EU sanctions will see ‘a lot of SMEs going bust’ in Sri Lanka

16th September 2009

Simon Harding

The EU is terminating a trade agreement with Sri Lanka, which allowed the South Asian nation’s exports to enter Europe tax-free. The Generalised System of Preferences (GSP) agreement was created to help Sri Lanka recover from the Boxing Day Tsunami in 2004 and enabled many large UK high street chains to sell quality Sri Lankan-made clothes, lingerie and sportswear to British consumers at a reasonable price. Dubbed ‘garments without guilt’, Sri Lankan exports 52% of its garments to the EU, providing jobs for around a million people, mostly in modern, well-equipped factories around the capital, Colombo. 

This looks set to end as the EU abolishes the agreement, citing human rights abuses by Sri Lankan security forces against the country’s Tamil minority in the aftermath of the country’s 30 year long civil war in May this year. Last year, the Sri Lankan government refused to let an EU inspection team into the country to investigate reported human rights abuses, forcing the EU to employ independent consultants to carry out the work. Their findings led to the discontinuation of GSP.

‘GSP is crucial’, said Kumar Mirchandani, head of the Sri Lankan Apparel Exporters Association, ‘withdrawing it would mean a lot of hardship – a lot of small and medium sized enterprises going bust’. Around 250,000 jobs are understood to be under threat. GSP enables Sri Lanka to compete with other garment exporters, like Bangladesh, which have lower labour costs and similar tax-free agreements. ‘Price pressure is so high, people move away over a difference of 10 cents’, laments Mirchandani, ‘we can’t take 10% off our prices - we don’t have those margins’.

The Sri Lankan government has pledged $150m to its garment industry to promote their products in India, China and other countries less critical of President Mahinda Rajapaksa’s human rights record.

Whilst the human rights abuses of the Sri Lankan government must not go unchallenged, ripping up a trade deal which has done much to provide decent jobs targets the ability of ordinary Sri Lankan to make ends meet, rather than punishing the political elite responsible for the security forces.

The sanctions are counterproductive: they will harden the government’s stance towards Tamils and increase poverty, resentment and anger amongst the Tamil minority and Sinhalese majority as unemployment rises. Even if the Sri Lankan government bends and addresses the EU’s concerns, the damage may already be done and Sri Lanka may have lost the core of a vital value-added manufacturing industry – the kind of industry which is crucial in freeing a nation from reliance on cash crops and primary commodities, which are vulnerable to wild fluctuations in price and overseas demand.

Also see: ‘EU sanctions on Sri Lanka to hit 'cheap' clothing over human rights abuses’, 

Jeremy Page, The Times, 15/9/09.

Available at: http://www.timesonline.co.uk/tol/news/world/article6834572.ece