Over the years Sri Lanka's $3.5bn clothing industry has made a textbook transition from cut-and-sew manufacturer to value-added vertical production platform, with local fabric and accessories suppliers shoring up its supply chain and design colleges ensuring there is enough home-grown talent to add yet another layer to its skills base.

But having moved up the value chain there are also fears that the country's manufacturing model, which is geared towards high volume production for a small number of customers, is increasingly out of step with demands from retailers and brands for shorter, more flexible runs of value added fashions.

The driver for Sri Lanka's move towards full package production for global giants such as Victoria's Secret, Marks & Spencer, Nike and Gap Inc, was to stand out from the crowd in a growing and increasingly competitive market, and differentiate the country from other, lower cost suppliers.

The icing on the cake in its efforts was the Garments without Guilt campaign, launched three years ago to reassure buyers that clothing sourced from the Indian Ocean island is produced in factories that are free from child and forced labour, discrimination and sweatshop conditions.

The scheme was built on the back of increasing concerns in the US and EU about sustainability and the environment, but it was also seen as a natural progression for an industry with an ingrained focus on looking after its workforce.

"Social responsibility is not just a business standard; its a way of life," is the mantra here.  

That said, despite having pinned their hopes on the West's growing interest in worker welfare, garment makers are now having to face up to some harsh realities.

Namely, the fact that their higher labour costs and investments in some of the world's first environmentally friendly factories - including the world's first Gold and Platinum LEED certified plants - are also contributing to higher production costs and wafer thin margins.

And the even more uncomfortable truth, perhaps, is that most international buyers - and consumers - are still unwilling to pay more for ethically produced apparel. Yes an increasing number do care about the people who make their clothes, but most aren't yet prepared to pay a premium for it.

There's now a discernible fear that Sri Lanka's apparel makers could find themselves "ethically unemployed" or, at the very least, manufacturers will start to ask if an ethical stance is really worth it when buyers only make sourcing decisions based on the lowest cost alone.

Of course this is not helped by the fact that the threatened withdrawal of the GSP+ (Generalised System of Preferences) duty-free scheme to the European Union (EU) is currently hanging over the industry's head.

Executive opinion seems divided on whether this trading preference will be removed or not, but the end of benefits would mean exports revert to a duty of up to 9.6% - effectively a 9.6% price hike - which is a blow most firms would find hard to take.

Not surprisingly, the industry is keen to shrug off reports that some retailers and brands are already moving business away from Sri Lanka over the uncertainties surrounding the GSP issue.

And while some are bullish the trade benefit will be maintained, they also realise they may well have to make further concessions to retain customers.

There's no doubt it's a decision that firms including Marks & Spencer, Tesco and Next will be following closely over the coming weeks and months.

Election fever is also building in the country, with just-announced presidential elections set for 26 January.

Current incumbent Mahinda Rajapaksa has already hinted he will work with the EC to comply with their demands on the GSP+, while his nearest rival, former army chief Sarath Fonseka is also understood to be pro-trade.

Against this background, local firms are keen to focus on the positives - including opportunities for expanding business in the untapped north and east of Sri Lanka, areas that have been bereft of any kind of development during the country's 30-year civil war which finally ended in May.

But, of course, expansion will only be a success if additional business can be generated to support such a move.

There have been tie-ups, too, with colleges and universities in the UK to help raise the country's design education to international standards and provide a sustainable foundation for the creatives of the future.

Firms also believe that investing in their own design capacity will help many factories offset higher production costs and weakening demand in their key US and EU markets, and provide them with a platform to move production away from basic garments to more value-added lines.

Whatever the solution, it's clear the Sri Lankan apparel industry has the energy and resourcefulness to tackle this latest set of challenges.

But it would be unfortunate to lose its edge for a political decision to invest in its garment industry and ethical workforce that makes it one of the cleanest production lines in Asia today.