Sri Lanka's apparel exports fell 13.5 percent to 278.2 million US dollars in May with exports up to May down 4.9 percent to 1,601.2 million US dollars.
Harsha de Silva, an economist who is a legislator representing Sri Lanka's main opposition said the withdrawal of Generalized System of Preferences plus (GSP+) by the EU is now being felt amid economic troubles in the region.
GSP+ is given to countries that give greater rights and freedoms to citizens in line with the International Covenant on Civil and Political Rights.
De Silva said monthly exports which were 367 million dollars in January had dropped to 278 million by May.
"The surge in demand early last year that led to an overbooked situation with formerly Chinese orders coming our way that overshadowed the GSP+ withdrawal have now completely disappeared," de Silva said in a statement.
"Industry sources reveal that this is much more than the slowdown in EU.
"The feeling is that the real impact of Sri Lanka losing GSP+ is now becoming clear with apparel orders moving out to countries that are able to compete using the duty concessions given for good governance in the face of falling European demand.
"Perhaps rethinking the position on GSP+ may also be wise."
De Silva said there were problems with Sri Lanka's economic data. In 2011 the Central Bank has said that exports had topped one billion US dollars during march 2011 with apparel exports rising to 473 million US dollars.
But the data has later been revised to 362 million US dollars but no explanation has been given for the revision, without explanation, he said.
"As has been pointed out on numerous occasions in the past the authorities have a moral obligation to explain such large adjustments," de Silva said.
He said exports had fallen despite a steep fall in the currency triggered by a delayed adjustment in interest and exchange rate policies.
Rising energy costs were also hurting exporters, he said.
But in Sri Lanka large firms categorized as' industry' including exporters get subsidized energy at the expense of the general population of the country especially the poor, in a Mercantilist state intervention.
De Silva said there would likely be wage demands due to increased inflation.
Any currency essentially depreciates due to loose monetary policy and particularly in the case of pegged exchange rates due to sterilized foreign exchange sales where money and exchange rate policy contradict each other.
Currency depreciation only reduces the real cost of labour, by impoverishing workers and not any other cost, if the underlying material is a traded good.
The Central Bank has said that a part of the fall in dollar values of exports had been caused by lower raw material prices such as cotton.
In modern supply chains concepts such as 'Made in Country' are meaningless, economists in the classical tradition have pointed out, because inputs come from various countries.
In the US for example a Mercantilist controversy has erupted over the label 'Made in China' in uniform on the country's Olympic team.
US Senator Chuck Schumer for example has gone on an economic nationalist tirade against the efforts of free citizens in many countries - including his own - from collaborating peacefully to produce high quality uniforms at the best price.
The fallacy of his argument was explained in a Wall Street Journal opinion. (The Imports of Patriots) .
Donald J. Boudreaux professor of economics at George Mason University wrote in support of the WSJ position.
"As you suggest, the 2012 U.S. Olympic uniforms are labeled “Made in China” simply because workers in China supplied the relatively low-valued-added service of stitching together inputs from all over the globe – including from America – into their final form as Olympic sportswear," he said.
"The unfortunate convention of identifying the country of final assembly as the country in which a good is “Made in” masks the fact that nearly all goods today are “Made Everywhere on Earth.".