Chal­lenges for Sri Lankan ex­porters on ex­ploit­ing Asian mar­kets

Daily Mirror (Sri Lanka) - - BUSINESS NEWS -

The new gov­ern­ment of Sri Lanka has an­nounced a non-aligned for­eign pol­icy and also its de­sire to es­tab­lish bal­anced po­lit­i­cal, eco­nomic and trade re­la­tion­ships, with all part­ner coun­tries. At the same time the de­sire to strengthen po­lit­i­cal and trade re­la­tion­ships with her im­me­di­ate neigh­bour In­dia has be­come very clear.

Praise for new ap­proach

The Na­tional Cham­ber of Ex­porters of Sri Lanka (NCE), which is the only Cham­ber ex­clu­sively serv­ing Sri Lankan ex­porters, com­mend the ap­proach of the new gov­ern­ment in bal­anc­ing its for­eign pol­icy, and eco­nomic pol­icy with na­tions in a non-par­ti­san, man­ner for the over­all ben­e­fit of the coun­try.

It is mu­tu­ally ben­e­fi­cial to fa­cil­i­tate easy ac­cess to neigh­bour­ing mar­kets through FTAs with spe­cial con­sid­er­a­tion to the small econ­omy. But in the past may be due to lack of po­lit­i­cal will pre­vented freer mo­ment of goods from Sri Lanka to part­ner coun­tries, frus­trat­ingly to ex­porter com­mu­nity.

Re­peated mar­ket en­try hur­dles faced by them com­pelled them to be away from the easy neigh­bour­ing mar­kets to far away mar­kets. With the new bi­lat­eral talks, once again a win­dow of op­por­tu­nity has come to push FTAs pos­i­tively to change trade statis­tics and win back the ex­porter com­mu­nity.

Sri Lanka’s eco­nomic ob­jec­tives were to in­crease trade ties with South Asia’s dom­i­nant eco­nomic pow­ers, to in­duce trans­for­ma­tion of Sri Lankan ex­ports from low value goods to high value added goods aimed at niche mar­kets, and also to ben­e­fit con­sumers with lower cost of living, strength­en­ing wel­fare ef­fect of FTAs

Sri Lanka also ex­pected to at­tract For­eign Di­rect In­vest­ments (FDI) from third coun­tries, by pro­mot­ing her­self as an ef­fec­tive en­try point to ac­cess the larger In­dian and Pak­istan mar­kets. Fur­ther In­dia and Pak­istan could in­vest in Sri Lanka and ex­port to west­ern mar­kets ex­ploit­ing fa­vor­able con­di­tions con­ducive to those mar­kets.

Grete LØchen, Am­bas­sador for Nor­way in Sri Lanka in her ad­dress at the AGM of the NCE re­cently, pointed out that con­sumers in Europe are be­com­ing much more con­scious about labour, and en­vi­ron­men­tal stan­dards, and their voice is more pow­er­ful than ever be­fore. She added that many Sri Lankan com­pa­nies al­ready have a good record on this front, com­pared to many in Asia, and this cer­tainly be­comes a com­pet­i­tive ad­van­tage to fo­cus more on, if Sri Lanka is look­ing to pivot back Euro­pean mar­kets.

ISFTA, and PSFTA per­for­mances

Achieve­ments un­der the ISFTA, and PSFTA over the past decade have not been up to ex­pec­ta­tions.

In this back­ground it is nec­es­sary to ob­jec­tively look at the trade per­for­mance of Sri Lanka in the two largest Asian mar­kets (and in the world) viz China and In­dia.

