Regional FTAs to centre on job potential
The Sri Lankan government is looking at the future potential of hiring overseas labour and getting jobs for locals in countries like India, Singapore and China by inking bilateral deals. Releasing the country’s policy on trade, the government has stated that Sri Lanka should consider liberalizing other three modes while keeping mode 4 “unbound until such time the country is equipped with necessary regulatory mechanisms to protect domestic interests.” The scope of liberalizing the trade in services would depend on the potential opportunities for Sri Lanka in the partner country and the ability of the local service sectors which would involve the competitive nature of the local workforce and the availability of the regulatory mechanisms, according to the draft National Trade Policy of Sri Lanka, a copy of which was received by the Business Times.
The draft setting out the country’s trade policy framework has been circulated to commerce chambers, professionals and other stakeholders for comment. It says that each FTA (Free Trade Agreement) would be treated differently although there would be some common principles applied to all FTAs. It was noted that this would be carried out with the aim of ensuring that Sri Lanka is able to become a services hub for some areas of services. Moreover, an effective regulatory structure would be developed by the government to ensure that all products and services have a level playing field with proposed regulatory reforms to be established while bilateral agreements are still under discussion. In improving the country’s export growth plans are afoot to engage in trade ties with Asian nations and joining regional mega trading blocs like Trans Pacific Partnership (TPP) Agreement.
Moving out of the country’s dependence on its traditional markets the aim would be to diversity both exports and markets. “Sri Lanka has chosen Asia and the West in linking their trade ties to be taken up bilaterally on a cost benefit analysis and preferential agreements respectively,” it said. The reasons for giving priority to the Asian countries in trade ties like India, China and Singapore include the shorter geographical distance, low cost connectivity, relevance of trade development model, reduced dependency and diversification of markets and cultural similarity. Going West, Sri Lanka is looking at capitalising on its “smallness” by seeking preferential treatment including a larger negative list, a longer phase-out liberalisation schedule and strategised timing sequencing to protect local efficient producers and manufacturers, the draft says.
The government is also looking at readying the country to achieve the commitments of mega transnational trade agreement like the TPP. The European Union and the US are focus markets but it was pointed out that with the phasing out of the preferential trade on GSP + concessions to Sri Lanka when the country reaches upper middle income country status authorities are working on gaining comprehensive partnerships with these countries to ensure Sri Lanka remains competitive. The government will be discussing with their Indian partners to address the outstanding issues on the full implementation of the India Sri Lanka FTA and negotiate alongside the Economic Trade and Cooperation Agreement (ETCA) to remove quota, establish trade facilitation focal points and mutual recognition agreement between the parties.
Future trade ties would focus on creating international champions of the electronics and machinery industry, edible fish, fruits and vegetable, apparel, rubber based products, tea, gems and jewellery and coconut products and spices and essential oils and boat building industries. Achieving trade facilitation by reducing transaction costs through the development of a “national single window” facility for exporters and importers to conduct their trade transactions at a single place or through one “window” within a shortest possible time has been mooted. As part of the government’s trade liberalization programme non-competitive industries unable to face upto competition would be affected with jobs lost in these sectors.
However, the government plans to identify these sector that would be affected, identify jobs in these sectors, barriers to prevent such workers from moving out of these sectors. Workers in these areas would be given a retaining programme and consulting business associations regarding support for local companies, it said. In view of the local tariff regime, the draft points out that it is non-transparent, complex and unpredictable, which needs to be rectified by undertaking appropriate trade policy reforms including liberalisation of import. Currently there are seven types of taxes on imports of which four (customs duty, Port and Airport Development Tax (PAL),
Cess and Special Commodity Levy) are only on imports while VAT, Nation Building Tax and Excise Tax are imposed on both imports and domestic sales. There are three tariff bands (0, 15 and 30) and 51 per cent of tariff lines (e.g. essential goods and machinery) are duty free. On average, imports of agricultural products taxed at around 22 per cent while it is around 9 per cent for non-agricultural imports. One can observe “tariff escalation” with lower customs duties on essential goods, machinery and basic raw materials and a higher a rate for imported finished products. In addition, imports are subject to five other taxes (PAL, SCL, VAT, NBT and excise) resulting in high combined rate of tax at the border.
As a result there is an urgent need to (a) convert all specific duties and levies into ad valorem rates, (b) combine all types of levies including customs duties into a composite rate, and (c) develop a plan to phase out high import taxes gradually, it said. In addition Sri Lanka, though it follows international standards related to IPRs, much needs to be done to:(a) strengthening enforcement of existing laws, (b) introduce more product specific IPR laws, (c) encourage the business sector and inventors of new technologies to patent such inventions in time, (d) the accession to the Madrid Protocol of registering international trade marks should be accelerated as was proposed by the last budget.
| Discussion on draft policy | |
| The Sri Lanka Association for (a) Political Economy has organised a discussion on the draft policy with the participation of Prof. W.D. Lakshman, (Emeritus Professor of Economics, University of Colombo), Dr. Ravi Ratnayake (former Director and Chief Economist at UN ESCAP, and Advisor to the Ministry of International Trade), Samantha Kumarasinghe, Chairman – Nature’s Secrets), Anushka Wijesinha, Chief Economist – Ceylon Chamber of Commerce and Dr. Kenneth De Zilwa, Director/Econsult Investment and Advisory Services on Wednesday October 19 at Room 42, Department of Economics, University of Colombo. |