Do tax concessions help apparel industry in the long run?

The latest news in the Sri Lankan apparel market is that it is going to lose the GSP+ tax concession for 2010. What it really does is, it increases the competitiveness of our apparel products.

As you know the cost of production is very much low in countries like China. If the whole market only concerns about the final price, yes China should rule the 90% of the total apparel market. Since this GSP concession is acting as a shield to countries like us, our competitiveness has increased.

For an example if you consider a garment company below is a summarized list of obligations it has.
1. Salaries and wages – we should not forget that labors are entitled for Over Time by law
2. Transportation of employees
3. Health insurance package
4. Should accommodate public and weekend holidays
5. Meals and other benefits
6. Security and safety

The above benefits are enforced by the law in order to make sure the security and the safety of the employees.

If you take a Chinese garment what are the costs they have other than the production cost. Its just the salary of the employees. The availability of the labor is just like nothing in China and more importantly we should not forget that they never satisfy the above measures. Human labor is extensively used at a very less price in China and therefore it has created unbeatable market price for their garments. However in the employee’s perspective it is like burning the life to survive. In order to prevent these kinds of actions EU and other developed countries who are mainly the buyers have introduced a tax concession to protect countries who are making sure the safety and the extra benefits.

It is a clear fact that these tax concessions help to develop the industry. But in the meantime the dependency also gets increased. For an example a country like Sri Lanka is highly depend on the apparel industry which is fully depend on the tax concessions. Basically what has happened is the whole economy is ruled by the tax concessions. This is not good in the long run. Yes this helps to keep the business going but the people who are in the industry should be looking forward to reduce the dependency.

What we can do to reduce the dependency with tax concessions?

Most of the apparel makers are sub contractors for popular brands like NIKE,ADDIDAS etc. Local companies also should try to establish a brand. This is not an easy task and it may require bulk of strategies. But it is worth to trying this while enjoying the tax concessions. Targeting the niche market would be really challenging but can result in enormous return.
Reducing additional costs may not be that practical as certain benefits are enforced by the law. This is a good side of the industry because in any circumstances it ensures the safety and benefits of the labor.