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Fallout From Tsunami: Sri Lanka to Ask U.S. For Breaks on Tariffs

Looking to rebuild its economy, Sri Lanka, where 30,000 people were killed by the Dec. 26 tsunami, plans to petition the U.S. for trade breaks.

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Facing a steep climb to rebuild its economy, Sri Lanka — where more than 30,000 people were killed by the devastating Dec. 26 tsunami — plans to petition the U.S. government for apparel trade breaks.

The physical and economic disruption came at a critical moment for the Indian Ocean island nation’s economy, which was already at risk of losing its position in the garment industry as a result of the Jan. 1 lifting of quotas by the 148 nations of the World Trade Organization. Apparel exports account for more than 60 percent of Sri Lanka’s exports and lost business would take a heavy toll on the country in a year when the nation needs to rebuild.

“It’s time for people to help Sri Lanka,” said Gomi Senadhira, Sri Lanka’s ambassador to the World Trade Organization, in an interview in Geneva.

He said the Sri Lankan government plans to ask the U.S. and European Union to drop their duties on his country’s exports of textiles, apparel and footwear. U.S. tariffs average about 17 percent on apparel and EU duties average about 11 percent.

Although the tsunami destroyed much along the island’s coast, apparel factories, which are clustered inland, largely with 25 miles of the capital city of Colombo, experienced little damage. However, while their factories were largely unscathed, manufacturers noted that the roads and railroads they rely on for supplies and to ship goods have been battered.

That, combined with the threat of growing Chinese competition, could take a heavy toll on the nation of 19.9 million people. Last year, experts projected that Sri Lanka could lose as many as 250,000 of its roughly 330,000 apparel jobs to large competitors like China and India.

“There is no doubt that Sri Lanka’s general economy will need serious support in the medium- to long-term,” said Kumar Mirchandani, managing director of Favourite Group, a manufacturer on the island that employs 2,000 workers.

“The apparel industry is Sri Lanka’s biggest employer and supports over 1 million people directly and indirectly,” Mirchandani said in an e-mail message. “We cannot afford to lose any market share at all, given the overall needs of the general economy at this tragic time. Any loss of jobs will be devastating and greatly hamper rehabilitation for both the people and infrastructure of Sri Lanka.”

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Sri Lanka, a country the size of West Virginia, was one of 11 South Asian nations hit by the waves that killed more than 150,000 people. Although Indonesia suffered more fatalities — at last count more than 100,000 had died there — they largely came on the island of Sumatra, not Java, where that nation’s apparel industry is concentrated.

Senadhira said Sri Lanka wants Washington and Brussels to lift duties on apparel made in Sri Lanka of foreign fabric. That’s a critical piece of the equation, since Sri Lanka’s textile industry is minimal and the nation’s garment makers rely on fabrics imported from off the island.

The U.S. already offers these terms to the poorest African nations, while the EU provides it to poor countries through its “everything but arms” trade regime.

Asked about Sri Lanka’s plans, a U.S. trade official said, “We have received no such request. All reconstruction and humanitarian assistance efforts are being handled by the State Department.”

The U.S. has earmarked $350 million for tsunami relief and deployed thousands of military personnel and assets, including helicopters, to assist in the massive global humanitarian response.

According to preliminary estimates, the tsunami destroyed more than 100,000 homes on the island, displaced nearly one million people and caused billions of dollars of damage in core infrastructure.

“The population of the entire country is struggling to come to terms with the magnitude of the loss and the trauma that it has caused,” United Nations Secretary General Kofi Annan said last week during his appeal for $977 million to help provide relief until the end of June to the tsunami-hit nations.

For the year ended in October, Sri Lankan makers shipped $1.51 billion worth of apparel and fabric to the U.S., making it the 21st-ranked supplier. The island nation was also among the loudest voices in protesting last year that it was not ready for the lifting of the quota system.

Mirchandani said the apparel industry would become even more important to Sri Lanka’s economy given the depressive effect the disaster is expected to have on tourism and fishing.

He said the apparel sector was one of the few industrial sectors not destroyed by the tsunami.

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“It needs enhanced market access to the U.S., which is its major market, in order to ensure a continuous flow of export earnings to cushion the impact of the present crisis,” he said.

The waves hit on Boxing Day and most workers were off for the holiday. It took about a week for many factories to return to full strength while their workers tended to their families and traveled back. Local sources and importers said few factories had lost many employees to the waves, though there were unconfirmed reports that at least one plant on the south side of the island lost as many as 350 staffers.

Still, even if manufacturers lost few employees, most Sri Lankans lost family members.

Carole Hochman, chairman and design director of Carole Hochman Designs Inc., said of a plant from which her company buys, “We lost two people, but 50 people at the factory lost many immediate relatives, husbands, brothers…It’s been absolutely devastating.”

She said her company is focusing on offering “financial support” to get business back on track at a plant in Sri Lanka.

“It is still difficult to assess in terms of what this does to the economy of the country for the year,” said Martin Trust, president of Brandot International, a Salem, N.H.-based company with investments in Sri Lankan factories that employ 11,000 workers. “The impact of factories not being damaged is good news. The fact that so many people have been hurt or killed is obviously going to have impact on society as a whole.”

The port of Colombo reopened the day after the tsunami struck, and executives said that both air and seaport operations had returned to normal. However, many roads and railways throughout the country have been damaged, which is interfering with some shipping.

Rick Darling, president of Li & Fung USA, said his company’s operations in the region had experienced only minimal disruptions.

“From a business standpoint, Sri Lanka factories are operating pretty close to normal,” he said. “These countries are taking a stance that where they can possibly continue as normal, it’s in the best interest of the whole economic recovery process to keep running.”

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The bigger question going forward is whether Sri Lankan manufacturers will continue to remain competitive with manufacturers in other countries, particularly China and India. U.S. importers acknowledged that the local industry faces major hurdles, but said it should be able to compete.

“We still believe that countries like Sri Lanka and Indonesia will be able to compete against China for a lot of reasons,” said Peter McGrath, president of purchasing at J.C. Penney Co. “No one wants to put all their business in China.”

Jeanne Atkinson, a consultant who has worked on apparel-related projects in Sri Lanka with the U.S. Agency for International Development, said she hoped that U.S. importers would realize the role their orders could play in the rebuilding of the devastated country.

“The economy really flips back to our support and the big users,” Atkinson said. “The U.S. has the major export dollars now. That’s where the support has to come. It’s going to be devastating unless U.S. companies just hang in there.”

— With contributions from Karyn Monget