By: Staff Writer
August 21, Colombo (LNW): As Sri Lanka’s garment exporters reel from a sharp 30% U.S. tariff introduced on August 1, 2025, a timely overhaul of the UK’s Developing Countries Trading Scheme (DCTS) offers a welcome reprieve. The comprehensive reform, set to take effect in early 2026, stands to reshape Sri Lanka’s export dynamics by granting more flexible sourcing rules and stalwart market access.
Under the current Enhanced Preference status, Sri Lanka benefits from tariff-free UK access only if garment inputs are sourced within South Asia and subject to strict processing rules. However, from 2026, these restrictions ease significantly:
Sri Lankan manufacturers will be allowed to source up to 100% of inputs from any country while retaining duty-free eligibility, aligning Sri Lanka with the treatment enjoyed by lower-income countries such as Bangladesh
Furthermore, the UK has carved out an Asia Regional Cumulation Group of 18 countries—including regional partners like India, Pakistan, and Indonesia—enabling Sri Lankan exporters to treat these regional inputs as domestic content for origin purposes and gain preferential tariff access
Sri Lanka’s apparel sector has shown resilience, recording an export earning of USD 4.7 billion in 2024, a near 5% year-on-year growth, though still trailing about 10% behind pre-pandemic (2019) levels
The UK, a vital market for the sector, saw apparel exports grow 7.65% last year, edging closer to 2019 benchmarks. The total Sri Lankan exports to the UK reached USD 923.7 million in 2024
.Sri Lankan authorities emphasize the UK’s significance: the UK ranks as the second-largest market for Sri Lankan apparel, accounting for approximately USD 675 million or nearly 15% of exports, supporting livelihoods across a million workers
The U.S. tariff, by contrast, threatens some USD 500–600 million in revenue loss, nearly 0.8% of GDP, and could imperil up to 50,000 jobs in a sector employing around 300,000, predominantly women
Despite not fully offsetting the blow from Washington, the UK’s enhanced preferences offer a crucial buffer. A prior 2023 analysis estimated Sri Lanka could save over £69 million annually in tariffs by fully utilising DCTS benefits
The scheme’s expanded sourcing routes and tariff-free access may help exporters sustain pricing competitiveness, capture more UK contracts, and safeguard jobs.
Bilateral trade between Sri Lanka and the UK remains dynamic. In the 12-month period ending Q1 2025, UK imports of Sri Lankan goods (including apparel) totaled £622 million, up 8.2% year-on-year, with clothing alone accounting for £398 million—roughly 64% of goods imports from Sri Lanka On the export side, UK goods exports to Sri Lanka were at £136 million over the same period
While the U.S. tariff poses a severe threat—potentially slashing export revenues and destabilizing employment—the UK’s revamped DCTS constitutes a meaningful counterbalance.
By allowing broader sourcing, expanding regional cumulation, and maintaining tariff-free access, the UK reforms give Sri Lanka’s apparel industry a vital strategic lever. Amid its economic recovery and IMF-supported stabilization path, Sri Lanka now stands better poised to diversify markets, preserve foreign exchange, and stabilize its most critical export industry.
