Colombo Telegraph

Review Of Draft National Trade Policy

By W. D. Lakshman

Prof. W. D. Lakshman

Sri Lanka Association for Political Economy (SLAPE) being a body of professional Economists engaged in discussing, formulating and appraising national economic development policies and strategies, felt it opportune to examine the Draft National Trade Policy, as the subject is very current, and relevant to the ongoing discussion on the proposed bilateral and regional preferential trade agreements. A panel discussion was thereby held on October 19th at the University of Colombo with Dr Ravi Ratnayake, Advisor to the Ministry of International Trade, and one of the architects of the subject policy draft, Mr Samantha Kumarasinghe, Chairman of Nature’s Secrets Company Ltd, Mr Anushka Wijesinha, the Chief Economist of Ceylon Chamber of Commerce and Dr Kenneth De Zilwa, Director of Econsult Investment and Advisory Services, as panelists and Professor W D Lakshman, the Vice Chancellor of SANASA Campus and the Convenor of the SLAPE chairing the session.

The SLAPE, guided by the objective of taking care of national development interests, is of the opinion that what was revealed through the panel discussion are of national importance, and therefore considers it opportune to makethe policy makers as well as the general public aware ofwhat transpired during the session. Hence, this statement.

Many important issues were flagged during the discussion. Among those, the principal concerns included: (i) 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, (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 National Trade 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 emphasizes that the Government ought to carefully review the progress achieved through, and continuing non-trade barriers under, 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. Therefore, the SLAPE requests the Government that it should not rush through to develop a national Trade Policy for Sri Lanka but should 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 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 centered 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 emphasizing 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 draft Trade 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 of already high import intensity of our exports. Therefore, SLAPE opines that any national trade policy without an adequate emphasis of import substitution possibilities would not be pragmatic or sustainable.

It is 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 Trade 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 mere reference to a“productive” import substitution would merely be a red herring to justify neoliberal export-orientation.In that context, SLAPE suggest 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 national trade 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 emphasize should not be driven by interest groupsfavouring 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-paying-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.

Sri Lanka has been more or less following free market economic policies ever since 1977.It is beyond doubt that our 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 behavior of the country in implementing such policies”, while conveniently forgetting the possibility of “wrongful prescription”. Theprescription of trade liberalization,in the absence of industrial policy,is being questionedby many renowned economists.It is the position of SLAPE that free-market prescription itself was a cause for present economic ills of our nation. Further increased dosages of the same medicine could yield catastrophic outcomes.

Quite apart from the contents of the draft national trade policy, the SLAPE is surprised by the fact that no proper and transparent consultative process has been adopted in its preparation. SLAPE is unaware of any explicit involvement of any of the country’s professional bodies in Economics, including Sri Lanka Economic Association (SLEA), Sri Lanka Forum of University Economists (SLFUE) or SLAPE itself. It is deplorable that the decision makers ignore professional assets within the country in venturing into such nationally important strategic endaevours.

It is the utmost hope of the SLAPE that the policy makers, including the President, the Prime Minister and the Minister of International Trade, will seriously consider the above mentioned concerns and will 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.

*Professor W D Lakshman,  Convenor / Sri Lanka Association for Political Economy (on behalf of all members)

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