Local textile trade chokes due to Chinese imports

Sri Lanka cannot produce textile locally and have to export it because of the inability to compete against China

The textile industry is among the oldest industries in Sri Lanka; hence its prominent place. The textile industry was given birth when factories were opened in Thulhiriya, Minneriya, Wellawatta and Pugoda. However due to the open economic policies these factories were shut down; spelling doom to the domestic textile industry. The rich cotton cultivation in Hambantota and Colombo was destroyed to the very end. 

The local textile industry at present is functioning using imported thread. Only a very few factories are functioning at present. This is a product of the country and should have Government support. These factories should be developed in order to generate foreign exchange. An example should be set by making people wear ready-made locally produced clothes. That will help retain dollars and strengthen the local economy while creating new jobs. In that manner dollars will be spent only to import thread. If textile made of cotton and other textile with an international demand can be produced locally preserving quality earning much foreign income will be possible. 

Laying the foundation to this cause the Domestic Textile Allocation Committee (DTAC) was established in 2005 after receiving cabinet approval to uplift the local textile industry. Through this committee- chaired by the Secretary to the Ministry of Industry- local companies manufactured textile for institutions such as the Armed Forces, Police, Prisons Department, Ministry of Buddha Sasana and the Health Ministry. Those institutions applied for the required textile materials for bedsheets, uniforms, towels and mosquito nets through an annual tender procedure. The DTAC annually registers the local textile manufactures who are able to cater to these demands of the Ministry of Industries. 

When Government institutions made a request for textile materials through tenders, local textile manufacturers catered to those requirements in keeping with their capacity. The Ministry of Industries divided the orders among several local companies to fulfill the textile demands of Government institutions. Sri Lanka Institute of Textile and Apparel in Rathmalana, Ministry of Industries and the Govt. institutions calling for bids examined the complete process of textile manufacturing. This was practised from 2005 to 2019.

Similarly in 2020 bids were called for the supply of local textile to Government institutions. Even though bids were called for textile materials were not purchased for 2020, Local Textile Manufacturers Association Chairman Sarath Kumara said. Local textile manufacturers produced textile material for the uniforms of the Police, Armed Forces and other requirements during the period 2005 to 2019. However this process did not continue from 2020. Bids called for that year were opened and a sample was tested. However the process halted from there onwards. Now the authorities remain silent, according to Kumara. The bid has not been given to anyone yet. According to him, the DTAC was made inactive from 2020. “The authorities at the Ministry of Industries have informed local textile manufacturers that the Cabinet has decided to call for bids for the supply of textiles in keeping with the open market prices and not from local producers. There is no benefit from that. 
This decision was taken, so that several parties can obtain commissions by importing textile,” Sarath Kumara added.

Local companies, which supplied textile materials to Govt. institutes, applied for bids following the new method requested by authorities. The authorities took steps to allow textile importers to apply for this bid and went against the previous procedures, according to Kumara. Previously if the amount of textile requested by a Govt. institute, through a tender, was large in number the order was divided among few local companies to supply material for a fair price. The DTAC managed this task well. However after 2020 the tender procedure was changed. “The rates given to several companies to import textile required for Govt. institutes were different,” Kumara added.

5% tax relief

Kumara said that several importers importing textile at cheap prices from China obtained these tenders by presenting low price rates. A 5% tax relief is granted by the Chinese Government when exporting textile produced in China. Kumara said that by using that advantage to increase their profits these parties are importing clothes at cheap prices. 

Dollars leave the country because of this small profit-oriented activity. “Local producers manufacturing textile contribute 68% to the country’s productions. With the new procedure that will be affected, Sarath Kumara,” added. Textile produced locally is of a high quality compared to the ones imported. The locally produced textile was examined by the relevant institutes. One metre of textile in every 10,000 metres was tested for quality and the surveying was done till the end of manufacturing. However the textile imported from China is not tested at production. Kumara said that imported textile is tested only once. 

By 2022 the calling for open rates in a competitive manner has reached its peak. Instead of local suppliers-who imported textile at competitive prices in the open market- Chinese businessmen have applied for bids to supply textile directly to Govt. institutes. These deals are done in US Dollars. The rate of a dollar at present has increased to 365 rupees (Selling rate). Therefore more and more dollars leave the country, according to Kumara. When these suppliers provide textile the Government institutes have to pay in US Dollars; and the rates keep increasing. That loss will also be borne by the local economy. Local producers only use US Dollars when receiving payments for importing thread. If the dollar rate has risen by the time the thread is ordered the local manufacturers will bear the loss and provide goods as per the tender. At present these local manufacturers should be encouraged to help prevent dollars leaving the country. However the opposite happens, according to Kumara.

