Workers from the Katunayake Free Trade Zone, Sri Lanka largest free trade zone, took to the road in protests. Photo courtesy Women's Centre

Yesterday (May 24), thousands of workers from the Katunayake free trade zone blocked the road to Sri Lanka’s Bandaranaike International Airport, in a protest against government plans for a pension scheme for private sector workers.

Another protest was held in front of the Fort Railway Station in the heart of Colombo city.
Workers and trade unions say they do not object to a pension scheme – just the one proposed by the government.

Private sector employees in Sri Lanka do not get a pension, while government workers do. However, when the government attempted to take up a bill for a private sector pension scheme in April this year, trade unions went ballistics. They said the document the government took to parliament was not the document shown to them during discussions in formulating the pension scheme.

Sri Lanka’s main opposition – the United National party (UNP) – and the Marxist Janatha Vimukthi Peramuna (JVP) are also backing the anti-pension protests.

Garment workers worse off
Sri Lanka’s garment factory workers are seen as particularly badly affected by the proposed pension scheme.

According to trade unions the government will finance the pension scheme by taking a percentage of a worker’s salary every month and by taking 10% of a workers gratuity payment. The employers must also make a small monthly contribution. When retiring – at the age of 60 – the employee is entitled to a monthly pension. However, they must work for 10 years to qualify for the pension.

People working in the private sector in Sri Lanka will also have not have the choice to opt out of the scheme.

But in Sri Lanka girls only work for about 5 years in garment factories.

“Girls come to work in garment factories to collect some money as dowry for their marriage. So in most cases, they leave the factory job after five years and get married and stay at home. The pension scheme, takes money from their already small salaries while they work. But because they do not work for 10 years (they leave after 5 years), they are eventually cut off from the pension payment itself. This means a large majority of the country’s 250,000 garment factory workers will lose out because of this pension scheme,” explained Ms Chamila Thushari from Da Bindu, a women’s rights organisation also campaigning against the pension scheme.

Garment factory employees also point out that the pension payment is too small to be useful.

“By that time we qualify for pension payments the pension amount is not going to be worth anything,” said Irosha Kumari, a 21 year old garment factory employee, who will have to wait until she is 60 years to get her pension payments.

Trade unions say based on current wages of about Rs 10,000 per month, garment sector worker pensions come to about Rs 1,900 per month, which they point out is worth next to nothing given the cost of living in Sri Lanka.

Under current Sri Lankan labour law, women can withdraw their full savings from the statuary workers’ welfare funds (the EPF and ETF) when they marry, or when they reach 50 years of age. If the pension scheme is introduced they will not get this lump sum payout – instead they will get a monthly pension payout. However, many employees prefer to collect their savings as a lump sum, rather than get a small monthly pension.

“I do not want a small pension payment. I want my full EPF and ETF savings. I have been saving my EPF, ETF money because I wanted dowry for my daughter. But now the government is going to take my EPF, ETF money and give me a monthly payment that is too small to be of any use to me,” said G L K Pushpa, a 47-year old garment factory employee.

The government says it has amended the original pension bill to incorporate worker concerns and that it will also make a large contribution to the pension fund. But workers and trade unions are still not buying the pension proposal.

Secretary to the Ministry Of Transport, Mr Dhammika Perera

Secretary to the Ministry of Transport, Mr Dhammika Perera, speaking at a business forum at the Ceylon Chamber of Commerce, on Monday, March 28, 2011, said the government has a ‘Transport Master Plan’ in line with broader national strategy.  He also invited private sector investments and promised ‘over the counter’ approvals or rejections of projects. [No delays, no uncertainty]

However, Mr Perera did not specify where exactly – within the very large and diverse field of transport – investments would be welcomed.

“Any proposal, I can say yes, or no in one hour,” said Mr Perera.

Meanwhile, a leading expert in the transport sector in Sri Lanka, Professor Amal Kumarage, suggested that the government should try implementing policies and strategies developed for the sector so far, by industry experts.

Apparently Sri Lanka, has a National Transport Policy developed in 2009 which is still not implemented. Many other plans, such as an urban traffic management plan, a road safety plan and other transport sector management related plans have been worked on but are not properly implemented.

