After thorough examination, the European Commission determined that the conditions for granting cumulation between the two countries from two regional groups were met. The decision, effective from August 8, 2024, allows Sri Lanka to cumulate origin for certain materials from HS Chapters 51 to 55, 58, and 60 originating in Indonesia. Sri Lanka can then produce textile products of HS Chapters 61 to 63 under regional cumulation, provided both countries remain in the GSP scheme.

“This decision not only strengthens trade relations with the European Union but also underscores the commitment of both countries to adhere to rigorous origin rules and administrative cooperation,” Sri Lanka’s Ministry of Foreign Affairs said in a press release.

The approval of regional cumulation will enable Indonesia to export fabrics to Sri Lanka for re-processing into apparel products, which Sri Lanka will then export to the EU market. Leveraging Indonesia's strong textile production capabilities, Sri Lanka can secure a steady supply of high-quality materials. This arrangement is expected to enhance the competitiveness of Sri Lankan apparel in the global market, create employment opportunities, and bolster economic growth, offering a mutually beneficial outcome for both countries.

Sri Lanka's export-oriented apparel industry, a key driver of the national economy, has significantly contributed to the country's economic growth over nearly three decades. In 2022, the apparel industry accounted for approximately 43 per cent of Sri Lanka's total export value, earning USD 5,591 million, a 10 per cent increase from 2021. The European Union stands as one of the three largest buyers of Sri Lankan apparel by volume and value. The industry employs nearly 350,000 workers directly and twice as many indirectly.

Despite its substantial contributions, Sri Lanka’s apparel sector has a limited domestic fabric supply, with only six companies engaged in fabric production. Consequently, the industry relies heavily on imported fabrics, amounting to USD 2,080.81 million in 2022, with imports from five tariff lines excluded from the joint request constituting 59 per cent of total fabric imports. In contrast, Indonesia is a major textile producer with robust output in cotton, man-made fibres, and synthetics.

The European Commission’s decision follows a concerted effort by the Joint Apparel Association Forum (JAAF), the Department of Commerce, the Ministry of Foreign Affairs, and the Sri Lankan Embassy in Brussels, in collaboration with the Indonesian Government and EU authorities, over several years. The implementation of this decision will require additional administrative measures from Sri Lanka and will be monitored by the European Commission to ensure proper management.

Fibre2Fashion News Desk (KD)