The announcement of a suspension of the GSP + concession to a section of Sri Lanka’s export sector shouldn’t have come as a surprise.
Over the past 18 months, this duty-free facility has been in the balance over the human and labour rights issues based on UN conventions. The reality is that Sri Lankan has to fulfil these conditions to qualify for this facility. Fulfil or your out!
It is not a right that Sri Lanka is entitled to, it’s a benefit offered to many countries. It was a concession offered to countries on the basis of certain conditions and if these countries have not fulfilled these conditions, then they are not entitled to the concession.
Unfortunately the issues got clouded over the war and the crisis faced by Tamil civilians during the last few stages of the war in which many people died or were injured in the crossfire triggering protests from the international community and human rights groups.
When asked by an EU team to cooperate in an investigation, the government stood its ground and refused to allow such a probe. In the absence of cooperation and apparently a one-sided view of the situation in relation to human rights and labour issues, the EU probe team – in its report -- raised concerns over these issues and recommended that the facility be suspended. Thus the latest announcement last week is a continuation of these events and nothing to get startled about.
This was going to happen and it has happened. The question is how does Sri Lanka recover or overcome this crisis just like it did when the era of textile quotas ended.
That crisis in the earlier period of the last decade was more damaging and saw several garment factories crashing, downsizing or selling out to bigger players like MAS or Brandix. Jobs were lost but the industry survived. In fact there is a shortage of labour in the garment sector right now and according to most analysts and trade unions the fallout from the GSP + loss won’t lead to serious job losses.
The key issue here is that of margins by producers. Are they prepared to reduce their margins without reducing worker facilities and also stretching the workers to the maximum, an eternal complaint of the trade unions?
Or will they enhance the product and aim for a better price – to take care of the duties that would be applicable – and thus a higher profit? Some companies like BAM Holdings (see story on earlier page) are thinking positive and planning to add value to their product. Companies like the MAS Group and Brandix and a whole heap of others too would be thinking on the same lines.
Some industry analysts say margins will be squeezed once the duties come into the picture and this would entail a combination of cutting costs, enhancing productivity and adding value to the product. Workers on the other hand, who say they are poorly paid, are concerned that when it comes to cutting costs, it would be the labour component that would be the first target and that workers would be doing extra work at less cost!
There are close to 200,000 workers in 403 factories across the island and trade unions are pleading for a joint effort to tackle any fallout from the GSP + loss of concessions.
This is a reasonable request as long as the unions and workers don’t ask too much from companies who must also ensure their business is profitable and stays profitable to survive.
In the last few years, many factories have closed down for economic reasons and unable to bear rising costs including interest rates and energy costs.
Workers should also be conscious of the need to ensure that their workplace is run like a business organisation and not a barely-break-even unit.
Only if businesses are profitable can they be sustained.
Ultimately the test of an industry that has weathered many a storm over the past three decades of conflict will be the manner in which owners and workers get together and ensure the business is sustained while ensuring their interests are, together, protected.