Q+A - Sri Lanka to face loss of EU's GSP+

COLOMBO (Reuters) - Sri Lanka on Tuesday said it was prepared to face a European Union withdrawal of its preferential trade benefits that helped to boost the island nation's garment exports to the the 27-nation bloc.

Following are some questions and answers on the EU trade concession and the possible impact if it is lost.

WHAT IS THE EU GENERALISED SYSTEM OF PREFERENCES PLUS (GSP+)?

It is a special incentive scheme for sustainable development and good governance, offering tariff cuts to support vulnerable developing countries in ratification and implementation of international conventions in these areas.

WHY IS THERE A POSSIBILITY OF SRI LANKA LOSING GSP+?

An EU probe has found Sri Lanka in breach of international human rights laws. Western diplomats say it will be very difficult for Sri Lanka to come back from losing it at this stage.

WHY DOES IT MATTER FOR SRI LANKA?

Sri Lanka is one of 16 countries with GSP+ status. Garment exports, the country's second foreign exchange earner after remittances, have benefited substantially with a 6-7 percent concession, and the EU has been the main buyer.

The value of the benefits has been estimated at 100 million euros ($136 million). Losing GSP+ means EU buyers will have to pay more for Sri Lankan exports, thus the exporters lose price competitiveness and market share.

IS THERE ANY WAY SRI LANKA COULD GET GSP+ RENEWED?

If Sri Lanka could address the concerns of the EU in the next six months, there is a possibility.

Diplomats say some of those concerns include settling the remaining more than 80,000 displaced from the 25-year war against Tamil Tiger separatists and ensuring media freedom.

Sri Lanka has said it is ready to engage with the EU to address the concerns raised by the bloc, asking that "unattainable targets" be avoided in any talks.

Sri Lanka has already taken steps, like releasing a majority of the 288,000 war displaced and granting bail to a journalist sentenced to 20 years of hard labour after he wrote articles critical of a military offensive against the rebels.

WHAT DOES LOSING GSP+ MEAN FOR THE SRI LANKAN ECONOMY?

Closure of small and medium-scale garment firms, job losses, mainly among the rural poor women, and a decline in global investor confidence would be among the consequences, including a decline in post-war foreign investments.

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 after losing the GSP+.

The central bank has said exporters will still be competitive after the loss of the scheme due to depreciation of the currency against the euro and British pound. But garment exporters say their buyers have already signalled a move away from them to lower price garments.

(Editing by Ron Popeski)