Business Times

Garment industry needs more preferential trade pacts

By Dilshani Samaraweera

Sri Lanka's garment export industry is asking the government to negotiate more preferential trade agreements, to counter market losses from recession and GSP+ uncertainty. Because of the poor export climate so far this year, the Joint Apparel Association Forum (JAAF), the garment industry representative body, has cut its export targets for the next 5 years, by US$ 1 billion. The JAAF has cut its projected annual export revenue from US$ 5 billion, to US$ 4 billion, by 2015, in its latest 5-year strategy.

The industry has suggested looking into trade agreements with Russia, China, Japan and Brazil, and is asking the government to also expand trade concessions from India. "The 5-year plan was formulated to be competitive and to move toward a target. Originally we thought of a target of US$ 5 billion, but considering the fact that half the year has gone and the markets are not too positive, and with our cost structure as it is, we revised the target to US$ 4 billion, which would be more realistic," said the Secretary General of the JAAF, Rohan Masakorala.

JAAF says over the first three months this year, export earnings have dropped by about 15% compared to 2009 and that would be the trend in 2010. But the industry is hoping for 5% year-on-year export income growth from 2011 to 2015.

"This year, we are expecting a 5%- 10% drop in export earnings compared to 2009 because we don't see any recovery in consumer spending in western markets at all. But from 2011 we are expecting a 5% growth every year, to get an annual export turnover of US$ 4 billion in 2015," said Mr Masakorala.
JAAF's extremely conservative export projections are not based only on recession doldrums. The industry is worried about its future in the European Union (EU).

The Euro has depreciated against the US dollar and consumer demand is still weak from recession. But the biggest worry is that the duty free window for Sri Lankan apparel exports into the EU - the GSP+ (Generalised System of preferences Plus) - may not be open after mid-August 2010.

At this point the EU bloc accounts for over half of Sri Lankan apparel exports (52%), while around 75% of these exports use the GSP+. However, the EU may suspend the GSP+ scheme for Sri Lanka in August 2010. This means Sri Lankan apparel having to pay duties of 8%-12%. "Whether we can retain orders from the EU would depend on whether we can retain our prices without the GSP+. At this point EU buyers want our companies to absorb the price difference fully or partially and this is very difficult to do because margins have been narrowing for some time now," said Mr Masakorala.

Scramble for new markets
Given the uncertainty in its biggest market, the JAAF wants the government to urgently start looking around for new markets for Sri Lankan apparel exports. "We do not expect new markets to take the place of our major markets, the US and EU. This is not possible.

But new markets will reduce the concentration on these two markets and will spread the risk a bit. It will also give new growth opportunities," said Mr Masakorala. Less than 7% of total Sri Lankan apparel and textile exports go to destinations other than the US and the EU. While countries like Australia, Canada, Israel, Japan, South Korea and Switzerland do register some Sri Lankan garment exports, the volumes are extremely low.

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