Adding to chaos

Sri Lanka’s transport sector is noted for messy administration, politicization and thuggery (At one point, private bus owners – themselves noted for breaking traffic laws – were complaining of having to pay kickbacks running into million of rupees, to the mafia, to be able to operate private buses, unmolested).

Sri Lanka’s transport sector, covering land, rail, water and air transport facilities, is also very large, accounting for about 1.5 million jobs and about 15% of GDP ( around Rs 900 billion). However, the industry is dominated (80%) by small and medium businesses operating in the informal sector – without proper quality controls or management.

These features have made the sector, as the experts politely put it, ‘inefficient.’

Meanwhile, with quality of public transport deteriorating, more vehicles are coming onto the roads – despite the high costs of vehicles and fuel.

At this point, 3.2 million vehicles are on Sri Lanka’s roads designed to take far less. The numbers are expected to hit 5.5 million to 6 million by the end of the decade. Three wheelers, already the government has counted 300,000, are expected to be replaced at least in part, by 4 wheelers.

These changes will need wider roads and far better traffic management.

Right now, the Ministry of Transport estimates the cost of congestion at around Rs 40 billion per year.

Because of the lawless nature of Sri Lankan travel, road accidents are one of the biggest killers. Every day an average of 150 road accidents are reported and every year an average of 2,400 people die from accidents, while another 24,000 are injured. Another 5,000 premature deaths are attributed to air pollution from vehicles.

Given this operating scenario, more unplanned interventions will only add to the chaos.

“Keeping roads uncongested means not just building flyovers and putting one way systems and policemen at junctions. We need a sustained policy,” said Professor Kumarage.

Hopefully the government’s Transport Master Plan will not be another paper tiger on a shelf.

The World Trade Organisation listed Bangladesh as the 5th largest clothing exporter to the world in 2009, behind China, the EU, Turkey and India, with over US$ 12 billion worth of exports.

But the clothing dependent, least developed country ended 2010 by making a splash in world news headlines for massive labour unrest in its RMG sector.

Thousands of workers blocked roads and factory gates and set fire to piles of clothes – for a government approved pay hike that workers claimed did not come their way.

Things got so bad, factory owners asked for extra security for garment factories and an industrial police force was set up to maintain order in the country’s four industrial zones.

But at a regional Economic Summit in December 2010, in  Kathmandu, Nepal, organised by the NGOs SAWTEE and SACEP, government and factory owners maintained that the publicity was not fair by the industry.

"The wage protests were only in two or three factories. It is not a general industry problem. Not even 10 factories had a problem," said Mr Annisul Huq, chairman of the Mohammadi Group of companies, a large apparel manufacturing group in Bangladesh, and a former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

Mr Anisul Islam Mahmud, the owner of Shasha Denims and a Member of Parliament in Bangladesh.

“A majority of factories paid workers the increased wage. The few incidents were due to some mis- understand ings,”   said Mr Anisul Islam Mahmud, the owner of Shasha Denims and a Member of Parliament in Bangladesh.

Government sources  said that very few factories were reported for not paying the wage increase.

The minimum wage of garment workers was hiked to 3,000 Bangladeshi taka [US $ 45] from around 1,600 taka previously.

According to Professor Gowher Rizvi, an adviser to the government, "Wage related problems were reported only from a very small number of factories. Not even 1% of our factories had problems."

While scenes of mass protests went mass-media, factory owners maintain that thousands of protesters does not mean the industry itself – which has over 2,500 functioning factories employing about 2.5 million workers – was unstable.

“In Bangladesh, a single factory employs thousands of workers. So even if workers in one factory protest, this could mean thousands of workers taking to the streets. But it is still only one factory, not an industry-wide condition,” said Mr Huq.

Moving ahead

To move ahead, the country is looking at stablising its massive workforce in the RMG sector while also slowly upgrading production to higher value areas.  In addition to around 2.5 million people directly employed in garment factories, the sector is estimated to employ another 1.5 million or so in ancillary services.

“Because there is such a massive work force in the sector, labour unrest can interrupt growth. So the government is implementing many welfare schemes and participatory decision making mechanisms for garment workers, to ensure labour stability in the sector,” said Dr Atiur Rahman, the Governor of the Central Bank of Bangladesh.

