Slippery slope for garments
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It was that time of the day when Aldoris, the choon-paan karaya, invaded the neighbourhood in his music-blaring tuk-tuk.The trio was waiting for him in anticipation of another long conversation while munching maalu-paan.
“Mama giya sumane honda ayojanayak kara (I made a good investment last week),” he said, while doling out maalu-paans.
“Eh mokakda (What is it)?” asked Kussi Amma Sera.
“Den mata soukya rakshana oppuvak thiyenawa. Mage pavule kata hari asaneepa vunoth, eka loku udawwak (I now have a health insurance policy which would help whenever my family is ill),” he said.
“Eke mila adikada (Is it quite expensive)?” asked Serapina.
“Ow eth eka loku udawwak kavuru hari asaneepa wela beheth ganna wunoth (It is, but it would help whenever someone falls ill and seeks medication),” he said.
“Mae davas wala beheth hari ganan. Poudgalika waidya prathikara wala mila hari adikai (Nowadays medicines are very costly and private medical care is also expensive),” noted Mabel Rasthiyadu.
The trio then shifted the conversation to the country’s political crisis and the rising cost of living just as the home phone rang.
It was Kalabala Silva, the often agitated academic, on the line.
“Hello, I was curious by a recent statement expressing concern about Sri Lanka’s GSP+ status,” he said.
“Yes this can be worrying if Sri Lanka fails to receive this concession in the new round scheduled to begin in 2024,” I said.
“But what is the problem? If Sri Lanka got it in the previous round, what is the problem now to qualify for the new round of concessions?” he asked
“Well these concessions are given subject to the country ratifying and implementing 27 international conventions on human rights, labour rights, the environment and good governance,” I said, adding that there are challenges currently human rights and good governance issues.
“Oh……so we have some problems,” he asked.
“Yes Sri Lanka would lose millions of dollars-worth of concessions particularly for garment exports to the EU and that could also lead to labour layoffs,” I said.
Garments are Sri Lanka’s biggest industrial export with the EU being the main entry for the country’s garment exports. Earlier this week, the Joint Apparel Association Forum (JAAF) sounded the alarm saying the onus was on the government to prove it has abided by the UN conventions on human and trade union rights to be able to qualify for the next round of GSP+ concessions. The current round of concessions expires by end 2023 with the new round taking off in January 2024.
JAAF Secretary General Yohan Lawrence, in a statement, said that securing GSP+ depends on Sri Lanka upholding the already ratified conventions spanning human rights, labour, environment and governance. “If Sri Lanka is to lose GSP+, the combined loss for the apparel sector is estimated at US$494 million, which is 79 per cent of the estimated trade loss,” he said.
On top of this, the industry suffered tremendously during the COVID-19 pandemic and the resultant economic crisis which saw many SMEs shutting down and throwing a large number of workers out of employment.
The global scenario for garments is also worrying at this moment with world demand, due to the recession and reduced buying power, dropping. Lawrence alluded to this. He said that while the country – on the positive side – was able to achieve over $1 billion in March in exports for the first time in 2023; on the negative side, apparel exports specifically, have seen a 15-25 per cent drop in orders as a result of the global economic slowdown caused by the increase in interest rates to combat high inflation in the West specifically in major exporting countries including the US, UK and Europe.
Lawrence said recent data shows apparel exports declining by 14.95 per cent Year-on-Year (YoY) to $1.18 billion in the first quarter of this year, compared to the same period last year, which is the lowest since the first quarter of 2013. “The industry projects it could be five to six more months before it sees a recovery in global demand,” he noted.
Not only has the apparel industry suffered during Sri Lanka’s economic crisis but other industries particularly at small and medium scale have also been adversely affected. Impairments or non-performing loans have hit the roof in the banking sector largely because small companies and small and medium-level entrepreneurs are struggling to stay afloat after last year’s acute economic crisis which saw inflation soaring and business costs rising.
Lawrence said EU imports from Sri Lanka amounted to about €2.55 billion in 2021, of which approximately 54 per cent benefited from reduced tariffs under the GSP+ arrangement. Moreover, 85 per cent of Sri Lanka’s current exports are eligible for tariff reductions under the GSP+ scheme, he said, adding that securing GSP+ within the two-year period post-December 2023 becomes critical. If GSP+ concessions are withdrawn, Sri Lanka will severely lose its competitive edge, risking the sustenance of the apparel industry.
The government, after recent talks with a visiting EU delegation on the next round of concessions, has exuded confidence that Sri Lanka has met all the conditions required for the benefits.
Ms. Shobini Gunasekera, Director-General – Europe and North America at the Foreign Ministry, was quoted in the Sunday Times as saying that Sri Lanka has complied with all the regulations as per EU GSP+ concessions and is confident in regaining these concessions when the new round of GSP+ concessions is announced.
“We are on a good wicket now,” she said. During the recent 25th Session of the EU–Sri Lanka Joint Commission dialogue, the EU had also presented the new EU GSP Regulation, which is expected to enter into force on January 1, 2024, for the next 10-year cycle.
Ms. Gunasekera said that while the new cycle of benefits comes into effect next year, countries currently receiving GSP+ benefits like Sri Lanka have a two-year period to reapply for these concessions and will continue to receive these benefits during the next two years.
It is imperative that Sri Lanka fulfils its obligations to be eligible for another round of trade concessions as there are other sectors like fisheries, apart from apparel, which also benefit from GSP+. Any loss of GSP+ concessions would result in large scale job losses as Sri Lankan exports would lose their competitive edge to other competitors marketing to the EU, in particular the apparel field, like Bangladesh for example.
As I wound up today’s column, drinking a second mug of tea, my thoughts were on the primary responsibility of the government meeting all the GSP+ conditions. Otherwise, the country would face the threat of job losses and loss of job orders, which seem to be looming on the horizon.
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