The Joint Apparel Association Forum (JAAF) yesterday urged the government to expedite negotiations on free trade agreements (FTAs) to enhance the industry’s resilience and global competitiveness amid rising fears of a global economic recession.
Elaborating on its rationale, JAAF noted that FTAs have become an integral part of the global trading system, particularly over the past three decades. In that time there has been an exponential increase in FTAs notified to the WTO – from just 19 in 1990 to 292 by January 2019.
In the last decade, Asian countries in particular have understood the crucial value of FTAs as a means to liberalize trade and investment. Vietnam for example has an impressive growth trajectory in exports that correlates closely with the FTAs entered into by them, with the Vietnamese government making necessary commitments to ensure compliance.
Sri Lanka currently faces the risk of losing out on trade benefits enjoyed by regional peers as countries like Indonesia, Vietnam and India are already in advanced FTA negotiations with the European Union. Indonesia having started discussions as early as 2016 enjoyed leeway to restart trade negotiations to suit new realities with the pandemic breakout.
Sri Lanka is a member of just two bilateral trade agreements and three regional trade agreements. In order to harness the power of trade to spark an economic revival, JAAF noted that all stakeholders would have to work together in order to improve the utilization of Sri Lanka’s existing agreements, in addition to negotiating new concessions.
Sri Lanka’s top five apparel export markets are the United States, United Kingdom, Italy, Germany and the Netherlands. Currently, the US, EU and the UK comprise about 86 percent of Sri Lanka’s total exports.
However, the rise in inflation and a significant risk of winter gas shortages in the island’s primary export markets such as the UK and EU has severely compromised the industry’s ability to solely rely on these countries to maintain its commendable export performance.
According to JAAF, the signs of a slowdown are already emerging, including a drop in foreign orders to the industry.
In that context, JAAF reiterated the need for Sri Lanka to diversify its apparel export markets with countries like China, India, Japan and Australia.
Sri Lankan apparel firms are also prevented from competing on a level-playing field with regional apparel powerhouses like Vietnam, Thailand and Bangladesh, all of whom have secured preferential access and duty concessions to international markets that Sri Lanka does not have.
The impact on the prosperity of these nations is visible through trade in their sustained growth in share of trade as a percentage of GDP over the years. In Thailand, trade as a percentage of GDP was 75.8 percent in 1990 and increased to 117 percent in 2021. In Bangladesh it was 19 percent in 1990 and increased to 28 percent in 2021.
By contrast, Sri Lanka’s trade concessions are confined to the UK and EU and come with a variety of strict conditions pertaining to WTO’s rules of origin, compromising Sri Lanka’s utilization of these concessions to about 50 percent.
However, it is important to note that the barriers of rules of origin are curbed to a great extent for Sri Lanka under UK’s new Developing Country Trading Scheme (DCTS). Further, Sri Lanka is also at the risk of losing GSP Plus concessions by December 2023 if the stipulated socio-economic requirements of the scheme are not met.
JAAF highlighted that the proposed Chinese FTA is of paramount importance to the apparel industry to eliminate the barriers for apparel exports.
“JAAF understands the negotiations depend on the progress of sovereign debt restructuring with China. However, JAAF is hopeful to gain more clarity on negotiation timelines from the Department of Commerce in the coming weeks,” the association said.
Further, to integrate better with the region, Sri Lanka’s apparel industry is hopeful to receive preferential access to the Indian market where they are currently restricted to only supplying eight million pieces.
The industry also sees opportunity in lobbying for Canada’s GPT Plus scheme. JAFF noted that opportunities also exist with the UK’s new DCTS scheme. The UK is aggressively looking at FTAs and has already progressed with many countries including India. Sri Lanka should not get left behind at this critical time
