Sri Lankan economists critical of proposed national trade policy

News source – Sunday Times

“No proper and transparent consultative process was adopted”

The Sri Lanka Association for Political Economy (SLAPE) has criticised the proposed National Trade Policy saying that apart from the  contents of the draft there has  been “no proper and transparent consultative process” in such preparation.

The organisation, representing professional economists, made these comments in an ‘open’ letter to the President, Prime Minister and the Minister of International Trade (Malik Samarawickrema).

The letter signed by Prof. W. D. Lakshman, SLAPE Convenor and a former Vice Chancellor of the University of Colombo, urged the three political leaders to exercise due diligence in compiling national policies and in contemplating supra-national agreements with other countries or regions which are likely to bind even the future generations of Sri Lankans who are yet to be born. “It is our request that nationally important policies and strategies are put into widest possible discussion and debate,” the letter said.

SLAPE said on October 19 it organised a discussion on the draft national trade policy with the participation of Dr. Ravi Ratnayake, Advisor to the Ministry of International Trade, and one of the architects of the subject policy draft; Samantha Kumarasinghe, Chairman of Nature’s Secrets Company Ltd; Anushka Wijesinha, Chief Economist of Ceylon Chamber of Commerce and Dr. Kenneth De Zilwa, Director of Econsult Investment and Advisory Services.

Among the principal concerns raised at the discussion were – (1) the need for the draft National Trade Policy (NTP) to be guided by and/or designed within the broad framework of a solid well-thought out national development plan, (ii) the necessity of developing such a policy within a national industrial policy that has been lacking in the entire post- 1977 period, (iii) the evidence indicating that ‘free trade’ in itself has never ever led to economic development, so that the necessity to find alternative policy direction to the orthodox ‘free trade’ panacea, and (iv) the failure of the draft national trade policy to recognise the complementarity of import substitution strategy to the notion of export-led growth.

“Most importantly, it was revealed through the discussion that the draft policy has not been guided by a solid national development vision. Any policy on international trade has to be developed after a thorough strategic appraisal of all potentially influential determinants and their interrelations, including national economic development, wellbeing of people, national autonomy and sovereignty, and geo-political interests of regional countries. As the draft trade policy document itself highlights, SLAPE emphasises that the Government ought to carefully review the progress achieved through, and continuing non-trade barriers under, the Indo-Lanka Free Trade Agreement (ILFTA) before embarking on signing a comprehensive agreement in the form of ETCA. The draft policy paper does not indicate that such strategic studies have been undertaken,” it said.

SLAPE urged the Government to refrain from rushing through to develop a national trade policy but instead properly appraise the ground reality and set national development goals prior to formulating national policies on any sector or activity of the economy.

“What seems to be intended through this draft trade policy is the promotion of exports. However, only a scanty attention seems to have been paid to develop the national production capacity, and the industrial competitiveness, which are essential ingredients for any successful and sustainable export drive.

Therefore it’s imperative that the trade debate be centred on a suitable industrial policy, which has a home-grown approach that would take Sri Lanka to export markets. A trade policy per se would not achieve this objective. We urge that the Government should first create new productive avenues through such an industrial policy, possibly emphasising the role of technology innovations and adaptations. Any trade policy contemplation to promote exports without such a productive foundation would be unsustainable and meaningless,” the letter noted.

It said the draft policy appears to be over whelmed by the desire to augment export earnings, in which the positive role that import substitution could play has not been given its due place. While appreciating the limitations imposed by the market size of the local economy, complete neglect of the potential developmental impetus of import substitution is deplorable. One dollar of foreign exchange saved through import substitution is likely to generate greater economic value than one dollar earned through exports, because  already high import intensity of our exports, it said adding, “Therefore SLAPE opines that any national trade policy without an adequate emphasis of import substitution possibilities would not be pragmatic or sustainable”.

SLAPE pointed out that it was unfortunate that the drafters of this trade policy document have ignored the increasing world trend towards national economic protection. Though it was highlighted during the discussion that ‘productive’ import substitution could be promoted, and though the draft policy also contains some references to this effect, no significant effort has been made to introduce operational mechanisms to realise such a strategy.

Without this, the letter said the mere reference to a ‘productive’ import substitution would merely be a red herring to justify neoliberal export-orientation. In that context, SLAPE suggested the government to incorporate clauses that would protect, groom, promote, and develop national industries, both in state and private sectors, including those in the SME sector, thereby making the country less vulnerable to the BOP crises.

“A careful scrutiny of the draft policy shows that it is more an attempt to pave the way for preferential trade agreements. The outcomes of implementing such a policy is bound to be lop-sided as many fundamental developmental issues linked to trade, – e.g. issues of social wellbeing, creation of employment opportunities and remunerations for local labour force, and national self-reliance in respect of essential goods and services, and national sovereignty in the context of evolving geo-politics – could go unaddressed. We, in the SLAPE, wish to submit to the Government that international trade agreements, if ever considered, should be judged according to a trade policy framework anchored on a national development agenda. Trade policy, we must emphasise should not be driven by interest groups favouring preferential trade agreements.

“SLAPE also wishes to bring to the notice of the policy makers the apparent contradictions within the draft policy framework itself.

That the draft policy’s close alliance to free-market economic policies becomes evident when it explicitly advocates the level-playing-field idea. That premise is grossly violated when trade promotion through preferential trade agreements are solicited through the same policy. Even though SLAPE does not subscribe to the economic policy ideology that free market economic policies would do good for developing nations and their national socio-economic interests, it acknowledges the advantages offered to consumers by way of fair competition, whereby the quality and price of a purchase would be left for consumer’s choice.

It is this advantage, which eventually is expected to stimulate competitiveness and inventive and innovative instincts resulting in efficiency, which could possibly be the most important positive attribute of free-market economic policies. Unfortunately, it is this unique advantage of free trade which will be lost if substandard and otherwise uncompetitive products or services gain price advantage owing to preferential treatment granted to one or a set of countries through such trade agreements.

This cannot be considered development friendly, which, in contrast to the policy of equal treatment and fair competition, inhibits the right of the consumer to obtain best products at the lowest price.

On a separate note, this policy framework also appears to have failed to address possible negative implications of reduced import tariffs postulated through the draft policy on Government revenue, which is already at very low ebbs.”

The letter notes that Sri Lanka has been more or less following free market economic policies ever since 1977. It is beyond doubt that this track record of development achievements through this policy orientation has been far from satisfactory. It is neither rational nor pragmatic if policy makers presume that the cause for such failure is ‘inadequate dosage’ of free-market prescription and ‘improper behaviour of the country in implementing such policies’, while conveniently forgetting the possibility of ‘wrongful prescription’.