“The industry has already started shifting into little more high value, higher return areas. There has been a lot of technology and skill upgrading happening,” said Dr Rahman.

The country is also looking at increasing the supply of gas over the next few years – to increase  electricity generation. Electricity interruptions are an immediate bottleneck to industry growth.

Meanwhile, exports are growing – unrest or not.

From July to September 2010, exports of woven garments increased by 30% in value terms, while exports of knitwear increased by 31.91% compared to 2009, according to the Central Bank of Bangladesh. Exports in the last quarter 2010 are also expected to show growth.

According to Dr Rahman, new markets are opening up in Japan, Russia, Saudi Arabia and Australia, fueled by a government bailout package in 2008.

A duty-free quota of 8 million pieces of garments annually, from Bangladesh into India, is also lined up for further ‘improvements.’

Meanwhile, from January 1, 2011, more Bangladeshi clothing is expected to enter the EU, duty free, under new EU GSP rules.

“Under these new GSP rules, the fabric can come from anywhere in the world, to qualify for duty free. Because we import a lot of fabric, this will make a lot more garments eligible for duty free status,” says Mr Huq.

Worker problems have still not been sorted out to everyone’s satisfaction, but the country is upbeat about increasing quality and outputs, to become the most competitive manufacturer of clothing, over the next few years.

Although non governmental organisations (NGOs and INGOs), opposition political parties and media, were seen screaming ‘rights’ (human rights, workers rights, civil and political rights )at other times, there was next to no effort to stop the Constitutional Amendments.

While protests were held, these were at the eleventh hour – more token gestures than real protests.

The proposed amendments were also shrouded in secrecy and while opposition politicians had access to the document it was not made public.

While the media did carry ‘news’ of the proposed amendment, these were repetitions of whatever politicians were saying.

The public were not provided with adequate facts or explanations . The draft document  was made public only about 3 days before approval by Parliament.

Sri Lanka’s Bar Association – that had originally maintained  it would oppose government moves to amend the Constitution through an  ‘Urgent Bill’ – was also silent until the eleventh hour. A token protest statement was issued and published, but that was it.

The outcome is that most people – including professionals – have little or no idea what the amendment actually means.

Now, based on statements from various government ministers, it looks as if more amendments are on the way.

The main features of the 18th Amendment are

• Removal of restrictions on how many times the President can contest
• The Constitutional Council (CC) to be replaced by a 5 member group made up of members of parliament. ( Previously CC approval was mandatory to appoint other commissions associated with good governance. Now, while these commissions will continue, the  President only needs to ” seek observations “  from the 5 member parliamentary group. Also, if the group does not provide its “observations” on the persons proposed by the President, within 1 week from being notified, the President can go ahead with the appoints.)
• Appointing the Inspector General of Police (IGP) was previously up to the Constitutional Council. But under the 18th amendment the IGP is not listed among the appointments that will be made under the guidance of the 5 member parliamentary group.
• The Police have also been brought under the Public Service Commission
• The 18 Amendment also says that it is the “duty” of ANY media institutions to follow guidelines from the Election Commissioner during times of elections (Previously this rule applied only to the State media)

Draft of-18th-Amendment-to-Sri-Lanka-Constitution

Constitution – without 18 Amendment

“Sri Lanka ruling UPFA and the main opposition United National Party today, reached  a consensus to create an Executive Prime Minister accountable to Parliament by abolishing the Executive Presidency under the new Constitutional Reforms proposed by the government,” said the government on July 12, 2010.

However, at this point, it is still not clear how this power shift will happen.

How to do?

The government needs a two third majority in Parliament to amend the Constitution.

However, depending on the magnitude of the amendments proposed, the government may have to go for a referendum. Which means another flurry of election related activities.

The amendments can also end up in the Supreme Court – referred there by the President, or by a citizen challenging the proposed amendments.

The government could also try to push the amendments through as an urgent bill – but this is seen as unlikely given the sensitivities involved.

Anyway, the Bar Association of Sri Lanka has thought fit to mention to the government that no Constitutional amendments should be slipped into Parliament for approval, as an urgent bill.

