Financial Times

More user-friendly concessions for local apparel exporters will be the focus at upcoming trade talks with India this month.

Sri Lanka will ask India to relax rules governing concessions for apparel exports under the Indo-Lanka Free Trade Agreement (FTA) for about 60 selected apparel items.

Under the FTA, an export quota of eight million pieces of duty-free apparel to India is allowed each year under condition that exported clothing is made from Indian fabric.

“Although we have an FTA with India, our performance in apparel exports has not been good. One reason is the requirement for Indian fabric to be used,” said N. C. Magedaragamage, acting Director General of Commerce, Department of Commerce.

The trade talks which aim to relax the ‘made-from-Indian-fabric’ condition will also look at developing the present FTA into a Comprehensive Economic Partnership Agreement (CEPA).

Instead of pushing for general duty concessions, India is being asked to relax the fabric clause for a list containing 60 apparel items made in Sri Lanka.

The items put before the Indian government for approval were selected in consultation with the Joint Apparel Association Forum (JAAF), and would target upmarket Indians.

“The Indian side has agreed to consider this. So we are going to push this proposal at the next round of CEPA talks this month,” Magedaragamage said.

Whilst trade analysts were in agreement that the Indian fabric clause was a stumbling block for exporters, it was noted that it was not the only difficulty in accessing the Indian market.

“The requirement to use Indian fabric is a major impediment. Using Indian fabrics increases costs, but there are also other factors that affect exports to the Indian market,” said Saman Kelegama, Executive Director, Institute of Policy Studies, speaking at a seminar organised by the Sri Lanka Association for the Advancement of Science.He added that the biggest difficulty Sri Lankan apparel exporters would face in India was its low retail prices since various states there could impose their own taxes on garments.

The many non-tariff barriers faced by exporters at various levels add to the costs of the final selling price in the Indian market, while Indian garment manufacturers produce large quantities at lower prices due to a raw domestic material base.

Such factors combined make Sri Lankan garments more expensive than homemade Indian clothing.“Sri Lankan garments can be competitive against exports from other countries but not against Indian garments,” Kelegama said.
“The Indian argument is that everyone is paying the same taxes, but our problem is vis-à-vis with Indian products.”

Indian opportunity

Even with FTA Sri Lankan garments have been unable to capture India’s middle- and upper-class markets which offer huge opportunities.

Seizing the opportunity, the JAAF is looking at ways and means of harnessing India’s massive consumer base and mega-production capabilities for the local clothing industry.

“We are looking at India as both a sourcing country for apparel industry inputs, as well as a market,” said Manel Rodrigo, Assistant Secretary General of JAAF.

“Despite the difficulties we have had in breaking into this market, the fact is, India is a very good market with a very large middle and upper classes that can afford high-end products,” he added.

JAAF is in the process of organising various activities to help Sri Lankan exporters gain a better understanding of the workings of the Indian market. “We are hoping to work with an Indian consultant to find out more about marketing in India,” Rodrigo said.

JAAF, as part of its market development activities, is also looking at ways that local exporters could expand their market share in France and Germany.