• Based on US concerns over SL’s failure to block forced labour imports
• Intervention essential to avoid 12.5% tariff 
• Failure could expose SL to MFN plus 12.5%

Apparel exporters have called on the Government for urgent intervention to address concerns raised by the United States over Sri Lanka’s alleged failure to adequately prohibit imports produced using forced labour, in order to avoid the imposition of a steeper 12.5% additional tariff on the country as opposed to the 10% tariff applied to certain competitor nations.

Speaking to The Sunday Morning Business, Joint Apparel Association Forum Sri Lanka (JAAFSL) Secretary General Yohan Lawrence revealed that the forum had held discussions with the Government to ensure that Sri Lanka was included among countries that met the criteria for the additional 10% rate instead of the additional 12.5% rate.

“The US has classified countries into two sets: one group that has agreed to take action against forced labour and another that has not. We fall into the category that neither has legislation nor has made a commitment to the United States Trade Representative (USTR) to take any action,” he stated.

Highlighting the need for Government intervention, he stated: “The difference of 2.5% itself is significant. But if we are in this category, anything can change and we could end up with a worse outcome. We have seen tariffs go up to 40%.”

Accordingly, he revealed that there was now a window for public consultation, and that the industry would be exerting pressure to consider what Sri Lanka could do to comply with the criteria imposed by the USTR.

Commenting further on the tariff burden that would be applied to Sri Lankan apparel exports to the US, Lawrence revealed that the Most Favoured Nation (MFN) tariff applicable was between 6% and 37%, in addition to a 10% tariff. 

However, this 10% tariff is set to expire in July as it was valid for only 150 days. Once this additional tariff expires, the new additional tariff of either 12.5% or 10% will take effect.

“Therefore, Sri Lanka will move from MFN rate plus 10% to MFN rate plus 12.5%. Notably, some of our competitor countries such as Pakistan, Cambodia, Bangladesh, and Indonesia will remain at MFN plus 10%. Buyers will immediately say they want 2.5% off to account for the additional 2.5% duty they will have to pay.”

Lawrence pointed out that this would have a devastating impact on the margins of local exporters, adding that there was no guarantee that the 2.5% difference would remain at that level and that it might widen further. 

The Office of the USTR, in a statement on 2 June, announced that it would be imposing only a 10% additional tariff on countries that had imposed forced labour import prohibitions, committed to such measures through reciprocal trade agreements, or implemented partial regimes preventing the importation of certain forced labour goods, while all other countries – which includes Sri Lanka – will be subject to a 12.5% additional tariff.

According to Reuters, which exclusively reviewed the USTR proposal, 14 economies meet the trade criteria for the 10% rate: Canada, Ecuador, the European Union, Indonesia, Mexico, Pakistan, Argentina, Bangladesh, Cambodia, El Salvador, Guatemala, Malaysia, Taiwan, and the United Kingdom.