Skeptics abound

The government has not said when it would introduce the Constitutional changes, or  when it hopes to install an Executive PM into power.

President Rajapaksa’s second term as Executive President ends in 2016.  Officially his second term begins only in November this year (2010).

So, with 6 years to go, President Rajapaksa handing over power to an Executive PM, is seen as unlikely.

Some say President Rajapaksa is using  Constitutional reforms to return to power as the executive PM – at the end of his second term as President.

The JVP says this is a trick to perpetuate the Rajapaksa family power – by President Mahinda Rajapaksa hanging onto executive power until son Namal can take over.

Others think a Mahinda Rjapaksa return as Executive PM is unlikely.

They feel President Rajapaksa knows  his popularity in dropping fast and he is preparing the ground for a power transfer to another – but within the Rajapaksa family.

Either way, Colombo does not seriously think Constitutional reforms, or even a new Constitution, will reduce corruption or ensure justice for ordinary people.

Why Executive President?

From independence in 1948, up to 1978, power was in the hands of the PM, the head of the government (Westminster system), who was also accountable to Parliament.

However, the 1978 Constitution (which is still in operation) transferred power to the Executive President.

Depending on political affiliations, some describe the 1978 Constitution as a power grab by then President J R Jayawardene.

However, another cited reason was growing Tamil militancy in Sri Lanka. President Jayawardene claimed he needed sweeping powers to deal with this threat.

Another explanation for the Executive Presidency is the weak or coalition governments that came to power since independence. Weak governments caused political instability and also prevented the implementation of strong economic and development programmes.

The Executive Presidential system was seen as able to sidestep problems stemming from weak governments – by allowing the President to take vital decisions. (President Jayawardene ended the state controlled,  closed economy policy and installed the open economy system)

Sri Lanka’s current electoral system (also introduced by the 1978 Constitution) – the proportional representation (PR) system – is also cited as a reason. Although President Rajapaksa managed to summon a majority government at the 2010 elections, the PR system makes it difficult for a single party to get a majority government.

So again, an Executive Presidency, is seen as allowing a degree of stability in the case of coalition governments.

“Buyers from Asia are likely to see freight costs increasing this year,” said Rohan Masakorala, the secretary general of the ASC. ( The ASC secretariat, representing the largest shipping community in the world, was shifted to Colombo, from Singapore, in 2010.)

East-West trade recovery

During the East-West trade slow down over the last 2 years (due to recession ), shipping lines laid-off ships, because of the drop in demand for sea-cargo transport.

But the ASC says in 2010, trade out of the Far-East, into Europe and the US, is gradually recovering.

So demand for ship space is rising, but the re-supply of ships is not keeping pace.

As a result, freight rates are heading north. (Shippers say this short supply is deliberate on the part of shipping lines – to recoup losses by engineering demand driven freight rate increases)

“Asia is the main supplier to the West. So we expect Asian demand for ship space to increase towards Christmas season. But the supply of ship space may not come in so fast. So we are expecting freight costs to increase for buyers from Asia,” said Mr Masakorala.

Freight rates out of Sri Lanka, have already increased by as much as 50% this year.

“From the last quarter of 2009 to the end of the first quarter of 2010, rates have gone up by as much 50% in some sectors,” said Gehan Kuruppu, the chairman of the Sri Lanka Shippers’ Council.

Shipping lines sailing in

In addition to buyers from Asian countries, exporters from many Asian countries are also expected to see shipping costs increase – even at times of Free on Board (FOB) purchases by foreign buyers.

The ASC says this cost increase is from non-freight charges imposed by shipping lines, on top of the freight charges, because many Asian countries like Sri Lanka do not have laws to regulate anti-competitive behaviour by shipping lines.

In May this year the ASC objected to a suddenly inflicted surcharge called the Emergency Bunker Surcharge (EBS) on the China-Intra-Asia trade by shipping lines.

The ASC says these charges, coming on top of freight charges, put up the cost of imports and exports in Asia, and add to cost of living in Asian countries.

Exporters in countries like Sri Lanka, because they have to meet their delivery deadlines,  have no choice but to pay up when shipping lines demand additional payments .

