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| Wednesday, 13 October 2004 |
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US-Lanka FTA, a boon to local garments industry by Manjula Fernando
With two months to go for the complete abolition of the Multi Fibre Agreement (MFA) which opened up the world's richest market to our small and medium scale apparel exporters, Sri Lanka is anxiously awaiting a Free Trade Agreement (FTA) with the US to save our flagship industry. Sri Lanka Ambassador to the US Devinda Subasinghe in an exclusive interview with the Daily News in New York explained the current position with the proposed FTA between Sri Lanka and US. Observing that the US will not stop buying apparel goods from Sri Lanka right away, as we have already found a stable market there for certain categories, Subasinghe said ideally the Sri Lanka industry hoped to finalise the FTA before the end of next year to minimise the impact on our apparel sector due to the MFA abolition. Largely dependant
"Sri Lanka is largely dependant on the MFA which offered garment quotas for developing nations to survive the US market. Nevertheless, India, China and Pakistan countries dominating the sector, have welcomed the WTO initiative to compete better in volume and price," Ambassador Subasinghe said. The US is the largest buyer of Sri Lankan garments. Lankan apparels worth US$ one and half billion reach the US every year. One third of Victoria's secret products sold in the US comes from Sri Lanka. This amounts to US $ 300 million a year. The termination of the MFA, an agreement reached at the Uruguay round in 1995, is to be completed by end 2004. The quota system for travel goods and rubber products such as gloves has already expired. He said the WTO is expected to meet this month to evaluate the impact of the MFA abolition on developing countries. "But nothing much is expected out of this meeting as the WTO is legally bound to abolish the MFA, unless a total amendment to the agreement is made." Apparel exporters Ambassador Subasinghe said only the top one third of our apparel exporters will be able to withstand the impact of the quota termination. Small and medium scale exporters who contribute largely to the export sector will be the worst hit and many of them fear closure. "We have a stable market for lingerie, sportswear and casualwear but our industry in travel goods and footwear will be completely wiped out if not for the FTA." The most vulnerable sectors are cotton and denim trousers, shirts and T-shirts, he said. He cited high transport, power and fuel costs, high interest rates on bank loans, expensive human resources and the lack of a vertically integrated industry like in India and China where they produce their own cotton yarn and do their own dying etc as deterrents to our competitiveness and factors contributing to a loss of market share. Subasinghe said our industrialists have to compete until the proposed Free Trade Agreement between Sri Lanka and US comes into effect as anticipated, by the end of next year. "Nevertheless, I do not think US will immediately stop buying Sri Lankan products," he added. Optimistic "We are optimistic that the proposed FTA could be finalised before the end of next year. The whole process involves an announcement by the White House on the intention of the FTA and subsequently a 90-day period to receive comments from the Congress followed by negotiations between the parties. A possible change of Government at the forthcoming presidential election is not expected to shift US policy towards Sri Lanka. Ten Senate members and 24 Congressmen have written to the White House supporting the FTA with Sri Lanka. The US Chamber of Commerce has also made representations supporting the move. This would be in favour of Sri Lanka in an election year in the US, he said. Sri Lanka annually exports apparel products worth US$ 2.5 billion - about 52 per cent of the country's total annual exports. Out of this, apparel exports to the US alone account for US$ 1.5 billion. This is around 6 per cent of the GDP. "The FTA will help minimise the impact on the apparel industry for starters and help boost luggage and footwear exports to the US. Sri Lanka stands to gain more through the FTA especially in education and professional realms with the expansion in preferential student visas to locals. In turn, the US will want to expand wheat exports to Sri Lanka," the Ambassador explained. A study by IIE A study conducted by the International Institute for Economics (IIE)-a Washington based trade think tank- entitled "The Prospects of a Free Trade Agreement between Sri Lanka and the United States" predicts that "the empirical and applied quantitative analyses conducted as part of the present study, investigating the merchandise trade-related impacts of a Sri Lanka-US FTA, find that the gains in economic welfare to Sri Lanka would be particularly large (simulated at 3.0 to 3.5 percent of GDP per annum by the GTAP model)." It also suggests that "a FTA with the United States would be effective in inoculating Sri Lanka from possible adverse effects of increasing competition from China and other low-wage countries for apparel exports to the United States after the elimination of the Multi-Fibre Arrangement in 2005". The present Government pursued the proposal for an FTA initiated in 2003 by the then Government. Foreign Minister Lakshman Kadirgamar visited Washington in May soon after the April election, to push forward the process. Minister Jeyaraj Fernandopulle also visited the United States in June to make representations on behalf of the Government. Agreement signed A Trade and Investment Framework Agreement was signed in 2002 to enhance bilateral economic and trade ties between the two countries. Subsequently a Cabinet level joint council was set up under the TIFA to further broaden trade ties. This council has met three times since its inception and next meeting of the Council is expected to take place on October 26 to discuss broadening and deepening bilateral trade and investment relations between the two countries. |
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