Questions still ahead as Sri Lanka prepares for EU scrutiny for GSP+ resumption

Marriages are made in heaven they say, but even this as a basis of child rights among a host of other issues from torture of detainees to tackling hate speech and equality of minorities in Sri Lanka are hot topics in Brussels where the European Union (EU) is currently drafting the recommendation likely to allow Colombo to regain its concessions to the bloc.

The EU has had discussions with Sri Lanka’s new administration under President Maithripala Sirisena soon after they  assumed office on how the country could submit a successful application to regain the Generalized Scheme of Preferences (GSP) +.

This clearly signaled the government’s intention to regain the GSP + concessions as opposed to the climate that prevailed back in 2009 when the EU then announced the withdrawal of the trade benefits to Sri Lanka, placing the country’s second largest export, the apparel industry in a grave crisis.

The EU is Sri Lanka’s largest export destination absorbing 36 per cent of its exports of textiles and clothing accounting for more than half of the country’s export value with the rest being machinery, rubber based goods, jewellery and agricultural products.

During the previous administration headed by President Mahinda Rajapakse, Sri Lanka’s former External Affairs Minister Prof. G. L. Peiris was said to have had a series of exchanges between the EU delegation and the government that dealt with the failure of the country to implement the conditions for GSP +.

Sri Lanka has been a signatory to the conventions detailed in the GSP + conditions of the 27 international conventions rights relating to labour (6); environmental (2) and human rights (19).

In 2009 the EU announced that it would withdraw GSP + based on the findings of an investigation by the European Commission (EC) which began in 2008 and that stated Sri Lanka had violated the International Covenant on Civil and Political Rights, the Convention against Torture and other Cruel, Inhuman or Degrading Treatment or Punishment and the Convention on the Rights of the Child, detailed as 15 violations though the specifics were not made available.

Detailed violations

The letter sent to Sri Lanka detailing these violations and requesting the government to respond was carried out only in 2015. In fact the EU had stated in their report adopting the regulation on the withdrawal of the GSP + that though Sri Lanka had “decided not to cooperate with, or participate in, the investigation, the Commission maintained regular contact with Sri Lanka outside the framework of the investigation.”

In fact the government at the time had adopted a stubborn attitude and had not been open to the EU to continue discussions. Moreover, the Business Times learns that the previous government had no friends in the West and was mostly looking towards Asia and in particular China as a result of which their trade ties with the bloc collapsed. In fact the withdrawal of the concessions has been blamed on this due to a strong mistrust of the Sri Lankan administration and a similar dislike of the state by the trading bloc due to the country’s political and economic policies.

It is also believed that the country’s full implementation of the 17th Amendment to the Constitution (the establishment of the Constitutional Council) was asked for but by then was  history since Sri Lanka had already adopted the 18th Amendment (extending tenure of the Executive and increasing its powers).

Despite the violations Sri Lanka was said to have committed it was interesting to find that similar beneficiary countries of the GSP + with a not so good track record in terms of human rights as perceived by certain political analysts continued to receive  these trade benefits.

In fact the EU itself has stated that Sri Lanka is a good case study as this was the first country to have its GSP + concessions withdrawn as a result of which it has come in for dialogue and critical analysis by students and academics.

Apparel industry collapses

Sri Lanka’s apparel industry had made millions from the growing trade with the EU and this was increasing in value terms of exports at a rate of 16.4 per cent year-on-year from 2006-2009. This slowed down from 2010-2014 to a growth rate of 7.5 per cent on average. The industry recorded a loss of US$500 million annually in apparel exports to the EU.

Sri Lanka Apparel Exporters Association (SLAEA) Chairman Felix Fernando said in an interview with the Business Times on Wednesday that when the GSP + was withdrawn some of the buying offices who were sourcing for Sri Lanka moved to Bangladesh and other countries in the region.

This led to a number of small factories having to shut down their operations, he explained adding that though few were taken over by the large players the small and medium enterprises (SMEs) were hit. At the time the industry was hit by this trade crisis with the EU there were approximately 400 factories and today there are approximately 300.

