Sri Lanka’s apparel sector is set to benefit from a Cabinet decision to apply for a trade arrangement with Indonesia, allowing access to fabric and raw materials needed for garment production. 

The move, which seeks to leverage interregional trade provisions with Indonesia, aims to enhance Sri Lanka’s access to preferential treatment when exporting finished garments to the United Kingdom.

The Cabinet of Ministers this week approved the proposal submitted by Prime Minister Harini Amarasuriya, in her capacity as Minister of Trade, Industry and Entrepreneurship Development, to facilitate a joint application by Sri Lanka and Indonesia. 

The initiative will allow the two countries to utilise “interregional agglomeration” provisions, enabling fabric sourced from Indonesia to be used in Sri Lanka’s garment production for exports to the UK under preferential trade terms.
Following UK’s departure from the European Union, a new trade scheme was introduced in June 2023 to preserve the trade preferences formerly granted under the EU’s Generalised System of Preferences (GSP). 

Sri Lanka, as a participant in the EU’s GSP scheme, automatically qualified for UK’s corresponding trade preferences. However, these preferences stipulate that for finished garments to benefit from preferential terms, they must be manufactured using domestically produced knitted and woven fabric, a requirement Sri Lanka’s garment manufacturers have struggled to meet due to limited local fabric production.

Under the interregional agglomeration mechanism, raw materials produced by one regional country can be integrated into products manufactured by another regional country that also qualifies for the preferential trade scheme. 

Both the Asian and SAARC regions fall under this category, which opens the door for Sri Lankan apparel producers to import Indonesian fabric while still qualifying for UK trade benefits.