The EU probe identified shortcomings in respect of three UN human rights conventions -- the International Covenant on Civil and Political Rights, the Convention against Torture and the Convention on the Rights of the Child.

Sri Lanka's ambassador to the EU said he hoped the formal decision would not be taken, arguing the country had changed for the better since the investigation was carried out.

Sri Lanka ended a decades-old internal conflict with Tamil Tiger rebels last May, and last month held a bitterly contested presidential election.

An EU official explained that the implementation of the suspension of the trade deal could be stopped within the next six months, but that would require a recommendation from the European Commission and subsequent agreement from the member states.

However it is currently felt that "Sri Lanka has not done enough to address the rights problems and fulfil the requirements for the special trade privileges," she told AFP.

Sri Lanka gains about 150 million dollars annually due to preferential tariffs, according to trade estimates. The island's clothing industry is the main beneficiary, using the tax breaks to sell to high street retailers in Europe.

Sri Lankan ambassador to the EU Ravinatha Aryasinha said Colombo "remains hopeful that better sense will prevail upon member countries of the EU who themselves have faced similar situations in their long history and are acutely conscious of the complexity of democracies fighting terrorism."

He said the EU investigation into rights in Sri Lanka was concluded last year before the end of the war against the Tigers, before it was possible to deal with the related problem of displaced people and before the recent elections in Sri Lanka.

"It's like taking the temperature of a patient when he has a fever and then pronouncing him dead ten months later after he has recovered and is doing well," he told AFP.

Sri Lankan President Mahinda Rajapakse on Thursday issued an independence day call for unity and reconciliation after his victory in the bitterly fought election.