Those severely affected were the factories catering to the low end of the market producing pants and round collar T-shirts, he noted adding that this was due to the low margins.

The intimate and formal apparel manufacturers, positioned in the mid-level category of clothing, were able to consolidate. “Even they had to take a beating because the customer demanded a price cut. So the manufacturer had to bear the loss,” Mr. Fernando said.

As a result of the withdrawal, investments into Sri Lanka for the apparel industry halted and instead were attracted to destinations like Bangladesh, Ethiopia, Kenya and Vietnam. Some of the other bigger players however were by then ready and were looking at increasing capacity as a result of which they were moving out into the region.

In fact, Sri Lanka was also faced with issues like high wages due to which factories were moving out and with the market moving from front end work to design and development the companies moved to the region in search of cheaper labour.

Workers behind the scene

The workforce that lost jobs in factories that phased out its operations were absorbed by some of the larger factories but by the time the concessions were pulled out Sri Lanka was also at the end of its own military battle against the Liberation Tigers of Tamil Eelam (LTTE). This led to increased competition in the labour market.

Workers with jobs in factories that sub contracted to the larger factories were the ones affected and a few smaller factories in the rural areas. No figures are available on the loss of employment back then in 2010 but today the industry states that as of 2016 the apparel industry comprises of a workforce of about 300,000 direct and about 600,000 indirect people.

The labour shortage today is altogether another story which, Mr. Fernando explained has been a “long-standing problem.” The village lass having seen the new-found freedom in coming to the city was overwhelmed by what she  saw. At the start of the factories most companies set up operations to gain tax holiday exemptions as a result of which they exploited the employees and due to the abuse of the female workforce these people got branded and the apparel industry was deemed an unhealthy work environment for future job seekers.

Teledramas, novels and even the local press, the industry complained branded these people in derogatory terms like “juki girls” and in particular the Sinhala press as “garment kella” which has today led to the unattractiveness of working in a garment factory. Asked how this  should be addressed, Mr. Fernando explained they should be called “machine operators” since that is what they do employed not in sweat shops but a healthy environment provided one free meal and transport.

Further investigation into the social status of the apparel worker found that though the industry has moved to the North and East the families in these areas were averse to encouraging their daughters to get employed in factories due to the image portrayed by society.

Union activity on the
factory floor

The law entails that trade union activity should be encouraged if at least 40 per cent of the workforce requires it but the trade unions state this is not allowed in the factories.

Free Trade Zone Union President Anton Marcus told the Business Times that they had proposed some changes going forward in the policy statement of the Board of Investment (BOI) in relation to contract labour.

Any employer who employs an worker through a second party like a manpower agency and if the work is related to the major part of the work and the job is of a permanent nature then the worker has to be absorbed into the workforce, Mr. Marcus explained.

Due to the shortage of labour on the factories, the companies resorted to employing day workers from the manpower agencies but these jobs were not made permanent in some factories, the unions complained.

As a result, the unions have proposed for this compliance since the workers are doing a job of a permanent nature.

The unions have also proposed the establishment of a special division in the Labour Department related to unfair labour practices and at the same time proposed some amendments to the Industrial Dispute Act of 1969.

However, the labour rights in Sri Lanka has not been a subject of dispute by the EU and has not been a topic detailed as being violated under the labour rights conventions adopted by the country.

Employers however state that they have established worker councils within their establishments that would look into the grievances of their employees. In fact, some companies have opened the lines of communication between the staffers and the management to ensure there is better resolution of issues.

With more mechanization and moving into the lagging regions, the industry has been able to regain its hope for resurrection by stressing on its improved image through a brand building campaign that was launched some time back to get a positive impact.

Image building

But improving the country’s own brand is something the government has been working on since it came into office together with the EU on regaining the trade benefits for its industries.

As a result negotiations have centered on issues like the age of marriage in Sri Lanka as a result of which the government is said to have been talking to the various communities on the subject, EU Head of Political, Trade and Communication Section Paul Godfrey said in an interview with the Business times on Thursday.

He explained that in addition to the 15 areas of concern that have formed the basis of the negotiations at present the discussions were centered on several issues like the civil and political rights convention that remains an issue.

