These are tense times in Sri Lanka.
A European Union (EU) delegation arrived in the capital city of Colombo Monday to review what has become a source of additional stress for a nation already beleaguered by a shortage of foreign exchange reserves, and reeling under Covid-19 related challenges. Trade privileges linked to the Generalized System of Preferences Plus (GSP+) have recently come under scrutiny by the EU for human rights violations.
This envoy comes at a key moment for Sri Lanka, which has been facing dipping foreign reserves leading to an alarming situation that Sri Lanka’s finance minister deemed a “dangerous foreign exchange crisis.” The president declared a state of emergency as most private banks ran out of foreign currency to finance imports of essentials, triggering food shortages. The government had already banned imports of cars and other goods in a bid to save currency.
Dropping from $7.5 billion in November 2019 to $2.8 billion at the end of July, the foreign exchange reserves have also been badly hit by a lack of tourism.
The EU delegation’s visit is of particular concern to those in the apparel industry, with garment exports accounting for more than 50 percent of total exports this year.
The EU is Sri Lanka’s second-largest trading partner after China and its second main export destination.
Alarm bells went off when the proposal to withdraw GSP+ benefits in Sri Lanka passed in the European parliament. The resolution urged the withdrawal of the temporary GSP+ benefits granted to Sri Lanka by the EU in 2017.
Conversations regarding the consequences across the industry reflect concern and contention from both sides.
“Last week when I was speaking with the workforce in my factory which is in a remote area, this was one of the questions they asked me: what will happen if GSP is withdrawn? I didn’t tell them how grave the consequences would be for us, but said that we will counter things as they happen,” said Janaka Botejue, chairman of Botejue Industries, which manufactures for Next and Marks & Spencer. “It will be like a funeral for us, and for all of the workers who are supported by our factory, more than 90 percent of whom are women.”
“As an exporter, GSP+ is a big tool. When it comes to pricing it is a level playing field with Bangladesh and Vietnam. Otherwise, why would a customer look at Sri Lanka?” he said.
More than 15 percent of the country’s workforce is employed in this sector—approximately 400,000 workers. Apparel exports in 2020 were $4.2 billion, down from $5.3 billion in 2019.
“This year we have seen 12 percent growth and expect to reach $5.1 billion by year-end, still missing the 2019 level, mostly due to the expenses of maintaining extensive health protocols, testing expenses, etc. Even though factories have been working, they are now only at 80 percent capacity taking into account quarantine, family Covid issues, transport issues because of lockdown, etc.,” said Felix Fernando, executive member of the Joint Apparel Association Forum (JAAF), and group director Omega Line Ltd, a company that employs 14,000 people.
“Our hands as regards to the outcome of these discussions are tied because these are political and government to government. We have been having discussions with the government since this issue came up earlier in the year and trying to find the best way forward. It is going to be disastrous if it is removed,” he said.
The EU delegation plans to meet President Gotabaya Rajapaksa, Prime Minister Mahinda Rajapaksa, Foreign Minister Gamini Peiris and other officials.
To participate in the GSP+ pact, which allows zero tariffs on exports from low and lower-middle-income countries, signatories must meet commitments on human labor rights and environmental protection.