The Sunday Leader

GSP+ Withdrawal Strips Off Sri Lanka’s Garments

Despite government’s claims that the withdrawal of the GSP Plus facility in 2010 would bear no severe impact on the country’s economy, the EU’s decision to withdraw the facility has been estimated to cost the government billions, and has had a huge impact on the garment industry, which was at the time a thriving sector in the country.

However, despite government’s claims that it would not affect the garment trade many factories have been forced to close down, while thousands have been rendered unemployed. This situation has recently forced the government to rethink its stance on the EU’s trade concession.

The GSP Plus trade concession most certainly assisted the country’s industrial exports and its withdrawal has affected export income and the trade balance adversely, as the economy is deeply dependent on industrial exports.

Profit decline

The overall income from apparel exports in 2011 was US$ 4100 million, while it had declined to US$ 3850 million in 2012.
A senior Manager of Unilak fashion who did not wish to be named said that not everyone was affected by the withdrawal of the GSP Plus, while around 70% of exports were to the European Union which was affected by the GSP withdrawal, 30% including his company were exporters to the US.

“Only those exporting to the EU are affected by the GSP Plus. After the withdrawal of the GSP Plus concessions many markets moved to countries like India and Bangladesh. The affected apparel manufacturers by this measure also tried to work their way into the US market to sustain and also cut down on profits,” he said.

Hit from three corners

According to him, the apparel industry has been hit from three corners.

“One is that the lack of Sri Lankan labour. Most of the people here are educated and they are reluctant to join the apparel industry and rather prefer to further their education and enter university etc, which has had an impact on the sector. Currently there are over 25,000 vacancies in the apparel sector, but no labour force to fill these vacancies. The other factor affecting the apparel market is the removal of the GSP Plus and the duty for the US market and also the pricing structure. All these factors have a negative impact on the apparel sector and it has also made it harder for us to compete with other apparel manufacturing countries. There are certain countries like Jordan, Egypt and Oman that offer duty exemption for apparel exporters, which makes it more profitable. Due to these factors, if we are to be competitive we are forced to reduce our profit margins, which in turn makes it less lucrative.

“The third factor is that the government knows about all our problems, but has failed to support the apparel industry. If the government was to help us out by at least providing us some concessions with either electricity, water, duty or tax deductions, then we would be more competitive in competing with the other apparel manufacturing countries,” he said.

Elaborating on the shortage of labour, he said that very soon Sri Lankan apparel manufacturers would be compelled to import labour to fill the existing vacancies.

Short of people

“We are running short of people in Sri Lanka and Sri Lankan labour is also getting too costly. It would be cheaper for us to import labour from other countries,” he said adding that another option would be to move the factories to other countries that provide cheap labour.

“More than a dozen companies have already moved their factories to countries such as Bangladesh and Vietnam. Most of the larger apparel manufacturers have moved out and set up branches in more const effective countries. The buyers don’t want to come to Sri Lanka but are happy to go to Bangladesh or Vietnam. This clearly shows that it is not due to any issue with these companies, but it’s because they have a problem here in Sri Lanka,” he added.

However, he said that even though the apparel manufacturers exporting to the EU had been affected by the GSP Plus, those supplying to the US market too have their own issues. The US market was also hit badly in 2005 when the quota system was abolished and made it an open market. With the abolition of the quota system apparels from countries such as Myanmar, Bangladesh and Vietnam flooded the US market. “It is difficult to compete with them as they spend only around half the wage of what we pay our workers. The average Sri Lankan worker receives around Rs. 12,000 per month, while in China, Bangladesh or Vietnam they are paid only around half that amount or even cheaper,” he lamented.

Meanwhile, Joint Secretary of Free Trade Zones and General Services Employees Union, Anton Marcus said that from 2003 Sri Lanka was enjoying the benefits of the GSP Plus concession.

“So as a result of this from the year 2000 there were about 835 garment manufacturing factories in the country, employing a huge workforce, but now there are only around 314, employing only around 283,000 workers. Even in 2003 when the GSP was given there was a road map given by the EU with regard to the labour rights. Therefore in order to obtain the GSP the BOI even amended their industrial relations guidelines and they included trade unions instead of employees’ councils. However what happened after they obtained the GSP was that almost all the employers failed to adhere to those stipulated conditions. Hence the government and the employers were not ready to face the review that was scheduled for 2004, but because of the Tsunami the European commission extended the GSP+ facility on sympathetic grounds even without a review. As a result the garment industry was the most favourable industry because of the GSP+ facility at the time,” he said.

Government’s high-minded attitude

He observed that 28 conventions were attached to the GSP+ when it was given, and the government agreed to implement those conventions by law and by practice.

“Most of the conditions were related to human rights as well as labour rights and environmental. Unfortunately subsequent to obtaining the GSP+ the employers and the government did not adhere to those conditions. Instead of participating at these reviews the government took up a very political and high minded attitude, and as a result Sri Lanka lost the GSP+ facility. At that time even the joint apparel exporters forum was of the stand that they did not mind the removal of the GSP+ facility claiming that they could manage without it. When the EU gave us the GSP+ facility what they hoped was those benefits would be given to the workers, but unfortunately that’s not what happened. During that time the employers earned profits of about 30%, but they did not share this profit with the workers. The working conditions and living conditions of the workers was deplorable. Their salaries were very low and according to a survey done by in 2008 on the women workers in the Katunayake Free Trade Zone it showed that 66% of these female workers were suffering from anaemia. This is a clear indication that the benefits have not been given to the workers,” he added.

At one time the majority of the 50 richest persons in this country were garment industry owners, he said adding that while the factory owners were enjoying the good life, their poor workers were suffering from lack of proper nourishment.

