National Chamber of Exporters of Sri Lanka

NCE Addresses Many Issues Faced by Exporters

The National Chamber of Exporters of Sri Lanka (NCE) is the only Trade Chamber that exclusively serves Sri Lankan Exporters with a healthy number of member companies who are engaged in exports across all products and services and service providers to exporters are highlighting several areas that needs attention.

Recognition of the Chamber among the exporter community has grown over the years due to its achievements. Today its membership includes some of the leading Export Houses in Sri Lanka. The Chamber is the “Voice of the Exporter” as it engages in advocacy related to trade development and facilitation.

The Council is assembling monthly to discuss the progress of the Exports sector as well as the issues and barriers faced by the exporters. This enables engaging in a dialogue, to identify how the NCE should champion the advocacy process, to facilitate exporters.

The Chamber has also taken pride in promoting Ethical Trading values for sustainable growth of its Members in the International Market Place. To support the same NCE is the only Trade Chamber in Sri Lanka that issues an independently verified, internationally recognized Certificate of Ethical Trading (CET) to its Members.

Following are the areas identified by the NCE

1. Export Council of Ministers

The Export Council of Ministers was reactivated in September 2020, 28 years, after it was established in 1972, with a view to providing solutions and guidance to resolve issues faced by the Exporters, as well as explore strategies to develop Exports. The first meeting was held in September 2020. However there has not been any other meetings held afterwards and NCE strongly believes that being the only Trade Chamber for Exporters in Sri Lanka, it is important to have Chamber representation at this Export Council.

2. Shortage of Exchange

The Exporter has expressed its concerns over the shortage of foreign exchange in the forex market. They are not in a position to pay their import bills for the raw materials and machinery imported, for the purpose of export manufacturing. However, to date, there has not been adequate direction provided by “Powers that Matter” for officials to facilitate exporters. Further, the regulatory measures to convert export proceedings immediately, which is required due to the current situations in the market, dampens the incentive for the exporter to earn more foreign exchange, since there is an immediate loss incurred, as opposed to the possibility of gains in the future.

3. Vaccination of Staff

Many of the Exporter manufacturing facilities have a large number of workers. These facilities are the production points for Exports that bring the country a vast majority of foreign exchange earnings. It is a priority to provide the right kind of protection to this workforce.

Productivity of these facilities has reduced due to absenteeism as a result of employees being infected. A further cost of treating and quarantine process is often borne by the Exporters themselves, which is an additional burden on the exporters. Therefore, it is important to enabling the exporters to obtain priority for their employees to be vaccinated.

4. Opening up new markets

During the past one and a half years, Exporters were facing difficulties in reaching new markets, due to the ongoing pandemic situation. However, it has to be highlighted that the Sri Lankan Missions based abroad, has been an immense support to Exporters in expanding their market destinations. It is important to widen our destinations, to ensure that any shock occurring in the global economy is well-handled, and the impact is smoothed out.

The NCE which made the ‘Market Access programme” a top priority has obtained the support of the SL Missions to open up avenues to new markets. With the support of these Sri Lankan foreign missions, virtual events are organized to share the experience, market trends as well as highlight the potential in each market selected. Some of the identified countries were the USA, South Africa, Austria, Australia, Japan, Brazil and India.

Furthermore, the NCE has contacted overseas trade chambers, to enter into MoUs to generate mutually beneficial partnerships to enhance two-way trade between countries. The Chambers are expected to uplift each other members through the exchange of market information, extend supportive services and creating market linkages between members.

5. X-press pearl debacle

Fisheries sector exporters are affected by the x-press pearl incident where some of the collecting facilities have been closed. The issue has caused the country to lose the potential to earn foreign exchange, through seafood exports. Further, the reputation of Sri Lanka’s ability to become a sturdy Maritime Hub was tarnished due to the mishandling of the disaster, exposing inadequacy in the available technology in the country to curb a calamitous event.

Although the impact has not been assessed completely, and the investigations are going on, it is important for us to analyze the situation and identify lessons to learn from the incident. These calamities are wake-up calls for Sri Lankans, to pay more attention to the safety compliance requirements, disaster management aspect as well as being more conscious about the environment as well.

6. GSP Plus

Currently, there are possibilities Sri Lanka may lose its GSP privileges, and this can be a significant impact on the Exports sector, which is not just reflected in the exports value lost, but also the fact that SL exporters will have to compete on unfair grounds with our competitors such as Bangladesh, and also not to forget the workforce involved in the apparel sector in our country, for whom the impact will trickle down, with a multiplier effect. Currently, there are exports to the EU outside of the UK, under 56 HS Chapters, and out of that majority are enjoying 90% GSP concessions. Projected loss for the Apparel sector alone is expected to be 520 million dollars.

As of now, there is no immediate suspension of the EU GSP concession. However, as per the resolution adopted by European Parliament on 10th June 2021, It has been suggested to use GSP duty concession as a leveraging point to thrust for advancement on Sri Lanka’s human rights obligations.

The resolution has highlighted the contribution of GSP to the economic development of Sri Lanka, making European Union the Sri Lanka’s second-largest export market. Accordingly, we can anticipate, EU will further monitor the Human Rights Situation in Sri Lanka during the next few months and withdrawal may possibly be the option of last resort. The resolution indicated, “carefully assess whether there is sufficient reason, as a last resort, to initiate a procedure for the temporary withdrawal of Sri Lanka’s GSP+ status and the benefits that come with it, and to report to Parliament on this matter as soon as possible”.

