The much publicised talks to strike a free trade agreement (FTA) between the world's largest clothing and textile exporter, China, and upcoming niche outsourcer Sri Lanka, is sparking intense debate about its potential impact.

While the secretary-general of Sri Lanka's Joint Apparel Association Forum (JAAF), Tuli Cooray, is upbeat about the proposed agreement, senior economists Dr Saman Kelegama and Dr Harsha de Silva have urged caution.

An optimistic Cooray is hoping that Sri Lanka's garment industry could grow its export sales from its current annual level of US$2.5bn to US$5bn by 2016.

And he thinks access to China's huge clothing market could offer significant potential for Sri Lankan apparel companies.

"Apparel has been given top priority in the proposed FTA and we are looking at supplying to the high-end Chinese brands, while also increasing our export capacity of international brands through our local manufacturing bases," Cooray told just-style.

On the other hand, however, Kelegama, the executive director of the local think tank, the Institute of Policy Studies, has warned that imports to Sri Lanka could actually destroy local manufacturers. "Chinese imports are very competitive and would decimate the local manufacturing market." 

De Silva, who is also the chief economic spokesman of the country's main opposition United National Party, noted that Sri Lanka and India have been negotiating for eight years on a 'comprehensive economic partnership agreement', "so under such circumstances, how can Sri Lanka rush into a FTA with China?" he asked.

He stressed that free trade agreements need discussing at length, with professionals, academics, economists and civil society involved before reaching a deal.

But the rumour mill amongst Colombo politicians, diplomats and officials suggests otherwise, indicating that an agreement could actually be initialled ahead of the Commonwealth Heads of Government Meeting in Colombo, Sri Lanka on 10-17 November.

Relocating production
One reason why this could go forward quickly is that the Chinese clothing manufacturing sector sees benefit in terms of being able to relocate production to Sri Lanka.

The average monthly salary for textile and clothing workers in Sri Lanka is about US$126.30 per person, compared with the average of US$408 in China, argued Chinese industry sources speaking to just-style.

"Facing rising costs, Chinese companies have been seeking other Asian areas to move their production base. Sri Lanka offers low cost and relatively skilled workers, and a free trade deal, if it happens, will no doubt make the island country more attractive for Chinese companies," said a source at the Shanghai Textile Association (STA).

He added Sri Lanka is close enough to China to allow brands to respond to changes in Chinese fast fashion tastes. "Without the free trade agreement, Chinese companies need to pay 14% for tax on textile products from Sri Lanka," the STA source said.

Some Chinese manufacturers have already built facilities in Sri Lanka. For instance the Shandong-based D&Y Group, an apparel and jeans supplier, opened an operation in Sri Lanka back as early as in 2000.

According to D&Y, the move allowed the company to quickly expand its overseas client base, thanks to Sri Lanka's trade agreements with other countries such as India and the European Union.

With additional reporting by Wang Fangqing.