Unresolved US Trade Negotiations Threaten Over 15,000 Sri Lankan Apparel Jobs

Sri Lanka's temporary reprieve from a punitive United States tariff has bought the government valuable time but has not secured the country's long term export future, with bilateral trade negotiations reportedly 90 per cent complete.

The outcome of the remaining 10 per cent of the proposed Agreement on Reciprocal, Fair and Balanced Trade could determine whether Sri Lankan exporters retain their position in the American market or lose orders to more competitive suppliers.

The scale of what is at stake is considerable given that the United States absorbs approximately 25 per cent of Sri Lanka's total exports, making it the country's single most important export destination.

The 10 per cent additional tariff currently applied to Sri Lanka sits on top of existing Most-Favoured Nation duties, pushing effective tariffs on key apparel products to between roughly 26.5 per cent and 29.9 per cent, a burden industry sources say could prove commercially decisive for a sector already operating on narrow margins.

Economic modelling carried out by the Institute of Policy Studies suggests that sustained exposure to high tariffs could reduce Sri Lanka's total apparel export volumes by 12.1 per cent and rubber exports by as much as 42 per cent, given that international apparel buyers are known to shift sourcing over tariff differences of less than 2 per cent.

The modelling further estimates the potential industrial impact at approximately 634 million US dollars, with real GDP contracting by between 0.082 per cent and 0.222 per cent as a result.

The apparel sector, as Sri Lanka's largest industrial employer, stands to lose nearly 16,000 jobs if a lower or zero reciprocal tariff structure is not secured soon, with unskilled female workers in rural manufacturing areas expected to bear the brunt of any contraction, given how heavily export factories in these regions rely on household incomes drawn from the sector.

The government's decision to gazette a ban on imports containing forced labour components on 10 July, addressing US concerns including vulnerabilities linked to Xinjiang cotton in supply chains, helped Sri Lanka qualify for the lower 10 per cent additional tariff from 24 July, rather than the previously threatened 12.5 per cent rate.

However, compliance with this measure has introduced its own costs, as exporters are now required to produce extensive customs documentation proving their products contain no forced labour components, a process that industry figures say places a disproportionate administrative burden on small and medium sized enterprises.

Meanwhile, former US Ambassador Mahinda Samarasinghe has called on the government to conclude the agreement swiftly, arguing that tariff certainty remains essential for both exporters and prospective investors.

He said that foreign direct investment in export industries is likely to remain cautious until the remaining differences are resolved and the agreement is made legally binding.