While the debate over GSP Plus concessions eased last year, it has erupted once again with falling exports and rising costs of production. At this week’s annual meeting of the Exporters Association, the chairman echoed the repeated sentiments of the outgoing chief (Rohan Abeykoon) that the loss of GSP Plus concessions two years ago was [...]

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GSP continues to haunt Sri Lanka

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While the debate over GSP Plus concessions eased last year, it has erupted once again with falling exports and rising costs of production.

At this week’s annual meeting of the Exporters Association, the chairman echoed the repeated sentiments of the outgoing chief (Rohan Abeykoon) that the loss of GSP Plus concessions two years ago was gradually affecting the industry.

Two major issues are confronting the garments industry which is not so sure of reaching the government set-target of US$5 billion in revenue by 2015.

These are – being uncompetitive in the international market and big buyers looking at cheaper manufacturing locations; and the economic crisis hitting Europe forcing buyers to be cost conscious.

In the nine months to September 2012, exports fell by 7 percent compared to the same period last year. Worst hit was Europe with a drop of 10 per cent and the US (drop of nearly 6 per cent). Thus rather that reflecting year on year growth, the industry is showing negative growth.

The industry, also urged by the European Community (EU), is asking the government to implement the recommendations of the state-appointed Lessons Learnt and Reconciliation Commission (LLRC) which discussed many issues including ensuring human rights and being accountable.

The core issue in the EU’s earlier non-approval of a fresh round of GSP Plus concessions was over the government’s ‘inability’ to implement UN conventions which dealt with labour rights, right to association and formation of trade unions in free trade zones. The EU also expressed concern over human rights violations during the last stages of the ethnic conflict (between January and May 2009), an issue that is still confronting the government with pressure from the United Nations. UN Human Rights Commissioner Navi Pillay, a vocal critic of Sri Lanka’s human rights record, is due to visit the country next year – in a long awaited trip.

The government has been rejecting criticism of the loss of GSP concessions vis-à-vis alleged human rights violations and referred to exports in 2011 which didn’t show much of a change.

While top manufacturers like MAS Holdings and Brandix have been among exporters that have not felt any possible fallout from the GSP fiasco, smaller industrialists have expressed concern.

However all that has changed with the European economy in the doldrums with spending power going down and living costs rising.
That has seen big players like MAS Holdings now expressing concern about Sri Lanka being seen as too expensive to top brands. In a story last week, the Business Times quoted MAS Holdings Director Ajay Amalean as saying that European buyers are becoming price conscious and looking for cheaper manufacturing sources. The fact that Sri Lanka doesn’t have GSP Plus benefits appears to have aggravated the situation, he and other industrialists say.

The report also said buyers like Marks and Spencer, NEXT and Tesco were among those trying to source cheaper sources to service their needs.

Currently Sri Lanka is said to be about 10-15 per cent in price more than regional competitors.

In the many phases of Sri Lanka’s apparel sector development, there was a time when the bigger manufacturers began setting up or considering factories in Bangladesh, Vietnam, Cambodia or India. The latest attraction seems to be Myanmar which is opening up under rapid political and economic reforms that is drawing international attention and investment.

Garment exporters have joined many Sri Lanka businesses including motor vehicle importers in visiting that country to assess the potential to establish units there.

In seeking the implementation of political reforms as recommended by the LLRC, desperate garment exporters have unusually stepped into the political side of Sri Lanka’s economy.

In this scenario, the West is demanding more accountability from the government towards human and labour rights in return for a bigger investment in the country. Sri Lanka has been relying on countries like China and Iran for immediate post-war financial support but at high lending costs. Government borrowing – both locally and abroad – has grown exponentially, so much so that to settle one loan or bond issue, further borrowing takes place.

The economic reality is that the garment sector has delved into the never-before world of politics and human rights. This has never happened before and to make such statements means the industry is with their backs against the wall and hoping against hope that the government will re-apply for GSP Plus concessions. But to do that, the UN conventions must be followed and the recommendations of the LLRC. It would be interesting to see how the government responds to this request – coming this time not from opposition politicians or NGOs but economic interests.




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