JAAF stresses need to move beyond current export quota in Indo-Sri Lanka FTA
Under the current FTA, Sri Lanka is permitted to export 8 million pieces of ready-made apparel to India without applicable duties. The JAAF (Joint Apparel Association Forum), the apex body of Sri Lanka apparel is hopeful to move beyond this quota, as FTAs carry the propensity to offer immense trade opportunities for both countries.
As Sri Lanka recovers from the worst economic crisis since independence, the role of the merchandise export sector has never been more important. Unfortunately, the apparel industry is showing a decline of 20% in exports of textiles and apparel, driven mainly by a reduction in demand in the primary apparel export markets. We believe that India, as our closest trading partner, could offer a lifeline to the country, whilst also benefiting Indian fabric manufacturers.
A brief history of Indo-Sri Lanka trade relations under the ISFTA
The ISFTA which came into operation on 1st March 2000, has built a vibrant history between the two South Asian nations in both trade and investments for more than two decades. Since the operationalization of the ISFTA, Sri Lanka’s export trade has multiplied 18 folds from USD 47 million in 1999 to USD 815 million in 2021. Sri Lanka has also been able to promote a diverse range of products under the ISFTA. Moreover, nearly 70% of Sri Lanka’s exports to India use FTA provisions.
With the removal of port restrictions and fabric requirements in 2013, Sri Lankan exporters were encouraged to utilize this quota despite apparel items being on India’s negative list. With this, total earnings from apparel exports to India which stood at USD 5.18 million in 2008 and increased to USD 77.51 million in 2018 indicating impressive growth. (Refer Table 1 below which charts the industry’s growth under the ISFTA).
India as of now is the second largest supplier of fabric to Sri Lanka (a share of 26%) for both domestic and export industry. Sri Lanka’s apparel industry consistently imports intermediary goods including Indian yarn and fabric. Total imports from India to Sri Lanka stood at USD 4,421.35 million in 2021, of which goods worth USD 208.94 million were imported to Sri Lanka under the ISFTA.1
Industry concerns and calls for improvement
However, despite these many successes, the aforementioned 8 million export quota acts as a hindrance to the apparel industry’s ability to reap the full benefits of the ISFTA.
For instance, Sri Lanka imports more from India, than it exports. In 2022 alone, while total earnings from apparel exports to India stood at just USD 149.28[1] million, yarn worth USD 146.47 million, knitted fabrics worth USD 311.78 million, and woven fabrics worth USD 278.38 million were imported from India.[2]
Refer Table 2 below for an annual breakdown of raw material and apparel product imports from India.
This highlights a serious sectoral imbalance of trade between India and Sri Lanka with the overall balance of trade continuously favouring India, allowing Indian companies to grow their footprint on the island with greater access for Indian mills to the Sri Lankan market.
Refer Chart 1 below.
[1] https://www.srilankabusiness.com/apparel/about/export-performance.html
[2] https://www.srilankabusiness.com/pdfs/market-profiles/2023/india-2023.pdf
