"European ambassadors have taken the decision. The EU Commission's investigation showed Sri Lanka has not demonstrated that it has taken the steps that would allow it to retain or regain the GSP+ status," a European diplomat said.

The European Union's Generalized System of Preferences Plus (GPS+) scheme gives 16 poor nations preferential access to the trading bloc in return for following strict commitments on a wide variety of social and rights issues.

However the suspension would not come into effect until six months later.

The decision to suspend the trade privileges was taken last week and is set to be endorsed by European finance ministers when they meet in Brussels on Feb. 16, the diplomat said.

This is in part to allow manufacturers and traders to adjust to the new rules, but it also gives Colombo a fair opportunity to get the decision reversed.

"We will look to work with Sri Lanka to identify concerted steps and actions which could help us to plot the course together that would enable Sri Lanka to regain GS+," the diplomat said.

Sri Lanka's hawkish government has faced almost constant criticism over the past several years because of the way it has conducted a war against Tamil Tiger rebels.

Government forces have been accused of a host of rights violations including the indiscriminate killing of thousands of Tamil civilians, the murder of aid workers and the execution surrendering rebels.