• Joint Apparel Asso. Forum’s Secy. Gen. Yohan Lawrence emphasises that SL must take a thorough look at what it offers investors, including the tax policy, trade access, energy costs, labour rules, logistics

The recent imposition of a 30% tariff by the United States (US) on Sri Lankan exports has sent ripples through the country’s export-driven apparel industry. Although this is a reduction from the initially proposed 44%, the current rate still places Sri Lanka at a disadvantage compared to regional competitors like Vietnam and India, both of which enjoy lower tariff rates. As buyers begin redirecting orders and development work to countries with more favourable trade terms, Sri Lanka's apparel sector is facing increased pressure to remain competitive.

In this context, The Daily Morning spoke to Secretary General of the Joint Apparel Association Forum Sri Lanka (JAAFSL), Yohan Lawrence, to understand the implications of the tariff, the progress of ongoing negotiations, and the structural challenges affecting the industry.

Following are excerpts from the interview:

The US has imposed a 30% tariff on Sri Lankan exports. How do you assess the impact of this move on the industry?

Although this is a reduction from the earlier 44%, the 30% rate remains extremely challenging for the sector, especially since countries like Vietnam and India face lower tariffs. Previously, we competed on an even footing with major players such as Vietnam, Bangladesh, Cambodia, and India. Now, we find ourselves at a disadvantage within that same group. 

Other countries are also pursuing more favourable trade terms, so, we will have to observe how our position compares once negotiations conclude. The spread of tariff rates across the region will matter a great deal. As things stand, we would expect to see a shift in business from Sri Lanka to countries like Vietnam and India due to their lower tariff structures.

The Government has stated that a trade agreement with the US will be reached by 1 October. Has the JAAFSL been informed or consulted about this?

We’ve maintained close communication with the Government since the tariffs were first announced in early April of this year. A delegation is expected to be in the US tomorrow (18) to continue talks aimed at further reducing the tariff applied to Sri Lankan exports.

Was the apparel industry represented in the delegation that went to the US for trade negotiations?

No; it was and will continue to be a delegation of government officials and diplomats. However, we remain in regular contact with the Government on this matter.

The Government has maintained that talks are ongoing to reduce the tariff. Are you aware of any progress in the ongoing negotiations?

Their discussions are in progress. The reduction from 44% to 30% is a significant reduction. It is a signal of the good faith with which Sri Lanka has approached the US, confirming our intention to have a discussion on the tariff situation. We are confident of a better outcome.

In your view, is there anything that Sri Lanka should be doing differently in its trade negotiations?

There’s a need for a dedicated team focused entirely on trade negotiations not just with the US but with all existing and potential trade partners. This includes countries like Canada, Australia, India, Japan, and South Korea.

What immediate effects is the 30% tariff already having on the apparel sector?

There is a general understanding that the 30% rate is not final and that more negotiations are expected ahead of next month’s deadline of 1 August. Still, countries like Vietnam already enjoy lower rates, and we’ve begun seeing orders move there. There’s also a noticeable slowdown in the orders for future seasons. That’s why it’s critical that Sri Lanka continues its efforts to secure a lower tariff before the final rate is locked in.

How is this impact being felt throughout the supply chain – from the factory floors to shipping and exports?

Uncertainty is the key issue. It’s leading buyers to delay their decisions, which shortens lead times. Companies will then be under pressure to meet delivery deadlines within these condensed timeframes.

Countries like Vietnam and the Philippines have secured better trade terms. In that context, how can Sri Lanka remain competitive in the region?

This is going to be challenging. Tariffs are just one piece of the puzzle. Sri Lanka needs to be competitive across all areas such as energy pricing, and labour for the overall ease of doing business.

Have the factories discussed the tariff issue with your international buyers? What has their response been?

When the initial 10% rate was introduced, some brands (not all) passed part of that cost onto the supply chain, which has been extremely difficult to manage. Margins in the apparel sector are already tight as it’s generally a high-volume, low-margin business. Even a small percentage change can significantly impact operations. There is no room for additional price reductions to absorb further tariff increases. That’s why securing the lowest possible tariff is important.

How would you describe the industry’s relationship with the Board of Investment (BOI)?

Our relationship with the BOI is strong. We work closely with them to promote investment and resolve issues that arise for existing and potential investors. The BOI covers almost all export-oriented apparel and textile operations in Sri Lanka, and the support from them has been great.

The Labour Ministry has asked businesses, particularly garment factories, to consult them before making closure-related decisions. Do you think that this is practical or helpful?

Closing a company is always a serious and difficult step. Although we have regular discussions with the Ministry, ultimately, the decision to consult them rests with the individual company.

What do you know about the ongoing labour law reforms? Has the industry been involved in this process?

Sri Lanka’s labour laws are long overdue for reform. The Government has indicated that it intends to modernise them. A committee of experts is expected to be either appointed or already in place to drive this effort. As an industry, we’ve expressed our willingness to support the process in every way that we can.

In your opinion, what areas can Sri Lanka improve on locally to make the apparel sector stronger and more competitive?

Sri Lanka must build a competitive advantage to ensure sustainable growth. Market access is a key area. We need free trade agreements (FTAs) with countries that can support our exports. That means safeguarding access to our current markets like the United Kingdom (UK) and the European Union (EU), and actively pursuing deals with India, Australia, Canada, Japan, and South Korea. In all these regions, we are competing against countries that already benefit from better market access, so leveling the playing field is important.

Our utility pricing, particularly for energy, is another major issue. Our pricing for energy is uncompetitive, unpredictable and unstable. We need to have a viable model for electricity pricing that delivers against the country's goals of 70% renewable energy at internationally competitive rates. Right now, we don’t have this.

We also face problems due to restrictive policies such as the negative list, which has increased factory construction costs compared to the region. This happens because certain large local businesses are being protected at the expense of cost efficiency. Then, there’s the outdated labour framework, which has been a known obstacle for years.

Another setback is the removal of the preferential income tax rate for exporters. Without incentives, there’s little motivation for businesses serving the domestic market to expand into exports. We also opposed the removal of Simplified Value Added Tax (VAT). Although we couldn’t retain it, we are now working with the Government to ensure that the alternative, a digital VAT refund system, is truly efficient, automated, and minimises delays. The law states a 45-day refund window, and we are pushing for performance better than that.

In short, Sri Lanka must take a thorough look at what it offers investors. This includes tax policy, trade access, energy costs, labour rules, and logistics. Then, we must compare that offer against what our competitors are doing. Only with that clarity can we sharpen our focus, attract fresh investment, scale the industry, and grow sustainably.