(Makes amount of withheld EU aid 70 mln euros in paragraph 7)

* Sri Lanka told rights abuse "deficiencies" weaken case for renewing EU trade deal

* 2007 foreign trade revenue up 115 percent, similar rise seen this year

* India, China lead foreign investment increase

By Peter Apps

LONDON, June 12 (Reuters) - The European Union has warned Sri Lanka that rights abuses are "deficiencies" in the case for renewing a bilateral trade deal, the island's trade minister said on Thursday -- but added export earnings were booming.

Textiles, tea and tourism have long driven Sri Lanka's economy, with textiles shipped primarily to the United States and European Union, the latter through a deal that Sri Lanka must apply by the end of October to have renewed.

Trade minister G.L. Peiris told Reuters in a telephone interview that EU negotiators had expressed concern over human rights but had not suggested the trade deal would be scrapped.

"They have been helping us and advising us on putting our submission (for renewal) together," he said of the EU.

"The European Union has been telling us of the areas we must focus on where there are deficiencies. They have been talking to us about human rights and what they call a culture of impunity."

Textile workers would be hit if the deal lapsed, he said.

The European Commission said this week it had serious concerns about human rights in Sri Lanka and would withhold 70 million euros in aid unless barriers to humanitarian assistance, including visas for international aid staff, were lifted.

Rights groups accuse Sri Lanka of doing nothing to halt abductions, killings and torture blamed on both government security forces and Tamil Tiger separatists.

International observers quit the island earlier this year, saying a probe into a string of high-profile killings, including the massacre of 17 local aid staff in 2006, was going nowhere.

Peiris said Sri Lanka rejected some allegations, adding that the military was attempting to improve its rights record. He pointed to the arrest of an air force officer for alleged involvement in abductions.

"NEW FRIENDS"

Income from foreign trade grew by 115 percent last year and rising foreign direct investment, particularly from India and China, meant the Indian Ocean island's economy was performing well despite a return to civil war in 2006, Peiris said.

"We have achieved these very impressive figures despite all the military activity in the country. It does not seem to have had a serious effect."

He said he hoped to reach the same level of growth in 2008, with Sri Lanka benefiting from high prices for commodities from tea to rubber and cinnamon, increasing volumes of which were going to other emerging market countries.

Foreign investment is also growing, he said, citing Indian-backed coal-fired power projects and a Chinese-funded port on the southern tip of the island.

China had also expressed an interest in financing the building of a new road to the capital's international airport, a project that has languished for almost a decade, he said.

Rights groups say that as with Sudan -- accused of mass killings in Darfur -- the growing power of Asian investors reduces Western clout over rights and other issues.

"It is not a matter of getting rid of old friends but of finding new friends," Peiris said.

He said reconstruction after the 2004 tsunami was largely complete, with the government now concentrating on boosting exports -- for example of fruit -- from impoverished rural areas and rebuilding eastern regions recaptured from the rebels. (Editing by Catherine Evans)

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