Future looks gloomy for Sri Lankan exports

The European Union's decision to suspend preferential trade benefits to Sri Lanka because of human rights “shortcomings” during the island’s 26-year civil war is expected to have a significant impact on the latter's export sector.

Generalised System of Preferences Plus (GSP+) allowed the island to export some 7000 items to the EU on a duty free basis. Chief among the beneficiaries of this facility was Sri Lanka’s garment industry which is also its biggest foreign exchange earner, providing employment to 300,000.

Other beneficiaries includes the cable manufacturing sector, leatherwear, fisheries and ceramic exports.

Commenting on the decision made by the EU on February 15, A Sukumaran, a clothing exporter who is chairman of the Joint Apparel Association Forum, an industry body said: "It will have an impact on the industry".

"Over 50 percent of our apparel exports go to the EU. Whatever apparel qualifies for GSP Plus, costs will go up by about 10 percent. Many of our buyers have told us we have to bear the extra cost." Sukumaran added.

Loss of the GSP+ benefits would mean Sri Lankan exporters would be charged an import duty of about 9.6 percent by EU member states.

"It will be extremely costly for exporters," said Sukumaran.

"I do not think many are working on 10-15 percent margins. Unless some of the buyers are ready to bear part of the burden it will be a problem."

However, some garment industry figures are optimistic. Kashyapa De Silva of Clariant, a Swiss based manufacturer of dyes and chemicals for the industry says that despite the “loss” of the E.U. market, there is enough scope for the garment industry to expand in the US market.

According to De Silva, the local industry’s advantage is quality, which cheap, mass market producers of garments such as China and Bangladesh are unable to match.

However, many analysts have said they fear factories would be forced to close, resulting in large-scale lay-offs of workers.

There was more bad news for the Sri Lanka's exports industry with Kenya overtaking Sri Lanka as the top tea exporter in 2009.

According to Tea Board of Kenya, the country exported 342 million kilogrammes to 47 world markets, accounting for 22 per cent of the world tea exports last year.

In a statement, the Board said, "We did dislodge Sri Lanka as the leading tea exporter last year and hope we will continue maintaining the same position”.

Out of the 40 per cent of all global tea bags used in making the popular beverage, at least 10 per cent of its content is Kenyan, it added.

It said, Sri Lanka, formerly number one tea exporter, sold 280 million kilogrammes, representing a shortfall of 29 million.

Analysts attributed the success to the efforts made in research and development.