The EU wants Sri Lanka to ensure that suspects in custody must have access to a lawyer at the time of arrest, he said.

In addition, on the subject of torture, the EU has been satisfied with Sri Lankan government’s readiness to involve the Special Rapporteur who came to the country and conducted investigations into this aspect following which a the Report on the Committee on Torture was produced.

In this respect, the mere opening of the door to such visits (not allowed under the previous administration) and the direction given to the law enforcement agencies to comply with the instructions of the government to not engage in torture and physical coercion was a step forward, he said.

Moreover, media freedom is practiced today, Mr. Godfrey said and was better than how it was two years ago which is a sign of improvement.

On the issue of child rights, the concerns were mostly on child soldiers, the quasi state sponsored organizations and military groups using children which have not been recorded lately, it was noted.

Inspite of the establishment of the Office of Missing Persons (OMP) the EU believes that the concern here is related to whether disappearances happen even today which, Mr. Godfrey explained was not practiced under the present government.

In view of the minority groups, he explained that while issues pertaining to hate speech continues to happen even in Europe and due to a few “individual instances” like the Buddhist monks found attacking Muslims in abusive language in Batticaloa two weeks back, it is the government reaction that is important.

“The government is working with political representatives of the other ethnic groups” and it would be an ongoing progress and the EU seems satisfied that the government is taking positive steps in this regard, he said.

Workers protest

Regaining lost glory

The industry that helped to boost the country’s image globally as the main centre for apparel manufacturing believes it could regain its lost glory as it moves to areas like Killinochchi, Uva province, Vavuniya and Nandikadal, Joint Apparel Association Forum (JAAF) President Noel Piyatilleke told the Business Times on Tuesday.

He noted that compared to most other exports, apparel had dropped only by a marginal amount and believe that they would be able to secure the $5 billion target by the end of this year with both exports and local market sales. The industry is targeting $8 billion in exports by 2020.

In fact, Mr. Piyatilleke explained that since the budget has provided concessions to moving into the lagging regions like not taxing capital formulation it has been an impetus for the industry.

Moreover, looking into the future, the industry is eyeing a Free Trade Agreement (FTA) with the EU for which the government has agreed, the JAAF President said since the period of the next round of GSP + would be only for four years.

Britain’s exit from the EU (Brexit) is likely to hit the industry which markets over 30 per cent of its exports to the UK out of its trade to the EU. However, this is likely to take two more years, the industry heads opine that the government is very receptive on this matter that could prove beneficial for them.

Currently Vietnam is also looking at entering into an FTA with the EU and Sri Lanka needs to meet up to its competition with this and other countries like Bangladesh.

At present though Bangladesh benefits from preferential access to the EU, the status would be the same once Brexit is effected thereby placing both on a level playing field.

Further, Sri Lanka is negotiating with India under the Economic and Technical Cooperation Agreement (ETCA) to lift the quota of eight million pieces that is worth only about $50 million.

In addition, duty free access to the Chinese market is being worked out under the FTA with that country which Mr. Piyatilleke noted was a brand conscious market.

This trade concession could be for a 4-year period, but the EU believes it is likely to go on for about seven years.

Mr. Godfrey from the EU Delegation office in Colombo explained that Sri Lanka is unlikely to reach an upper middle income country by the end of three years.

He noted that usually this trade concession is given for three years until the country reaches this status and another three years is added until the beneficiary country consolidates plus one more year as a grace period.

The EU believes that compliance with these international conventions is not just binding for trade but also for the country’s improvement of its own human rights track record.

Asked if such compliance is sought from nations like Pakistan that is being questioned on its own issues on terrorism financing, the EU states that the judgement on this state in 2014 was that concerns were raised on the prosecution of war against terrorism groups like the Taliban for which there is an ongoing process.

The EU is also looking at raising concerns with the Philippines based on human rights violations that had come about before the current government there had come into power.

However, others believe that the underlying feature is that a good foreign policy and friendly relations with the West can help to sustain Sri Lanka’s trade ties which some of the other countries have been able to achieve.