Further Sri Lanka’s dependency on China is reflected as a Dependency-risk as well in the context of ongoing trade tension between a majority of the larger economies and China. During 2010, when the GSP was suspended it was widely reported the loss was around USD 350 million.

According to some of the NCE member Exporters, this is misleading and the authorities have been misinformed as it is not the factual scenario. It is acceptable that when US$ 3 Billion worth of goods and services are exported; the figure is around US$360, however, what is important to note is for Sri Lanka to compete with other low-cost countries and we need the 12% discount. When the country lost GSP+ back in 2010 the actual loss far higher than the figure of the discount, as there is a loss of buyers, leading to reduced orders. This in turn has a wider impact on employment in the apparel sector, which accounts for a large share in the country’s economy.

When similar products are compared, for example, a product that has a FOB value is US$100, can be shipped from a country like Bangladesh for US100 and on the other hand, if Sri Lanka loses GSP+, the same product will have to be shipped at US$89. Therefore, the competitiveness of Sri Lankan products is significantly reduced hence financially unfeasible to manufacture this product”

On the other hand, members also viewed that, we as a nation should be able to stand on our own at some point in time, therefore despite GSP or any other preferential schemes, our products should be competitive in the international market. Further, it is important to note that GSP obligations do not solely rely on the aspects of Human rights, therefore it should be highlighted to not make the entire negotiation process based on a “singular-faceted” aspect, to remove the facility, whereas consideration on all other multi-faceted aspects, where Sri Lanka has excelled in adhering should be taken into consideration.

7. Importation-ban on Chemical Fertilizer

It is well understood that the prohibition of inorganic fertilizer was a decision with a positive outcome in mind. But policy decisions need to be timed right, in order to make such policies effective. Bhutan, which is considered the greenest country in the world is not 100% organic to date, hence it is clear that going 100% chemical fertilizer free is an exercise that needs to be done in a phase-out manner.

Discussing the impact the policy decision can make, TEA crop is expected to decrease by 30% to 40%, and tea quality could decline, whereas the current 1.3 BN per year income will be impacted. Further, the “flavour” and “Taste” plays a vital role in Tea markets, and by changing the fertilizer types, this could be affected, where the loss of markets is a potential threat in the long run.

The NCE supports the endeavour to make Sri Lanka’s agriculture sector free of harmful chemicals and has on numerous occasions highlighted the importance of promoting Good Agricultural Practices (GAP) among farmers, reducing the excessive use of agrochemicals and inorganic fertilizer, increasing testing facilities to certify safety and quality of agriculture products and increasing the supply of organic agriculture inputs and products. Over the past several years, we have been working closely with the relevant government agencies and certifying authorities on these initiatives.

The immediate ban on chemical fertilizer imports without any conversion period raises severe challenges for those exporters who rely on such products to maintain the high-quality standards required by overseas markets.

When growers are unable to provide plants with the required nutrients on time, it will weaken the plant strength making them more susceptible to pests and disease along with reduced production. If required crop protection products are unavailable, management of the crop to the required visual and pest free standards will no longer be possible. As such, we foresee a serious decline in exports.

Within our membership, we have estimated that an immediate ban will lead to a decline of USD 40 -50 Mn in annual export revenue over the next 12 months, and over 8000 – 10,000 jobs will be at stake. A majority of our members are expecting their operations to reduce by 50% or more as a result of this immediate ban. Banana exports alone are forecasted to reduce by 60% by the end of FY21, which places the viability of producers in the sector including Dole Lanka (Pvt) Ltd in serious jeopardy and a grave impact on the employment of more than 2000 persons.

In this regard, the Chamber seeks from the government of the action plan it has put in place to ensure that there is a sufficient supply of alternatives/substitutes in the market. For example, what alternatives and substitutes have been identified to manage pests and diseases? What measures have been taken to increase the supply of organic fertilizer in the market of assured quality? Etc. Further, there have been numerous initiatives already in place that is important to be fast-tracked (e.g. the registration of bio pesticides).

The NCE on behalf of exporters is urging the government to consider reducing chemical usage in a phased-out manner, whilst introducing suitable alternatives/substitutes of acceptable quality to the market. Broadening the adherence to SLGAP standards is an immediate measure that can be taken. In this effort, it also vital to train thousands of growers of fruits and vegetables on how to transit from conventional agriculture to Organic Agriculture.

We urge the government to adopt a differentiated approach to its application of the regulations to ensure minimum disruption to export businesses. Since exporters must meet importing country and buyer requirements, it is important to ensure their ability to do so is not severely undermined as a result of a blanket ban.

Therefore, allowing for exemptions (for example, permitting the import of specialty water-soluble fertilizers used in hydroponics and protected horticulture) with necessary safeguards to ensure that such is used responsibly is critical to sustaining export business. This is important to ensure that whilst saving foreign exchange through the prohibition, that the same is not counterproductive and undermining the established ability of Fruit and Vegetable ventures. Further exports should not be diminished in volumes and values in earning much needed foreign exchange.

Finally, we urge the public sector to consult the Private Sector Chambers to provide them with the ground situation as Chambers and trade associations have a better understanding of the requirements of the Trade community. The Chamber intends to assists the public sector to find amicable solutions for such issues, with a view to encouraging more.

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