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Fri, 19 December 2014 16:57:34
Sri Lanka apparel industry downplays loss of EU trade deal
08 Jul, 2010 10:40:55
July 08, 2010 (LBO) - The end of a trade deal giving duty free market access to Europe will not be a 'catastrophe' though it would squeeze already thin profit margins, an industry official said.
A Sukumaran, a clothing exporter who is chairman of the Joint Apparel Association Forum, an industry body, said they were looking at ways to mitigate the loss of the GSP Plus deal when it ends in August.

"Only one-third of exports qualifies for GSP Plus," he told a business forum organised by the Ceylon Chamber of Commerce. "Two-thirds of exports are not affected by the loss of GSP Plus.

"For the one-third of exports affected the loss of GSP Plus is an issue but it's not a catastrophe," Sukumaran said.

"If exports drop there certainly will be a reduction in employment. But today there's a labour shortage in the apparel industry and we're able to absorb even 25,000 people.

"Some factories may close but others can absorb labour. And I'm not sure if there are going to be major closing down of factories."

He said he expects apparel exports, the island's main industrial export, to drop by 10-15 percent this year to around 2.7 - 2.8 billion US dollars from last year.

European Union nations have decided to withdraw the GSP Plus preferential trade benefits from Sri Lanka because of what the EU Commission called "significant shortcomings" on human rights issues.

Loss of the GSP (Generalised System of Preferences) Plus benefits would mean Sri Lankan exporters lose duty free access to EU markets and their shipments would be charged an import duty of about 9.6 percent.

Sukumaran said some buyers in the EU might be willing to pay the import duty or share it with local manufacturers and others not willing to do so might move their buying to other countries.

The loss of duty free access to the EU would squeeze already thin profit margins but no large scale factory closures or lay-offs are anticipated.

"We're working on thin margins. We're not able to reduce our costs by nine percent as economic fundamentals are working against us."

Despite the fall in inflation from double-digit levels and also of interest rates "our cost of running operations has gone up 10-12 percent over the past year. Also the exchange rate is not working in our favour."

The Sri Lanka rupee has been held steady against the dollar at around 114 rupees to the dollar over the past year or so although it had depreciated steadily in previous years.

Ways to mitigate the loss of GSP Plus include the search for new markets and improved productivity.

"We're looking for different markets and not trying to depend on the EU. Even if there's a five percent increase in other markets that would help."

The apparel industry is preparing a five-year strategic plan that targets exports of four billion dollars by 2015.

Sukumaran also said the possible loss of a GSP deal with the United States would not affect the apparel industry as apparel and textiles do not qualify under the deal.

The US has said it is reviewing the deal after getting a petition from a labour union of labour rights abuses in Sri Lanka.

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