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UPDATE 1-Sri Lanka says no to EU rights probe for trade deal

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COLOMBO, Oct 20 (Reuters) - Sri Lanka said on Monday it will not allow a European Union investigation into rights abuses it has insisted on before renewing a trade preference that has helped boost the Indian Ocean nation’s garment industry.

The Sri Lankan government also said it would provide a $150 million subsidy to offset any shock the loss of the concession may cause in an industry that in 2007 was its top foreign exchange source.

The European bloc has repeatedly warned it may not renew the GSP Plus trade scheme after it expires in December because of continuing human rights abuses stemming from Sri Lanka’s civil war with the separatist Tamil Tigers.

“What the cabinet has decided is not to agree with investigations that are required by the EU to renew GSP Plus,” Minister of Export Development and International Trade G.L. Peiris told reporters.

The European Union had asked to send an investigating team to ensure Sri Lanka was complying with human rights standards.

The Generalised System of Preferences or GSP Plus is an EU trade concession that has helped Sri Lanka’s garment industry, its top foreign exchange earner last year, to boost export revenue since mid-2005.

Many in the island’s garment and textile industry, which employs hundreds of thousands of mostly rural poor, fear a downturn if the special trade terms are axed.

But Peiris said the effect would be limited.

“We only get $150 million from GSP Plus. We are not ready to betray our country through this investigating,” he said.

Central Bank Governor Ajith Nivard Cabraal said Sri Lanka could “face the situation if GSP Plus is stripped.”

“The government has decided to provide a subsidy equal to the total GSP Plus concession of $150 million to the garment industry,” Cabraal told reporters.

Export earnings from the garment industry rose 8.5 percent to $3.34 billion in 2007, accounting for 43 percent of total export revenue. In the first half of 2008, earnings have grown by a mere 1.5 percent to $1.6 billion.

Garments last year were the country’s top source of foreign exchange followed by remittances of $2.5 billion and tea export earnings, which brought in $1 billion.

The trade scheme helped Sri Lanka net a record $2.9 billion from EU markets last year, 37.5 percent of total export income.

Though GSP Plus was given to hundreds of exports, the garment industry accounted for 65 percent of the exports to EU countries through the concession.

In July, the European body said Sri Lanka’s failure to address human rights concerns, including a “frightening” number of abductions, could cost it the lucrative concession.

Rights groups have reported hundreds of abductions, disappearances and killings blamed on government security forces and Tamil Tiger rebels since a ceasefire in the 25-year-old civil war evaporated in 2006.

The government has admitted there are rights abuses and that it is working hard on addressing them. (Writing by Bryson Hull; Editing by Kim Coghill)