Financial Times

Critical period in 2006
JAAF suggests developing rural areas, more infrastructure
By Iromi Perera
The end to textile quotas and the phasing out of the Multi Fibre Agreement next year is a serious issue affecting Sri Lanka's garment industry but the real problems will actually come in mid-2005 and early 2006.

According to Tuly Cooray, Secretary General of the Joint Apparel Association Forum (JAAF), 2005 will not be the critical period as all companies have orders till the May-June period of 2005.

"At the moment, no companies are closed. All are busy," says Cooray. The companies have already placed orders by the buyers up to June next year and it is then, when the orders for 2006 are placed, that the impact of the loss of quotas will be realized.

The industry is currently not in a position to predict the impact. "The signals we're getting are mixed. Not all that bad, not too good. If you take some of the categories that were liberated from quota before 2005, in some we have totally lost the market and some we have gained despite competition from China and India," notes Cooray. The Sri Lankan government has also been extremely supportive to the industry and has come up with important assistance by way of policy framework, financial assistance and creating an environment that conducive.

With benefits from the European Union such as GSP Plus and the precautionary measures taken by countries such as the US, who are trying to safeguard their markets from surges from India and China, the markets will be open to Sri Lanka and the shocks that are being expected won't be too large, the JAAF CEO said. That way, job losses can be managed with the given framework. But if the expectations are wrong, people losing their jobs will be a major issue, along with the loss of the export market.

At the moment there are no standard ways of termination or paying compensation to workers and this is a matter subject to a lot of discussions. Currently, the JAAF is working on two specific plans along with trade unions, NGO's, the buyers' community, the industry, the government and other relevant institutions such as the International Labour Organization (ILO), in order to prepare for the MFA phase out. These two plans are compliance requirements and the prevention of job losses.

Sri Lanka is recognized by the EU as one country that meets the compliance requirements. JAAF believes that this recognition is the way forward to promoting the industry as a socially responsible apparel manufacturer and are currently working on some issues relating to this.

One issue is to ensure that social compliance audits are being done in a proper manner. "The concern the industry has on that count is that we believe, despite our record, that increasingly we are being asked to raise our standards. Countries in the region are penetrating into the market without the required level of compliance.

We know that some countries have child labour and prison labour and they do not have the freedom of association. But increasingly the market is being grabbed by them due to one simple reason - price. There are also other unfair practices implemented by these countries but buyers are shifting to that. On one hand we believe compliance is one area we can market ourselves and explore possibilities to increase market access. But with the buyers shifting to those who do not comply, we don't know where we stand," said Cooray. The industry has requested the World Trade Organization to ensure that fair trade prevails after 2005 and it has also taken up a petition for a global alliance for fair trade in textile and clothing trading, initiated by the Turks and Americans.

The other issue regarding compliance is the frequency of audits that are being undertaken by the companies. JAAF is exploring the possibilities of buyers coming to an agreement on the minimum standards required by each and everyone.

Anything beyond this can be audited by the buyers themselves. This raises two more issues on as to how it can be standardized and who would standardize. "The question of how it can be standardized is the easy task," believes Cooray. "If we can come up with a consensus of basic standards in relation to toilets, space, etc; - standard guidelines accepted by everybody. Everybody will be audited only beyond that expectation by the buyers." The question of who will standardize brings about questions of credibility, independence and acceptability. A professionally unbiased neutral organization that is accepted by everyone is the only possibility but the creation of this organization has not been so easy. "We had a number of meetings with direction from the ILO but we find it impossible to come up with a consensus because all parties are trying to pursue their own agenda and not the industry's or country's agenda.

That's a problem we're facing. A task force has been set up and we're trying to see the possibility of setting up a standards institute of Sri Lanka to be the credible institution in the eyes of all parties," explained Cooray.

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