“This happens in a peculiar manner. State Trading Corporation (STC) and Salusala have been made representatives of a foreign company. Textile imported from China- through these companies -are supplied to institutes based on the tender. Sadly Government institutes have to pay 50% more compared to the rates offered by local producers,” said Kumara. The institutes issuing the tender also have to pay port charges, shipping charges, insurance premium and a 10% commission to the STC and Salusala.

Kumara said that with all these payments the public institutes are to pay a price higher than what was paid to local producers and a cabinet decision has been obtained recently to import clothes in that manner. The Defence Ministry has sought cabinet approval requesting a sum of 5,047,260 US$ to import 529,000 metres of polyester wool textile for the Sri Lanka Army. According to that letter one metre of the textile is to be purchased at 9.5 US$ from a private supplier through Salusala and a sum of 25,491,848 rupees is to be paid to Salusala as the local representative fee, according to Kumara.

"The authorities at the Ministry of Industries have informed local textile manufactures that the Cabinet has decided to call for bids for the supply of textile in keeping with the open market prices and not from local producers. There is no benefit from that. This decision was taken, so that several parties can obtain commissions by importing textile
Sarath Kumara,
Chairman, Local Textile Manufacturers Association "

He also said that because of these activities local industry holders are at a loss. Sri Lanka cannot produce textile locally and have to export it because of the inability to compete against China. “Even the production of textile locally- to supply to state institutes- has stopped by now as these institutes import textile from China after refusing the textile produced by local industry holders using imported threads,” said Kumara who added, “any kind of textile can be produced locally with imported thread, but these activities will put an end to such a production”.

Three cabinet papers were presented to the former Minister of Industries Wimal Weerawansa to reinstate the DTAC to protect the local textile manufacturers, according to Kumara. But no response was received regarding that. Therefore the import of textile from China is in progress. President Gotabaya Rajapaksa also visited local textile factories and instructed officers to assist them. Kumara said that plans were made to produce textile for school uniforms through these factories, but still some officers are engaged in other activities.

When inquired Defence Ministry Media Director Colonel Nalin Perera said that the Defence Minister has presented a cabinet paper to import textile for the Army, but it has not been implemented so far. “Cabinet approval was given to import textile through Salusala, but because of the dollar crisis further proceedings are yet to be decided,” said Colonel Perera.

Our attempts made to contact Salusala authorities proved futile. 
STC Director General Chamila Iddamalgoda had this to say regarding the issue: “STC bids for tenders to import textile for Army uniforms. We have been engaged in importing all the essential goods for the Army for a long time. At present we are calling for bids for Army uniform material. When the open tender process came to existence two years ago we applied and got the tender except for some tenders,” said Iddamalgoda.

 When inquired about allegations involving local textile producers, regarding the commissions within this tender procedure, she said that the institute she represents had received the tender through the Defence Ministry. “It was their decision. No one receives a commission under this procedure. We work only as a dealer of the tender. Sometimes we do not receive the tenders we apply for,” she said.   

"This subject was not under our purview during Wimal Weerawansa’s tenure to present cabinet papers. Anyway the textile supplied to public institutes from local industries is now imported. That is not right. Therefore we need to revive the local industries
- Maj. Gen. Daya Ratnayake Secretary to the Ministry of industries"

 
Secretary to the Ministry of industries Maj. Gen. Daya Ratnayake said the DTAC is no longer operating. “It is now under the State Ministry of Batik, Handloom and Local Textile Production and not under the Industrial Ministry. This committee was engaged in better tasks. Local textile production was carried out successfully through its interference. However it has ceased to exist. I informed the local textile manufacturers who came to me to present a cabinet paper from the state ministry to reinstate this committee. Then I can discuss with the relevant officers to restart the work. This subject was not under our purview during Wimal Weerawansa’s tenure to present cabinet papers. Anyway the textile supplied to public institutes from local industries is now imported. That is not right. Therefore we need to revive the local industries. 

We can restart this programme after considering the amount of textile that local producers can supply to public institutes and their requirements,” said Maj. Gen. Ratnayake. 

Secretary to the State Ministry of Batik, Handloom and Local Textile Production Janaka Dharmakeerti said the DTAC was under the Industrial Ministry. “When our ministry got the subject of local textile, that committee was not in operation. We made a request to reinstate the committee. It aided the local textile industry and those who are engaged in the industry. Two sides need to be considered prior to recommencing the committee’s operations. Any corruption that occurs even with benefits given to the local producers should be put to an end. If the tax for an imported item priced 100 rupees is 70 rupees, then the total cost will be 170 rupees. When we give the local producers the advantage of the tax, some of them import pre-made items instead of producing locally and still get the advantage of the tax. Such actions should be halted prior to recommencing these activities through the committee,” said Dharmakeerti.  

Reviving the local textile industry as a solution to the current economic crisis is a timely requirement. However that depends on the decisions taken by the officials and the political authorities in the future. All we have to do until then is to wait patiently.