Who Stands to Lose? The Effects of GSP+ Withdrawal on Sri Lanka’s Exports and Labour Force

Series: International Research Series

In the absence of the Generalised Scheme of Preferences Plus (GSP+) tariff preference, Sri Lanka will face a tariff increase to Most Favoured Nation (MFN) rates. This study estimates Sri Lanka’s potential export loss due to a hypothetical tariff increase from GSP+ to MFN rates. A second-stage simulation assesses the impact of labour force and distributional costs across different labour groups resulting from preference erosion.

Since preference utilisation is below 100% and varies across sectors, trade effects are weighted for the utilisation ratio. The tariff hike in the EU-28 is projected to cause an export loss of USD 1.23 billion (Bn) or 36.7% of Sri Lanka’s EU-28-bound exports, based on 2019 export figures. The wearing apparel and processed fish sectors will be particularly affected, facing significant export losses. The decline in import demand from the EU-28 will put 4.99% of Sri Lanka’s total industrial workforce at risk of adverse labour market outcomes.

Additionally, this study highlights the disproportionate impact of GSP+ preference erosion on women and low- to medium-skilled workers, who constitute 65.65% of the vulnerable workforce. The spatial distribution of affected workers indicates a concentration in rural areas with high poverty rates.