coun­tries. In its simplest meaning, the GSP is all about waiving off tariffs. In the economic con­text, it would cause EU nations to loose vital tax revenue generated by way of tariffs, which under normal circumstances would lead to swell state coffers. Therefore, GSP Plus will warrant imposing additional taxes on EU citi­zens to cover up the tax revenue that is waived off by way of GSP concessions. The EU's GSP today, in place since 1995, grants dutiable products from 176 developing coun­tries and beneficiary territories either duty-free access or a tariff reduction. The volume of EU’s imports under the GSP amounting to 57 billion Euros in 2007 is greater than the volume of imports under the US, Canadian and Japanese GSP systems combined. Similarly, the EU is the most open market in the developed world for the world’s poorest countries. EU GSP“Plus”: More Trade and more development With effect from January 2006, the EU intro­duced a unique zero duty preferential tariff