European Commission permits regional cumulation between SL and Indonesia

• Move opens avenues to increase Sri Lanka’s apparel exports to EU market

Based on the joint request by Sri Lanka and Indonesia, the European Commission made a landmark decision on 9 July 2024 permitting regional cumulation between the two countries on selected textile and apparel products, when they export to the 27-member countries of the European Union under the EU Generalised Scheme of Preferences (GSP) scheme. This decision will open more avenues to increase Sri Lanka’s apparel exports to the EU market.  

After a thorough examination, the European Commission concluded that the conditions for granting cumulation between the two countries from two regional groups were met. The European Commission’s favourable decision will grant permission for Sri Lanka to cumulate origin for certain materials of HS Chapters 51 to 55, 58 and 60 originating in Indonesia and to then produce certain textile products of HS Chapters 61 to 63 under regional cumulation, as long as 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.

The permission of the regional cumulation will allow Indonesia to export fabrics to Sri Lanka for the purpose of re-processing to manufacture apparel products by Sri Lanka and to export to the EU market. By leveraging Indonesia’s strong textile production capabilities, Sri Lanka can secure a consistent supply of high-quality materials. This, in turn, will boost the competitiveness of Sri Lankan apparel in the global market, create more employment opportunities and strengthen economic growth. Therefore, this arrangement would be a “win-win” situation for both Sri Lanka and Indonesia.

The Sri Lankan export-oriented apparel industry, a pivotal driver of the national economy, has become the most significant contributor to the country’s economic growth over nearly three decades. In 2022, the apparel industry accounted for approximately 43% of Sri Lanka’s total exports value, while being the largest industry in Sri Lanka. Earnings from apparel exports under HS Chapters 61-63 amounted to $ 5,591 million in 2022, registering a 10% increase compared to 2021. The European Union has become one of the three largest buyers of Sri Lankan apparels in both volume and value. Moreover, the Sri Lankan textile and apparel industry employs nearly 350,000 workers directly and twice as many indirectly.

However, Sri Lanka has a very limited fabric supply base catering to its export-oriented garment sector, with only six companies engaged in such production. Due to insufficient domestic fabric manufacturing, the industry heavily relies on imported fabrics. In 2022, Sri Lanka imported fabrics worth $ 2,080.81 million out of which the import value of five tariff lines excluded from the joint request accounted for 59% of the total fabric imports. Conversely, Indonesia is a significant textile producer with robust output in cotton, man-made fibres, and synthetics.

The decision by the European Commission will be effective from 8 August. The implementation requires additional administrative measures from Sri Lanka and is subject to Commission’s monitoring to ensure proper management.

This much awaited favourable decision was realised after a collective and coordinated effort by the Joint Apparel Association Forum (JAAF), the Department of Commerce, Ministry of Foreign Affairs and the Sri Lanka Embassy in Brussels in collaboration with the Indonesian Government and the EU authorities, during past several years.