• Industry expects 2025 performance to match 2024 despite external pressures
• US reciprocal tariffs to reduce demand, shift orders to lower-tariff countries
• Fierce competition in Europe as suppliers divert from US market
• SVAT abolition from Oct. seen as further liquidity challenge

Local apparel exporters are anticipating a decline in volumes beginning in early 2026, driven by reduced demand from the US due to reciprocal tariffs and heightened competition in the European market.

Speaking to The Sunday Morning Business, Joint Apparel Association Forum Sri Lanka (JAAFSL) Secretary General Yohan Lawrence stated that despite the challenging external environment, the apparel export industry expected its performance in 2025 to remain on par with the figures recorded in 2024.

However, he revealed that the industry anticipated a decline in volumes beginning in early 2026 as a consequence of reduced demand stemming from the imposition of US reciprocal tariffs, as well as the comparative advantage gained by certain countries under the applicable reciprocal tariff rates.

“Because of the US reciprocal tariffs, we are expecting an impact on demand. Also, there are other countries that have lower tariff rates than Sri Lanka, so there will be a shifting of business away from Sri Lanka,” he stated.

Lawrence further pointed out that their European business was facing increased competition, as the decline in demand in the US had prompted many competitors to shift their focus to the European market.

“This is not a problem unique to Sri Lanka. With the tariffs, there is a reduction of demand in the US and therefore everyone is looking to sell to Europe,” he stated.

Responding to a query on whether the reduction of Sri Lanka’s applicable reciprocal tariff rate from 44% to 20% in August would positively impact the local apparel export industry, he pointed out that reciprocal tariffs across the region had likewise been reduced to around 20%, with the exception of a few countries such as India.

“The tariffs of most countries were reduced to 20%, so there is no comparative advantage for us,” he stated.

Lawrence further pointed out that the abolition of Simplified Value-Added Tax (SVAT) with effect from 1 October would exacerbate the difficulties faced by the industry, as the policy decision was expected to severely hamper liquidity.

“Previously, if you had to buy a raw material locally, you didn’t have to pay VAT at the time of purchasing; instead, it could be claimed later,” he stated.

He also noted that it was too early to comment on the full impact of this decision, given that the new system had only just come into effect.