It was an easy decision. When Bangladesh and Vietnam offered cheaper labor, the foreign investors behind Crystal Sweater Lanka, a garment factory, closed shop and moved out. Company officials in its silent factory in Nittabuwa, about 40 km from the capital, Colombo, told TIME they could not compete after the E.U. suspended a concessionary tariff agreement — the Generalized System of Preferences Plus — in August 2010. The suspension of the tariff agreement was part of the E.U.’s efforts to penalize Sri Lanka for human-rights violations.
Now a draft U.S. resolution at the U.N. Human Rights Council in Geneva seeks to tighten these terms in an attempt to implement recommendations made by the postwar Lessons Learnt and Reconciliation Commission, or LLRC, and to pressure Sri Lanka’s government to grant eight U.N. officials access to the country. The commission investigated allegations that the government slaughtered civilians in the final months of its 2009 campaign to crush the Tamil Tigers. Though the resolution is likely to be ratified, there is no consensus on whether it will be effective.
Sri Lankan officials insist the island can weather the financial storm. Finance Secretary P.B. Jayasundera told the press that if returns are attractive enough, investors won’t be too bothered about human rights. “We are talking to the U.S. on business deals, we are talking to the E.U. on business transactions — they are going on,” he said.
Others are less sure. Economist Muttukrishna Sarvananthan concedes that U.S. investors are the largest stakeholders in Sri Lankan stocks, but he believes that direct foreign investment will likely to be affected by ongoing diplomatic pressure. “Potential investors from these countries [supporting the U.S. resolution] will be reluctant to invest in a country against which their government has instituted diplomatic action,” he says.
The U.S. has been one of most vocal critics of Colombo’s rights record. On Feb. 26, Robert Blake, U.S. Assistant Secretary of State for South and Central Asian Affairs, told the House Foreign Affairs Committee’s Subcommittee on Asia and the Pacific that the U.S. was disappointed with the Sri Lankan government’s delay in holding regional elections in its northern province and its lack of action on the LLRC recommendations, and he said there was a backward movement in strengthening democracy. After the January impeachment of Sri Lanka’s Chief Justice, U.S. State Department spokeswoman Victoria Nuland said: “We have also made very clear our view that actions undermining an independent judiciary would impact on Sri Lanka’s ability to attract foreign investments.”
By alienating the U.S., Sri Lanka risks against relying too heavily on Chinese support, Sarvananthan said. Since the end of the war, China has become Sri Lanka’s largest lender, handing out loans over $4 billion. It has also supported the government, effectively shielding it from international scrutiny. Some Sri Lankan officials have shrugged off talk of the upcoming resolution, arguing that any economic fallout could be erased by Chinese support. At present, however, China only accounts for 1% of the country’s total exports.
India is likely to support the resolution, but analysts predict that New Delhi will water down any attempt to impose economic sanctions. In 2012, after it supported a previous U.S. resolution, India publicly said it had worked to introduce a sense of balance into the document. This year, however, New Delhi is under renewed pressure from the southern state of Tamil Nadu, with its majority Tamil population, to get tough on Sri Lanka. On Tuesday, in a dramatic move, a key partner pulled out of India’s ruling coalition over the government’s expected support of the U.N. resolution without toughening up language to include the word genocide, among other things. (The government, for now, remains stable.)
R. Hariharan, an Indian political analyst who in the early 1990s served as the intelligence head of the Indian Peace Keeping Force in Sri Lanka, said that India would try to persuade Sri Lanka’s President Mahinda Rajapaksa to devolve at least some power to the Tamil minority. “I expect India to engineer a middle-of-the-road solution,” he said.
Indian influence was apparent in the latest draft of the resolution that was circulated on Monday night: the document welcomes the Sri Lankan government’s announcement of provincial elections in the north in September, a move that is seen as a starting point for power devolution.
For the time being, even Sarvananthan feels that economic repercussions will be minor, whatever form the resolution takes. There is unlikely to be any major changes in policy or action on the part of Colombo, at least in the short term. Top finance officials like Jayasundera were more worried about the impact of a long drought and oil prices than the impending resolution. In the end, it may be places like Crystal Sweater Lanka, not the government, that feel the pinch.