Sri Lanka and the Politics of the Global Garment Industry

The global garment industry has always been politicized. However, in the past the politics was limited to trade — countries trying to protect their own export markets or their own domestic suppliers. Recently, the rules of the game have changed as governments in the industrialized West have finally woken up to the fact that there is more to the garment industry than just trade. For many developing countries the garment industry is the first indispensable step toward industrial development. In these countries, we garmentos are the largest industrial employers as well as the largest source of foreign exchange. As a result, the politics of the global garment industry has now been extended to include all areas of foreign policy.

Take the case of Sri Lanka. With only a 1.9% EU market share and a 2% U.S. market share, Sri Lanka is not in the major-garment-supplier category. However, as they say, size is not everything. Sri Lanka’s garment industry is very special. The industry consists of about 300+ factories of which approximately 15 are major suppliers. Of these, three — Brandix Hirdaramani, and MAS Lanka — are in that special group consisting of the fifty world’s most important garment suppliers.

Everybody loves working in Sri Lanka. It is not just that the country is beautiful, the food superb, and the people among the nicest in the world. (In truth we garmentos care little about the amenities of life.) We care only about product and delivery, which is precisely why we love Sri Lanka. Technically, these people have some of the best management in garment industry world. The industry is known for their acceptance of styles that no one else will touch. These factories are not only 100% reliable, they are at the cutting edge of human rights, working conditions and sustainability. No child labor. No illegal practices. Others may still dump effluent in rivers or worse in ground water. Not the Sri Lankan big three. Do want you see a state-of-the-art factory with the most efficient pre-production and production systems, with a 0-carbon-footprint? Go to Sri Lanka.

Unfortunately, despite its exceptional industry, Sri Lanka’s global garment export market share has declined steadily since the quota 2005 phase out — from 1.07% in 2004 to 0.96% in 2008. There are three important reasons for this decline:

1. For much of this period, Sri Lanka was involved in a long-term internal war against the LTTE, a vicious terrorist group. Indiscriminant attacks against the civilian population is never good for business, despite the fact that during the 30 year conflict, not one foreigner was killed or attacked.

2. The major garment factories expanded off shore — in the case of the big three building large scale industrial parks in India

3. As the global garment industry consolidated, U.S. customers increasingly concentrated their orders in the major supplying countries, dropping Sri Lanka as too small. From 2004 to 2009 Sri Lanka’s U.S. market share fell from 2.4% to 1.9%

To some degree the loss of U.S. business was compensated by an increase in exports to the EU where from 2004 to 2008 market share increased from 1.6% to 1.9%. Much of this was due to GSP+ status granted to Sri Lanka by the EU in 2005. GSP+ allows duty free status for all exports to the EU, thus saving 8%-12% on garment costs.

GSP+ is given only to those countries who have signed and abided by 27 international conventions on human rights, labor rights and environmental standards. With the exception of Mongolia, Sri Lanka is the only Asian country given GSP+. In all fairness, no Asian country was more deserving nor more entitled.

The result was a major shift in Sri Lanka’s export markets. In 2004 the U.S. accounted for 61% of all Sri Lanka’s garment exports compared with 39% for the EU. By 2008 the situation had almost entirely reversed with the EU accounting for 50% of total Sri Lanka’s garment exports compared with the U.S. 47%.

2010 was to be Sri Lanka’s great year.

In May 2009, the LTTE were finally and completely defeated and the internecine war came to an end. After 23 years of terrorist attacks, peace had finally returned to the Sri Lanka

Armed with GSP+ status, Sri Lanka’s major factories looked to expand their operations in the north of the country, supplying jobs to the local Tamil population.

So, it is more than a little irony that on 5th July 2010 the EU announced that SRI Lanka is to lose its GSP+ status with effect from 15th August 2010. The reason given was human rights violations with occurred in the closing months of the fight against the LTTE together.

These reasons were given in the EU Commission earlier statement of 19 October were: The investigation identifies significant shortcomings in respect of three UN human rights conventions – the International Covenant on Civil and Political Rights (ICCPR), the Convention against Torture (CAT) and the Convention on the Rights of the Child (CRC) – such as to indicate that Sri Lanka at present is not effectively implementing them.

The EU had offered to delay its action by six month in exchange for written assurances that the Sri Lankan government could deliver pledges on 15 specific issues onhuman rights.

The Sri Lankan refused to give those assurances. Media Minister Keheliya Rambukwella said “Colombo had already arranged relief to export businesses that would be affected by Sri Lanka no longer receiving preferential access to European Union markets. We are not accepting EU conditions. Our position is very clear. We have already made alternate arrangements to help the exporters who may be affected by this.”

The minister had previously dismissed the EU conditions as “insulting to every Sri Lankan” and vowed the government would not back down.

In all fairness the Sri Lankan Government did try to negotiate a solution with the EU Commission and walked away only after they concluded that they were unable to reach a “reasonable” agreement. The problem is that they failed to see that Sri Lanka was in no position to bargain. Losing GSP+ carries considerable cost to Sri Lanka; taking GSP+ away from Sri Lanka costs the EU nothing.

When all is said and done, the Sri Lankan Government failed to understand the serious repercussions that will arise from their decision.

So much for the politicians.

Here are the real problems

Garments factories are not only Sri Lanka’s largest employer, they account for over 40% of the countries export trade. Much of this is about to be lost

The Sri Lankan garment industry relies on only two markets for 97% of their garment exports. The U.S. market is in secular decline. The EU, which is Sri Lanka’s largest customer; a growing market; and in fact the world’s largest garment importer is about to freeze Sri Lanka out.

Compensating the factory owners is a costly irrelevance since virtually of all of the big Sri Lankan factories are capable of shifting production off-shore on 10 minute’s notice.

Having finally liberated the previously Tamil-Tiger controlled regions of the country, the government must take immediate steps to bring these people back into a viable society. The first step must be job creation. How does the government intend to create jobs at the very moment they are inviting their largest industrial employers to leave the country, taking their jobs with them?

The Sri Lankan government should look to Hong Kong, Korea and Taiwan garment industries whose companies are among the world’s garment exporters but have almost no sewing factories in their home countries. This may well be Sri Lanka’s future. The only difference is that today Hong Kong, Korea and Taiwan are among the world’s most affluent countries. They neither need nor value the semi-skilled jobs offered by garment producers.

Sri Lanka is not an affluent country. Sri Lanka needs garment factory jobs. Regrettably, their government does not seem to place sufficient value those jobs

World Trade Organization, International Trade Statistics 2009

World Trade Organization, International Trade Statistics 2009

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