In the case of In­dia, ex­ports from Sri Lanka which com­prise over 80 per­cent of prod­ucts hav­ing duty free ac­cess un­der the ISFTA, in­creased steadily up to 2005 in ab­so­lute terms, and there­after showed de­clin­ing trend upto 2010. There­after, although record­ing mar­ginal gains up to 2013, the value of ex­ports is yet to reach the level achieved in 2005, 13 years af­ter the ISFTA. On the other hand, im­ports from In­dia grew sub­stan­tially up to 2011, and have de­clined marginally there­after. Nev­er­the­less,


the bal­ance of trade has re­mained ex­ces­sively in favour of In­dia to date. (US$ 2525 mil­lion as at end 2013).

Fifty per­cent of ex­ports to In­dia dur­ing the growth pe­riod up to 2005 arose out of In­dian in­vest­ments in Sri Lanka for the pro­duc­tion of Vanas­pati and re­fined Cop­per. Th­ese in­vest­ments, as is well known, did more dam­age to the Sri Lankan Econ­omy in terms of en­vi­ron­men­tal and labour is­sues, as op­posed to the benefits de­rived from re-ex­ports to In­dia. They were sub­se­quently wound-up, due to the strong do­mes­tic lobby of the In­dian in­dus­try op­pos­ing duty free im­ports. The other con­trib­u­tory fac­tor has been the many un­known Non-Tar­iff bar­ri­ers (NTB) en­coun­tered by Sri Lankan Ex­porters in In­dia. Many of th­ese re­main in place to date. Some econ­o­mists ar­gue that the trade bal­ance can­not be pos­i­tive with all trade part­ners, depend­ing on trad­ing con­di­tions. How­ever, the fact re­mains that the trad­ing pat­tern in re­spect of Sri Lanka’s largest Asian mar­ket part­ners re­mains heav­ily skewed in their favour. In the case of In­dia, avail­able lit­er­a­ture in­di­cates the con­cerns of In­dia re­gard­ing the neg­a­tive trade bal­ance with South Korea re­lated to the FTA with that coun­try. The ques­tion there­fore re­mains whether the same prin­ci­ple should not ap­ply to a smaller trad­ing part­ner like Sri Lanka.

The In­sti­tute for So­cial and Eco­nomic change of the Cen­ter for Eco­nomic Stud­ies and Pol­icy of In­dia re­cently car­ried out a re­search study in Sri Lanka on NTB’s en­coun­tered by ex­porters in Sri Lanka, and In­dia. Ac­cord­ing to the key find­ings of this study (which is still in the dis­cus­sion stage), it is sur­mised that the num­ber and na­ture of NTB’s en­coun­tered by Sri Lankan ex­porters, in re­spect of iden­ti­fied spe­cific sec­tors, is more than those en­coun­tered by their In­dian coun­ter­parts.

In the case of the Chi­nese mar­ket too, the bal­ance of trade re­mains heav­ily in favour of China, with ex­ports from Sri Lanka to China neg­li­gi­ble in com­par­i­son to im­ports from China to Sri Lanka. (Trade bal­ance in favour of China at the end of 2013 was US$ 2838 mil­lion). Also a ma­jor por­tion of ex­ports from Sri Lanka were raw ma­te­ri­als (Coir fiber) and not fin­ished prod­ucts. The above per­cep­tions re­gard­ing the In­dian mar­ket was the de­ter­min­ing fac­tor among a vo­cif­er­ous sec­tion of Sri Lankan en­trepreneurs who re­sisted the pro­posed Com­pre­hen­sive Eco­nomic Part­ner­ship Agree­ment (CEPA) with In­dia.

How­ever, ac­cord­ing to a re­cent news re­port, In­dian Prime Min­is­ter Naren­dra Modi has ap­par­ently fo­cused his at­ten­tion on the neg­a­tive trade bal­ance of Sri Lanka with In­dia dur­ing dis­cus­sions with the vis­it­ing Sri Lankan Pres­i­dent Maithri­pala Sirisena.

In this back­ground at a time when both In­dia and Sri Lanka are fo­cus­ing on re­build­ing strong po­lit­i­cal and eco­nomic ties be­tween the two coun­tries, it is most op­por­tune to cor­rect the ex­ist­ing de­fi­cien­cies, and mis­con­cep­tions, re­lated to trade be­tween the two coun­tries.

