COLOMBO (Reuters) - Sri Lanka on Tuesday dismissed the European Union's planned withdrawal of the GSP Plus trade scheme, which gave its exporters preferential access to the 27-nation bloc, the Indian Ocean island nation's biggest trading partner.
WHAT IS THE EU'S GSP PLUS TRADE SCHEME?
The Generalised System of Preferences Plus is a trade scheme that encourages development and good governance by offering tariff cuts to developing countries which work to ratify and implement international conventions in those areas.
WHY DID SRI LANKA LOSE ITS ACCESS?
An EU probe required under GSP Plus rules found Sri Lanka in breach of human rights laws, largely because of events related to its war with the Tamil Tigers, which ended in May 2009.
However, Sri Lanka's government sees the review as politically motivated and designed to punish it for defeating the Tigers, many of whose diaspora supporters are resident and politically active in EU nations.
Because of that, it refused to make a written pledge to make certain rights reforms, which the EU demanded in exchange for keeping GSP Plus.
WHY DOES IT MATTER FOR SRI LANKA?
Sri Lanka is one of 16 countries with GSP Plus status and the EU is its single largest trading partner. Garment exports, the country's second foreign exchange earner after remittances, have benefited substantially with a 6-7 percent concession.
The value of the benefits has been estimated at 100 million euros ($125.4 million). Losing GSP Plus means Sri Lankan goods get more expensive and therefore less competitive.
Privately, some businessmen say they think the real cost could be as much as 500 million euros.
IS THERE ANY WAY SRI LANKA CAN GET GSP PLUS AGAIN?
Yes, by acceding to the EU demands. The European bloc says it is open to talks, but Sri Lanka says it will not negotiate.
WHAT DOES LOSING GSP+ MEAN FOR THE SRI LANKAN ECONOMY?
Closure of small and medium-scale garment firms and job losses. It could also make Sri Lanka less attractive to foreign manufacturers looking to capitalise on the post-war economic rebound.
Economists say there may be pressure on the $40 billion economy's fiscal and trade balances if there is a significant decline in export revenue and import demand remains high.
(Writing by Bryson Hull, editing by Jonathan Thatcher)