"Consumers are demanding that the products are made in countries that meet labour and environmental laws"

Ranjan Casie Chetty Apparel Exporters Association

"Immediately we are seeking duty concessions for garments," said Arjunna Mahendran, chairman of the Board of Investment, ahead of a visit by two cabinet ministers to the US next week to "lay the basis for talks on a free-trade agreement".

Garments made for designer labels in the US and Europe account for about half the country's exports and sales, which are expected to stay flat at $2.5bn (�1.74bn) after plummeting 14% last year.

Price competition from other low-cost jurisdictions in China, African and Caribbean are to blame.

"The government is working on a free-trade agreement with the US and is also trying to get duty concessions to the European Union," said Ranjan Casie Chetty, chairman of the Apparel Exporters Association.

Any free-trade agreement might take a couple of years to materialise, but duty concessions to the European Union could be approved later this year, he said.

Sri Lankan fears

Caribbean and Africa garment makers already enjoy duty concessions to both the US and the European Union.

Sri Lanka is also worried about losing market share in the US to lower-cost countries after quotas for exports under the Multi-Fiber Arrangement start expiring in 2005.

The balance of trade is currently about eight times in Sri Lanka's favour with exports of about $2bn, mainly in garments, to the US.

"We will have to give something in return and I suspect that will be the liberalisation of services," Mr Mahendran said.

"Banking, tourism and other types of consultancies in law and accountancy are areas where the Americans can come in," he said.

Export leader

Sri Lanka's apparel industry has nearly 900 factories catering to brands like Victoria's Secret, Liz Claiborne and Tommy Hilfiger.

The leading companies are mostly joint ventures with American firms and are not listed on the Colombo Stock Exchange.

The strength of the Sri Lankan companies were their reliability and strict adherence to international labour standards, said Mr Casie Chetty.

"We don't have child labour. Consumers are demanding that the products are made in countries that meet labour and environmental laws," he said.