In­dian in­ter­ests

In the above con­text, and re­lated to the dis­cus­sions to strengthen the eco­nomic and trade re­la­tion­ship be­tween In­dia and Sri Lanka, con­cerns have been ex­pressed in cer­tain quar­ters in Sri Lanka, based on a per­cep­tion, that In­dia is keen to ne­go­ti­ate the fol­low­ing with Sri Lankan au­thor­i­ties. A) Agree on the im­ple­men­ta­tion of the CEPA B) Pro­mote In­dian In­vest­ments in Sri Lanka to sup­ply the Sri Lankan mar­ket re­lat­ing to the fol­low­ing sec­tors. • Phar­ma­ceu­ti­cals • Elec­tric and elec­tronic prod­ucts • Rub­ber, plas­tic, and re­lated chem­i­cal prod­ucts C) Es­tab­lish an ex­clu­sive industrial zone for

In­dian in­vestors.

Lankan ex­porter con­cerns

In this re­gard, the NCE as a re­spon­si­ble Cham­ber would urge the gov­ern­ment to in­sist rel­e­vant of­fi­cials to be mind­ful of the fol­low­ing dur­ing ne­go­ti­a­tions with In­dian coun­ter­parts. 1. En­sure the cor­rec­tion of ex­ist­ing is­sues

re­lated to the ISFTA. 2. Con­sult the Sri Lankan stake­hold­ers ad­e­quately on spe­cific as­pects of the pro­posed CEPA be­fore en­ter­ing into an agree­ment. 3. Do not per­mit for­eign in­vest­ments to pro­duce for the do­mes­tic mar­ket ex­cept un­der ex­cep­tional and jus­ti­fi­able cir­cum­stances, in or­der to pro­tect do­mes­tic en­ter­prises es­pe­cially in the SME sec­tor; but per­mit in­vest­ments only for re-ex­port. 4. Pre­vent the estab­lish­ment of an ex­clu­sive zone in re­spect of any sin­gle coun­try. How­ever, where nec­es­sary in­vest­ment zones for a par­tic­u­lar sec­tor for ex: the phar­ma­ceu­ti­cal sec­tor may be al­lowed, pro­vided it is open to in­vestors from other coun­tries as well. This ap­proach will en­sure healthy com­pe­ti­tion, as well as pre­vent bias to par­tic­u­lar trad­ing part­ners, in keep­ing with the an­nounced bal­anced for­eign pol­icy, and trade re­la­tion­ships of the gov­ern­ment with all coun­tries. In re­gard to the phar­ma­ceu­ti­cal sec­tor the pol­icy an­nounce­ment of the gov­ern­ment to do away with brand names for drugs, and adopt generic names, is com­mend­able from the con­sumer’s point of view, to over­come the many ir­reg­u­lar­i­ties that pre­vail in the sec­tor, and to re­duce the cost of drugs. It is also pro­posed to en­cour­age the lo­cal pro­duc­tion of phar­ma­ceu­ti­cals. In this back­ground it may be de­sir­able to per­mit se­lect in­vest­ments to pro­duce for the do­mes­tic mar­ket, in the form of joint ven­tures with lo­cal part­ners on the con­di­tion of trans­fer of the re­lated tech­nol­ogy to the lo­cal coun­ter­parts within an agreed time frame, and specif­i­cally aimed at im­port sub­sti­tu­tion of the rel­e­vant phar­ma­ceu­ti­cal prod­ucts. In re­gard to in­vest­ments for the pro­duc­tion of chem­i­cal prod­ucts such as dyestuffs, it is im­por­tant to be mind­ful of en­vi­ron­men­tal is­sues, aris­ing out of the dis­charge of ef­flu­ents, by en­sur­ing pre­ven­tive mea­sures, in the terms of ap­proval of in­vest­ments.

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