Financial Times

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“This year we think the first quarter will be tough,” Mr A. Sukumaran, Chairman of the Sri Lanka Apparel Exporters Association said. “But we are expecting a lot of business in the second.”

Earlier this year apparel exporters were worried that larger quotas awarded to China, by the US government, will impact Sri Lanka’s market share in the US. The US is the biggest consumer of Sri Lankan garments, buying up over half of the total production. When world garment quotas were removed at the end of 2004, the garment industry was expecting large losses in the US market to China. However, the US re-imposed quotas on a number of Chinese garments and as a result, Sri Lankan garment exports actually increased in 2005 compared to 2004.

The 2006 US quotas for China, however, were worrying. They are much higher than 2004 levels, guaranteeing Chinese exports a much larger slice of the US garment market.

“As China has a much larger quota now, the price pressure is definitely on, but due to a combination of factors we are hoping to see more business come our way this year. This will be a case of more volume at lower prices,” says Mr Sukumaran.

One reason for the increased flow of business to Sri Lankan garment factories is the quota premium charged for Chinese quotas. The premium will increase the price of Chinese goods and will send buyers to other countries.

China can be subjected to restraints until 2008, according to its accession agreement into the World Trade Organisation (WTO). Another strong competitor, Vietnam is also still restrained by quotas. This is because the country is still not a WTO member and doesn’t benefit from the agreement to liberalise the textile and garment trade. However, the country is negotiating to join the WTO, when it will then benefit from world trade agreements.

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