The Sri Lankan textile and garment industry hopes that a free trade agreement with the United States will help offset competition from low-cost countries such as China if a deal is reached before the end of next year.

During a visit last week to the Sri Lankan capital Colombo, deputy US trade representative Josette Shiner confirmed that issues under discussion included "looking at possible synergies between the apparel industry here and our textile industry and how we can make this a win-win venture."

The US is Sri Lanka's largest export market and accounts for around 61 per cent of Sri Lanka's total garments and apparel exports. Annual trade between the two countries is around $2 billion.

Shiner said Sri Lanka's improved economic performance and policy was a key factor behind the move forward in a proposed free-trade agreement. The two countries signed a Trade and Investment Framework Agreement in July 2002, and this provides a forum to discuss bilateral trade and investment issues.

Sri Lanka's economy has improved over the past two years after a ceasefire was signed between the government and Tamil Tiger rebels in February 2002 to end a 20-year long civil conflict.

"The country is now enjoying the benefit of peace, Professor GL Peiris, MP, Minister of Enterprise Development, Industrial Policy and Investment Promotion Minister of Constitutional Affairs, told last week in Colombo. "And that means there are new opportunities for trade and investment."

He added: "There is no promise or commitment from the United States, but the progress is very good, mainly because of the overall political factors. There is a sense of goodwill in the United States and that is certainly a very salutary backdrop against which the TIFA and FTA negotiations are taking place."

Sri Lanka is also taking steps to strengthen trade links with India and is expected to sign an economic partnership pact during this week's visit to India by Sri Lanka's prime minister, Ranil Wickremesinghe.

The pact will expand existing free trade agreements by including trade in services and investment.

By Leonie Barrie.