by Gomi Senadhira Courtesy The Island

ranil – sajith – anura

During the presidential election campaign, the importance of trade, particularly exports, to Sri Lanka’s was emphasised by President Anura Kumara Dissanayake (AKD) and the other two main contenders in the fray, namely Sajith Premadasa (SP) and Ranil Wickremesinghe (RW) in their manifestos. These three candidates together polled more than 90 percent of the votes at the presidential elections. During the parliamentary elections the political parties which based their campaign on these manifestos – Jathika Jana Balawegaya (NPP), Samagi Jana Balawegaya (SJB) and New Democratic Front (NDF) together polled more than 83%. Therefore, the electoral support for these pro-trade policies is undisputed. For the Sri Lankan export community this should be a superb development, as for many years, the trade policy had been, one of the more contentious areas of island’s politics. Our main trading partners and the foreign investors would also welcome this policy convergence.

Pro- trade policies in the policy statements of RW and SJ were not unexpected. But the pro-trade approach in the AKD’s manifesto surprised many, mainly because all other parties had repeatedly warned the people against voting for AKD as he would turn Sri Lanka into another North Korea or Cuba.

For example, during the election campaign, at a conference organised by the National Bankers Association, RW stated, On September 4th, MP Anura Kumara Dissanayake emphasised the importance of focusing on exports for our country’s businessmen and industrialists. While this principle is commendable, there is a concern. Their policy statement suggests that Sri Lanka plans to cancel its free trade agreements.

This raises a significant question: how can we develop an export industry without these agreements? Such contradictions pose challenges.” Since then, he had repeated these comments at several other meetings.  In the same way, SP’s trade policy wonks also had spread similar misinformation on NPP policies.  However, the NPP policy statement clearly states its position on Free Trade Agreements, that is … updating of existing free trade agreements and negotiating new free trade agreements.” The updating of the trade agreements certainly does mean cancelling of these agreements. All FTAs need to be reviewed and updated periodically.

During the election seasons, politicians sometimes manipulate public opinion about the crucial issues by arousing fear. But this is not the time to deliberately mislead the public in general and, more particularly, the business community and our trading partners with false information on trade policy. At this juncture, what we need are facts. Not scare tactics and false information. So, let’s hope our politicians would avoid such scare tactics in the future and join together to strengthen this consensus on export-oriented, outward-looking trade policy.

To those who are familiar with the way the NPP policies evolved in the recent past, their shift towards pro-trade policies is not a surprise. After all, if the NPP and AKD want a socialist model to emulate, they have many examples of socialist governments, other than North Korea and Cuba, to draw lessons from. For example, the success story of the Socialist Republic of Vietnam. While cautiously staying away from the labels AKD’s policy statement refers to Vietnam, Bangladesh, and South Korea (and not North Korea) as export success stories, Sri Lanka can acquire lessons from. More importantly, Vietnam’s success story was also highlighted at the top of RW’s policy statement and by the trade experts in the SJB as a success story to follow. What is needed now is to strengthen this consensus further and develop a pro-export national trade strategy approved by the parliament. That would help to attract much-needed foreign investments and export orders.

If we already have a general consensus on pro-trade and pro-export policies, then why do we need to rethink trade policies now?

From export-oriented economy to import dependent economy

Sri Lanka was the first country in South Asia to liberalise trade policies with the ‘open’ economy introduced in the late 1970s. However, the open economy introduced then was not fully open. It had a strong focus on the expansion of the export of goods while discouraging imports, particularly nonessential imports. A special cess was imposed on the nonessential imports to protect local farmers and manufacturers and to collect funds for export development.

The main thrust of the trade policy was exports. During that period, the government proactively managed to get an adequate level of market access to Sri Lankan exports through multilateral trade rules (GATT/WTO rules) as well as the distortions to those rules (textile quotas). These policies worked well, and during the 1980s and 90s, Sri Lanka’s exports registered almost a fivefold increase, from US$1.35 billion in 1981 to US$6.37 billion by the year 2000. The exports-to-GDP ratio increased from 30.46% in 1981 to 39.02% in 2000. During the period, Sri Lanka was slowly but surely progressing into an export-oriented economy.

Unfortunately, during the next two decades, the export growth slowed down and only increased from US$6.37 billion (in 2000) to US$13.03 billion (in 2020). The exports-to-GDP ratio also declined substantially during this period. At 15.46% in 2020, it was the lowest ever recorded. More alarmingly, the growth of exports during the last decade was almost stagnant, and it increased only from US$ 10 billion in 2013 to US$ 12 billion in 2023. During the same period, Vietnam’s exports increased from US$132 billion in 2013 to US$370 billion in 2023.

Hijacking of trade policy by importers and profiteers

The main reason for this decline was the absence of interest in export development by the successive governments and the influence of the importers, the profiteers and perhaps even hawaladars on trade policy formulations. If one analyses the trade policy formulation in the recent years, it is easy to understand how trade policies and even free trade agreements were directed towards import promotion at the expense of export development. After signing Sri Lanka’s first bilateral FTA with India in December 1998 and second with Pakistan in August 2002, and the enhanced GSP arrangement in the EU, no new tangible initiatives were taken by the government to develop market access for Sri Lankan exports.

During the last decade the situation deteriorated further and even the free trade agreements, which countries normally negotiate at the request and on behalf of their exporters to get better levels of market access for them in other countries, were negotiated at the request of the exporters of other countries to provide them with enhanced market access into Sri Lanka without reciprocal concessions for Sri Lankan exporters. The free trade agreements Sri Lanka signed with Singapore and Thailand are clear examples of this approach.

These agreements were negotiated under RW’s leadership, first as the prime minister and then as the president. Despite his rhetoric about the critical need to swiftly transform Sri Lanka into an export-oriented economy, as stabilising the economy alone would not solve Sri Lanka’s problems due to the country’s heavy dependence on imports, it was under RW’s leadership that the trade policy got blatantly hijacked by the importers mafia and profiteers.

Another adverse development during the last two decades was the relaxation of foreign exchange regulations. Due to this Sri Lanka also does not fully benefit even from the limited amount of exports, as a substantial portion of the export proceeds are not repatriated. In July 2022 the Central Bank revealed that less than 20% of export proceeds are being repatriated by the exporters. Though this may have improved since then, the conversion rate remains below accepted levels. In addition to that, a significant amount of money is transferred out through trade misinvoicing by the exporters and importers.

As the elections are over now it is the time for a new beginning. It is the time to intensify analysis and advocacy regarding the numerous ways that trade agreements and po8licies must be reformed and strengthen the consensus on trade policies and adjust them to undo decades of capture by the importers’ mafia, profiteers, and hawaladars.

(The writer, a retired public servant and diplomat, can be reached at senadhiragomi@gmail.com)