Story Links: Asian shippers to drive campaign to control shipping line cartels
Chinese to build Colombo South Harbour terminal

The American government announced on June 30, 2010, that it would review Sri Lanka’s eligibility to use the US GSP (Generalised System of Preferences) scheme.

The review is due to accusations of international worker rights violations, based on International Labour Organisation (ILO) conventions.

The petition, asking to remove Sri Lanka from the US GSP, was submitted by a grouping of American trade unions, called the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO).

But it was mooted by Sri Lankan trade unions.

Now, in the aftermath of the EU’s GSP+ withdrawal, trade unions are getting cold feet.

This is with many people inquiring how withdrawing trade preferences will help working people, or help employment security, or even help reduce poverty.

“The petition was submitted by a US trade union but local trade unions supplied the material for the petition,” said one trade union source. (Trade union sources are not willing to be named these days.)

“But we don’t want the US to withdraw the GSP.  We want them to grant the GSP and also see that labour laws are enforced. Even with the EU GSP+, we never wanted the EU to withdraw the GSP+. What we wanted was good labour standards,” said the trade union source.

Sudden US interest

What is even more interesting though, is that even trade unions are surprised by the US governments sudden interest in their petition.

“The petition was submitted in 2008, but they (US government) did not take it up then. It was submitted again in 2009, but again nothing happened and it was submitted again late 2009, but they didn’t seem interested. This is handled by the US Labour Department and the US Trade Representative’s office. About two months back, an official came to Sri Lanka and met trade unions as well. But there was no indication they were going to consider the petition this year. When we asked about the petition they seemed very negative,” said the trade union source.

Also, enforcement of ILO standards, the basis of the petition, has been interpreted differently by different parties, at different times.

Local trade unions have previously complained to the ILO and the EU, about poor enforcement of ILO conventions. On some occasions the ILO has ruled in favour of trade unions.

However, the opposite has also happened.

In  end-2003, the EU, after a fact checking process, gave Sri Lanka special duty cuts under the EU’s GSP scheme, for protecting labour rights involving the same ILO standards.

The US government itself, did not take up the trade union claims of worker rights violations in Sri Lanka previously.

Double standards

Local manufacturers also point out that although the ILO sets labour standards, these standards are not enforced on western buyers. Western governments also do not stress on their companies respecting labour rights in foreign countries.

US and EU brands buy from manufacturers in developing countries purely on the basis of the lowest price.

So, to stay price competitive, manufacturers in countries like Sri Lanka cut corners on worker rights and worker welfare.

For instance, a majority of companies accused of violating worker and trade union rights, in the trade union petition to the US government, are Sri Lankan garment factories.

But it is leading US and EU brands that are buying from, and placing orders with, these factories.

The Sri Lankan garment industry is also indifferent to a US GSP loss, because the US GSP does not offer duty free access to Sri Lankan apparel and textiles.

“As far as I know all our factories pay duty to export into the US. The US GSP doesn’t give us any duty cuts. So we will not be affected if the US GSP is withdrawn,” said one garment factory owner.

So how the trade union petition can bring pressure on the garment industry – by threatening to take away the GSP – is also not clear.

Good friends

In 2009, US GSP benefits for Sri Lanka came to about US$ 116 million (about Rs 13 billion), according to the US embassy.

At this point, the US says the review does not mean the GSP will be withdrawn.

Talks with the Sri Lankan government are expected to start in July this year.

External links: Trade Union Petition to US Government

EU notice of special trade concessions for protecting worker rights

USTR (US Trade Representative’s office) announcement on review

US Embassy in Sri Lanka Press Release

The Sri Lankan government estimates that Sri Lanka’s total export earnings from the EU’s GSP+ scheme comes to about US $150 million per year.

Sri Lanka got more export orders from EU countries after receiving the EU’s GSP+ duty free scheme.

This is because buyers/importers in these countries do not have to pay customs duties to their governments on goods imported under the GSP+ scheme.

A Central Bank in a statement on July 01, 2010 said benefits to EU importers from the GSP+ came to about 78 million euros.

The biggest Sri Lankan user of the GSP+ is the apparel sector.

