Lanka moving away from over dependence of single export item
Apparel workers have not benefitted from EU trade concessions — study
Treatment of workers unacceptable  as companies make profits

Sri Lanka has underutilised European Union trade concessions under the GSP Plus scheme for duty free exports, while the leading industry exporting to that region and availing itself of the concessions, apparels and ready-made garments, has hardly contributed to poverty reduction or sustainable development, a study published late 2008 says.

"...In spite of duty free access to European markets under the GSP Plus...the apparels industry in Sri Lanka has hardly contributed to poverty reduction or sustainable development either at the macroeconomic level, or micro level—in other words, at the lower and middle level of (workers) and their families," the study said.

Development Economist Dr Muttukrishna Saravanathan and H M P Sanjeewani published this study titled ‘Has GSP Plus contributed to poverty reduction and fostered sustainable development in Sri Lanka’ in October 2008 as part of a book: GSP+ and Sri Lanka — Economic, Labour and Human Rights Issues (Centre for Policy Alternatives and Friedrich Ebert Stiftung).

The study looked at trade data, the composition of exports to the EU, and the nature of the apparel industry and its cost factors. It also looked at the industry’s labour force — remunerations, health and nutritional factors, living and working conditions, before making the above conclusion.

The apparel sector, the study said, is the single largest source of net foreign exchange earnings to the country for more than a decade but other exports have grown much faster. The share of apparels in total exports has declined from 48 percent in 2002 to 41 percent in 2007.

The study said this was a positive development as regards sustainable development of the economy and society, as the over dependence of a single export item was reducing, and claims that the sector was the Holy Grail of Sri Lanka’s exports to the EU was contentious as other exports from Sri Lanka found access to EU markets and grew at a faster rate than did apparels.

"In absolute monetary value, diamond exports (authors presume to be precious stones) was the second highest largest after apparels. Whilst apparels are high volume low value exports, diamonds are low volume high value exports," the study said.

It says net foreign exchange earnings could be larger than from apparels as 70 percent of inputs to the apparel industry are imported.

"The same could apply in absolute value to the third largest export item, tyres and tubes, which are made from locally produced rubber," the study said.

"Low value addition in monetary terms of the apparel sector contributes little to sustainable development. However, the sector contributes substantially to society and the economy in terms of employment creation," it said.

Analysing various other data, the study concludes that the industry is not labour intensive as far as cost of production was concerned and despite this workers were underpaid compared to most other apparel exporting countries.

"The apparel industry of Sri Lanka is labour intensive only in terms of the volume of labour and not in terms of the value of labour involved. Labour costs account for less than 15 percent of the total cost of production," the study said.

According to the study, a recent opinion survey of apparel workers showed that 60 percent of the workers were employed in the industry because alternative employment is lacking, not because wages are attractive.

It could be argued, the study said, that between 1995 and 2005 with the rise in the cost of living, real wages have dropped, and wage rises may not have contributed to poverty reduction.

Commenting on working conditions and living and health standards the report said, "It is unacceptable that the condition of workers in large and medium factories is worse than that of workers in small factories because, presumably, the former are greater beneficiaries of the GSP Plus (scheme) and make higher profits."

"In sum, we can safely conclude that GSP Plus has neither contributed to poverty reduction or sustainable development in Sri Lanka," the study said.