Free-Trade-Agreements essential to enhancing Sri Lankan apparel’s resilience Apparel sector in urgent discussions with Government on FTAs to boost exports

With fears of a global economic recession looming, the Joint Apparel Association Forum (JAAF)
is actively stepping up engagement with top Government and Foreign Ministry officials to
expedite negotiations on Free Trade Agreements (FTAs) to help boost exports and strengthen
the industry’s resilience.
Elaborating on the progress thus far, Deputy Chairman of JAAF and Chief Executive Officer and
Managing Director of Omega Line Felix Fernando outlined key priorities for the industry moving
forward. Following are excerpts:
Q: What progress has been made in engaging with the Government to address
challenges faced by the apparel sector?
A: There has been strong progress made and we are appreciative that the Government has
given weight to our concerns. Most recently, we had separate meetings with the Secretary to
the President, the Prime Minister and President. During these meetings, we voiced our
concerns over the various challenges faced by the industry resulting from both local and global
In fact, even in August, we saw a 20% increase in turnover generated by the sector. If this trend
continues, we anticipate apparel sector earnings to increase to approximately USD 5.6 billion by
the end of 2022.
However, it is difficult to anticipate industry performance moving into 2023, given the geo-
political tensions and economic volatility created by the situation in Europe – which is home to
many of Sri Lanka’s most valuable markets. Currently, the US, EU and the UK comprise about
86% of our total exports.
In such a challenging environment, it is essential for Sri Lankan apparel entities to diversify their
markets. Hence a central focus for our discussions with Government has been the urgent need
to finalize FTAs with countries like China, India, Japan and Australia.
,JAAF was pleased to note that the Secretary to the Prime Minister has been appointed to head
a task force to expedite the Chinese FTA, and we are already seeing promising signs of
progress. We are also pleased to note that JAAF has already been called in for these
discussions although they remain at a preliminary stage at present.
Q: What role will economic reforms play in the apparel sector’s ongoing revival?
A: Fundamental reform in economic policy is absolutely critical. Sri Lanka is a small country with
22 million people, which means we simply cannot generate the economies of scale necessary to
directly produce everything we require within a closed economy – especially if we hope to
continue having access to quality and reasonably priced goods.
Therefore we have to focus on export development in order to fund imports of commodities and
goods imperative to keep our economy moving. Fortunately, the Government and the industry
are in complete agreement on this point.
We also have must remember that at present, Sri Lanka is not competing on a level playing
field. Our main competitors, countries like Bangladesh, Vietnam, and some African nations have

duty concessions in global markets, which we do not have. Sri Lanka’s only concessions are for
the UK and the EU markets, and those come coupled with a variety of strict conditions
pertaining to the origin of raw materials which means that utilisation of these preferences remain
around 50% for apparel.
Securing new FTAs can help reduce barriers for Sri Lankan apparel exporters to diversify,
hence the Chinese FTA is our first priority. We hope to gain clarity on a timeline for these
negotiations from the Department of Commerce in the coming weeks, but further progress will
also depend on our sovereign debt restructuring negotiations with China.
Further trade concessions will help to better integrate Sri Lanka with regional markets. If for
example we are able to penetrate the Indian market, even 10% would be equivalent to 100
million people, where we are presently limited to supplying just 8 million pieces. JAAF has
reiterated its request to have this quota increased. There’s also opportunities to lobby for the
including of apparel into the new round of Canada’s GPT+ scheme. To move forward on such
opportunities, we definitely require the support of the Government and diplomatic corps.
Q: How have import restrictions impacted the apparel industry- especially in terms of the
raw materials needed?
A: As the sector was permitted to use its foreign remittances for the purpose of payment for
imported raw materials, for the most part, the industry was able to meet its requirements without
an issue. The export figures for recent months bear testament to the industry’s ability to deliver
during this difficult period.. However, the crisis also meant a significant tightening of financing
and this has been particularly challenging for the SME sector as they operate on small margins,
and mainly provide support services to the main exporters. This is a sector which provides
livelihoods for approximately 40,000 people, hence it is critical that we support them.
In many instances, they lack the working capital and foreign currency needed to purchase
machinery and spare parts in order to expand capacity to service larger orders. Despite all the
struggles faced, SMEs are still surviving for now, but without formal programmes to support
them, this may not last.
Most SMEs depend on the larger exporters and manufacturers. Once their orders are cut down,
SME orders also decline. With the higher cost of living in Sri Lanka, salaries have also been
adjusted across the apparel industry, but with orders declining, employees may see a reduction
in earnings, impacted by the decrease of production incentives and overtime. This will affect
employees’ monthly earnings and we need to be conscious of the cascading potential social
impacts this could have, as their buying power is also weakened.
Q: How would an economic downturn impact orders from the US and EU moving
A: Both markets last year recorded strong sales. But they may have overestimated demand as
most buyers’ inventories are still full. Thus, they don’t want to restock for at least another 4 to 6
Recently, the US increased its lending rates by 0.75%, and there is a possibility that certain
commodity prices might decline. If that happens, this whole situation can change, but it’s still too
early to predict.

Logistics and energy costs increased exponentially not just in the US but also in the EU,
primarily due to the Ukraine war. If these issues ease by December, orders may pick up. But
this is a global issue and not unique to Sri Lanka. Although the first 8 months of the year had a
growth in exports, we envisage a decline in our apparel exports by 25-30% for the remainder of
This is the reason it is crucially important for the Government to be proactive about FTAs, as
with easier access to these markets, exporters would be more competitive. We expect help
from the Government in these areas to help exporters.
We also need more Foreign Direct Investments (FDIs) to increase export turnover and capacity.
The Government needs to step up and face a range of issues if we are to achieve these targets.
We understand the Government is under severe pressure from the IMF to increase revenue, but
we are concerned by the move away from a dual rate that motivated the export sector, leading
to an increased corporate taxation for exporters at the standard rate of 30%, which is double
from the earlier rate. The argument is that no sector should be given priority, but applying one
rule to all is not feasible. At this present time, the country needs the foreign exchange and that
comes through with exports. What should be understood is that exporters shouldn’t be
discouraged with unrealistic conditions which don’t look at the cascading impact on the macro

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