He refuted claims that there was a shortage of workers in the country, adding that if proper facilities were given to them these workers would be willing to work. He said that most of the larger factories have shifted its operations to other countries seeking cheap labour. “But the main factor is that our Sri Lankans are educated and it is easy to train them into turning out high fashion garments, which most of the cheap labour markets cannot produce,” he said.

According to Marcus, there is speculation that the government is planning on applying for the GSP Plus facility. However he added that without adhering to the conditions stipulated by the EU there is no possibility of obtaining this facility.

Protest against importing  foreign workers

Meanwhile, the Free Trade Zones and General Services Employees Union had written to the president asking for a tripartite discussion (government, employers and apparel workers union) to address the issue of importing foreign labour, but said that the president had not even acknowledged receiving it.

On Wednesday they had sent another letter giving the government 15 days to respond as they had heard that the employers are trying to import workers from India, Bangladesh and Myanmar as they cannot find workers here.

“We protested against that and wrote to the president on Wednesday, and if it is not addressed we are going to take it up very seriously. We are going to mobilise the young people against this move and the whole trade union movement is going to take up this matter,” he added.

The vice president of the Inter Company Employees Union B. Abdeen said that the overall income from apparel exports in 2011 was US$ 4100 million, while it had declined to US$ 3850 million in 2012.

“According to forecasts it is estimated that the income from apparel exports will decline by a further 13% to 15% this year, but my opinion is that the figures will plunge by around 15% to 20% this year to around US$ 3200 million. The future of apparel exports in Sri Lanka is facing a bleak future, and several factories have already closed so far this year. Two factories employing around 800 staff each have terminated operations in Colombo while another factory in Ratnapura had also shut down. In one group three of its companies had to terminate operations due to it not being able to operate,” he added.

He further added that leading apparel manufacturers such as the Brandix chain is planning on shifting several of its factories to India, while even the MAS group is said to be shifting some of its factories out of Sri Lanka due to the lack of orders.

Meagre salaries

Meanwhile, K. Priyanthi who works on the production line for Cupid Garments in Ratmalana said that the salary she receives was totally inadequate to survive and feed her family.
“Currently we have around 200 employees working at the factory, while earlier the figure was over twice the current amount. However due to the meagre wages that the garment industry offers, many of the workers seek other employment and move out. I receive around Rs. 14 to 15 thousand per month including all the allowances if I work the whole month without any absenteeism,” she said.

Another employee of Cupid garments A. Wasanthi, a helper in the ironing line, receives only around Rs. 9000 per month. According to her the smaller apparel manufacturing companies are struggling to survive as most of the employees are leaving due to low wages. She said that once she paid her boarding fees of around Rs. 4000 there was nothing left for her.

“We don’t have the proper mentality to carry out our duties as we are very depressed and dejected. As for me I am in my thirties and even if I can work, most of the larger companies prefer to take the younger employees and we are forced to remain where we are with these low salaries. Our factories lack even the modern machinery and we have to work with dilapidated equipment. However when we complain the management tells us to work with the available machinery,” she added.

While other countries, which are dependent on the garment industry, are providing their industrialists with concessions and incentives, the Sri Lankan government is taking on an arrogant attitude and refusing to accept that the apparel sector is in turmoil. The rising cost of living and the meager wages will only put more pressure on the industry and make it less competitive with other countries. Unless the government takes measures to address this issue and at least provide some concessions to revive this sector, the Sri Lankan apparel industry, a thriving venture in the past will remain as a thing of the past.

7 Comments for “GSP+ Withdrawal Strips Off Sri Lanka’s Garments”

  1. Ratana

    Short sighted decisions of the foolish Govt. hits the ordinary men.

  2. Johann Gunasekar

    Cut cost, drive efficiency, look for better buyers or go to Bangladesh if you want cheap labour.

  3. Anoj Perera

    This is natural, at a stage during a country’s development process, unskilled labour becomes too expensive and factories move elsewhere. This is especially true as Sri Lanka’s GNI rises. There is instead a move toward services and high end industry which the GOSL need to facilitate. Education needs to be a priority now. This is currently the case with China, with many other countries having been through this stage such as Korea, Hong Kong, etc:

  4. Renu

    Recently PBJ has told some of the Factory owners that if they are unable to carry on with present cost to close down the factories, let the workers find jobs elsewhere. Govenment is now iunterested in the tourist mareket to generate funds for the cfountry and all politicians are involved in building Hotels, in the East, South , North & the West

  5. Duminda N Jayatileke

    All the Colombo big mouths and show-offs will now starve and start begging on the streets. Without the west SL is doomed.

  6. sarath

    the west are the exploiters. they go to Bangladesh and China for cheep prices. the shirt they buy for $05 will be sold at @25 or so. they talk about social compliance. In Bd and Ch pay only a meager salary and provide least facilities. west know this but go to them instead of SL. we have better standards of compliance but now looking other side. they talk about Bd but not implement any of the compliance.

  7. siddique

    The common people always try to earn in short cuts because of high cost of living
    therefore if salary is low they will find a way for higher salary here or aboad. likewise the Garment Owners cannot shift everywhere due to the Government’s
    bad policy they might have to face high risk in earnings and even if hardly earned
    they have to pay taxes and exchange profits to Governments. The actual meaning
    of Goverment is to protect the Business and the labour by utilising the taxes and
    rates for the welfare of all if this is neglected it is the responsibility of the common
    to understand the situation from businessmen”s union and find a solution to minimise the current situation rather than complicating our educated crowed to
    desert their knowledge to another country.

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