About 50% of total garment exports from Sri Lanka went into the EU in 2009.  About 60% of these exports into the EU used the GSP+ scheme.

On June 24, 2010, the government rejected a list of 15 conditions from the European Commission (EC), to extend the GSP+ by another 6 months.

So the EC will withdraw the  GSP+  from August 15, 2010.

However, in practical terms, export shipments leaving Sri Lanka after July 10 will not be able to use the GSP+.

Related stories :  Temporary suspension of GSP+ for Sri Lanka

China Merchants Holdings International is a Hong Kong based, partially Chinese government owned, public quoted company that will have majority share ownership and will manage the Colombo South Harbour terminal when it is built by April 2012.

“A Chinese team is due to arrive this week and we hope to issue a Letter of Intent, by the end of July, to give clearance to proceed with the formalities. They have to start construction work six months after the letter of intent is issued. So the construction work itself should start early next year,” said the Chairman of the Sri Lanka Ports Authority(SLPA), Dr.Priyath Bandu Wickrama, after the AGM of the Sri Lanka Shippers’ Council on June 30, 2010.

The other shareholders of the US$ 450 million terminal are the Sri Lanka Ports Authority from the Sri Lankan government end and the Sri Lankan blue chip company, Aitken Spence.

The Colombo Port itself is expected to reach full capacity by mid next year.

Until the South Harbour is operational in April 2012, the SLPA is putting in another US$ 150 million to expand the capacity of the existing Colombo Port.

“The Colombo port will reach full capacity by mid-2011. So we are investing US$ 150 million to buy more cranes and container handling equipment, and to convert three births to handle containers and to expand yard capacity. These measures will improve productivity and will increase yard capacity, so that the gap up to April 2012 will be filled, until the Colombo South Harbour is available,” said Dr Wickrama.

But shippers say already as much as 3 major shipping lines may decide to bypass Colombo for transshipments because Colombo is too full-up.

Hambantota Port

The Hambantota Port is also expected to start operations in November this year.

However, Hambantota is to be an industrial, tax free port (in its first phase) and will not be immediately available for commercial container handling.

The SLPA says commercial container handling facilities may be introduced later, depending on demand.

““We have recommended in our strategy report that the government negotiate trade agreements with emerging markets,”said the Secretary General of the JAAF, Rohan Masakorala. The JAAF is the Joint Apparel Association Forum, the garment factory representative body.

Suggested countries for bilateral agreements are Russia, China, Japan and Brazil, and expansion of existing trade concessions from India.

“We do not expect new markets to take the place of our major markets, the US and EU. This is not possible. But new markets will reduce the concentration on these two markets and will spread the risk a bit. It will also give new growth opportunities,” said Mr Masakorala.

This is because Sri Lanka’s 2 traditional markets – the EU and US – that account for about 93% of the country’s total apparel exports, are still down from recession.

“This year, we are expecting a 5%- 10% drop in export earnings compared to 2009 because we don’t see any recovery in consumer spending in western markets at all,” said Mr Masakorala.

Because of the market down turn, the JAAF has also cut its export targets for the next 5 years, by US$ 1 billion. In the latest 5-year strategy, the JAAF has cut its projected annual export revenue from US$ 5 billion, to US$ 4 billion, by 2015.

The garment industry is also worried about its future in the EU market, which is the largest destination (52% of total exports in 2009) for Sri Lankan apparel.

From about mid-August this year the EU may suspend its GSP+ trade agreement, making Sri Lankan garments pay duties of between 8% – 12%.

With duty free entry, the EU GSP+ is so far the best preferential trading arrangement for Sri Lankan garments.

Under the Indo-Lanka Free Trade Agreement, 3 million pieces of garments can enter India duty free per year. India has also removed port restrictions on 5 million pieces of apparel and allows zero duty or a margin of preference of 75%, depending on product category and the use of Indian fabrics.

So far these are the only trade preferences the Sri Lankan garment export industry gets, in terms of market access. But given the increasing competition, the industry wants more preferential trading arrangements.

“Our competitor countries are also doing the same to capture markets. For instance, countries like India and Vietnam are following this strategy aggressively. So we need to start on this as soon as possible,” said Mr Masakorala.