Sri Lanka’s garment industry battles GSP+ fears

Sri Lanka is due to submit its application for an extension of the GSP+ trade concession to the European Commission at the end of this month. But uncertainties about whether or not the scheme will be renewed are already affecting garment factories, with buyers seeking assurances that they will not have to pay new duties. Dilshani Samaraweera reports.



Sri Lanka's garment industry is the main beneficiary of the GSP+ (Generalised System of Preferences) unilateral trade concession which allows the country to export around 7,200 items to the European Union (EU), duty free.


In particular, the scheme allows Sri Lankan garment manufacturers to remain cost competitive in European markets because of the zero duty export facility.


But concerns over whether the GSP+ will be renewed are leading international buyers to ask garment factories to absorb the duty component partially or in total.


Given that the duties could be as high as 8% - 10% without the GSP+, local factories say absorbing the duties is not possible because higher manufacturing costs in Sri Lanka have already made profit margins "wafer thin".


To cut costs, many garment factories have already upgraded technologies and moved into lean manufacturing.


But if the GSP+ is not renewed at the end of the year, factories say they will have no choice but to cut down on workers and many smaller factories may even have to close down.


Beyond garments

Women from poor, rural backgrounds would be hit the hardest by the loss of the GSP+ because the island has no other jobs available to replace garment sector employment.


Over 80% of the garment industry workforce is made up of young girls from rural areas. The loss of factory jobs therefore, could increase exploitation of women by forcing them to find unprotected, Middle Eastern 'house maid' jobs.


A sudden termination of the GSP+ would also impact beyond the garment sector.


"Originally, it was the garment factories that used the GSP+. But by now, a few other industries are also slowly starting to use it," said the secretary to the Ministry of Export Development and International Trade, Mr S Ranugge.


"This is because it takes some time for a country to build internal capacities to make use of a trade scheme."


At this point, it is estimated that about 35% of the exports from Sri Lanka that use the GSP+ are non-garment exports.


Add their workers to the 270,000 people employed directly by the garment sector, as well as its indirect employees, and the number of people dependent on GSP+ is considerable.


The footwear industry and exporters of agricultural produce are some of these new users of the GSP+. They point out that their exports directly benefit factory workers and rural farming families.


GSP+ under fire

The three-year GSP+ scheme finishes at the end of 2008, and Sri Lanka has until 31 October to re-apply and re-qualify for another three-year term to run from 2009 - 2011. The EC is expected to announce its decision on whether or not this application has been successful, on 15 December.


GSP+ status is awarded to countries that have ratified 27 international conventions on environmental standards, labour rights and human rights.


But now Sri Lanka - and the GSP+ - is in the line of fire over allegations of human rights violations.


The government maintains that it is doing all it can to safeguard human rights while fighting a war against the LTTE (Liberation Tigers of Tamil Eelam) terrorists in the north of the country.


However, reports of disappearances, abductions, intimidation of media and allegations of corruption in government are pointing to poor governance - apart from the casualties of war.


These reports have raised strong concerns that the EU may not extend the GSP+ for Sri Lanka.


The EU has already banned the LTTE as a terrorist organisation and awarded the GSP+ to Sri Lanka in mid-2005 to help its economic development.


Removing it suddenly, say industrialists, will hurt the island's most vulnerable populations - not corrupt politicians.


Ethical buying initiative

The Joint Apparel Association Forum (JAAF), the official representative body of Sri Lanka's garment industry, says it is "working closely with the government to retain the GSP+."


Meanwhile, it is proposing an 'Ethical Buying Initiative' to educate buyers about the Sri Lankan garment industry's ethical standards. The JAAF points out that Sri Lanka's higher labour standards are contributing to higher production costs.


However, these standards may not be sustainable in the future, unless international buyers also actively display their support for workers.


"What we are proposing is, for buyers to pay a small extra price for ethically manufactured apparel. The garment factories will pass this extra payment on to the workers," said JAAF chairman Mr Ajith Dias.


"We need the industry to show support for ethical standards, because at this point manufacturers in Sri Lanka are asking 'what is the point in maintain these standards if the buyers make decisions only on the basis of the lowest cost'?"


The JAAF already has a system of certification for ethical garment production, called 'Garments Without Guilt', and many local factories have already been certified. This network of ethical manufacturers, says the JAAF, can be used to supply clothing for buyers interested in practicing ethical trading.