ECONOMYNEXT – Sri Lanka’s legislators speaking for consumer sovereignty and free trade battled nationalist conspiracy theories and debunked falsehoods repeated Donald Trump style in a surreal drama by opponents, in a debate on a free trade deal with Singapore.
Ministers tried to explain complex trade rules and concepts such as wholly obtained products, rules of origin, Mode 4 services trade, in a country where consumer sovereignty is casually trampled by politically powerful rent seeking producer and professional lobbies and false claims by US Mercantilists that high performing East Asian nations had undervalued (depreciating) currencies are swallowed whole.
Rules of Origin
Many opposition legislators repeatedly claimed that all kinds of goods produced in third countries will somehow come to Sri Lanka through the Singapore FTA.
International Trade Minister Malik Samarawickreme explained that there had to be 35 percent value added in Singapore under ‘rule of origin’ for an item to qualify for free trade, but the charge was repeated against by other speakers.
Rule of origin is a basic building block of all free trade agreements worldwide.
That the FTA had had cabinet approval before signing was also disregarded and the same charge was made by subsequent speakers.
Sunil Handuneththi, a legislator for the Marxist Janatha Vimukthi Peramuna, saw a sinister motive in the inclusion of Sakkara (a type of coarse sugar) and Kithul treacle in the deal saying it will harm farmers.
"Why is it in the FTA if there was no intention to trade it?" he questioned.
Why were items like rice paddy, included in the FTA when it was not grown in Singapore, opposition legislators questioned.
Other legislators said tax free imports of rice will cost each farmer 6,000 rupees.
Opposition legislators said Donald Trump is now raising taxes by 25 percent against China, while Sri Lanka is pursuing free trade.
US firms which have production bases in foreign countries are opposing the taxes, and Harley Davidson had said it will move its export motorcycle factory to Thailand as Europe retaliated with tariffs.
Trump also came to power with conspiracy theories, including that President Obama was not born in the US despite evidence to the contrary (Why Trump’s conspiracy theories work).
Critics say Prime Minister Ranil Wickramasinghe’s handling of a bondscam and fraud investigations including by the last regime may be contributing to reduced credibility in statements made by some ministers.
Negative List
Minister Samarawickreme explained that Sri Lanka had a ‘negative list’ of 20 percent of tariff lines, where trade was actually taking place which was covered by the FTA.
"Even though we are saying 80 percent will be under the FTA it will happen over a period of 10 to 15 years," he said.
He said taxes will be charged on 1,487 items (20 percent of tariff lines) to protect state revenues as well as producers.
He said last year, imports from Singapore had brought in 35 billion rupees of revenues to the government.
"In the next 15 years Sri Lanka will lose only 775 million rupees in revenues. That is about 51 million rupees on average. So you can see that there is no drastic reduction of taxes."
Wholly Obtained Products
Samarawickreme said in primary produce like meat or grain were covered by separate section (Article 4, wholly obtained products), and the plants had to be grown inside Singapore, or animal had to be raised in the city state to quality.
"The plant has to be grown in Singapore and an (live) animal had to be born there to qualify," he explained, to a seemingly incredulous audience, who seemed unable to grasp the concept ‘wholly obtained products’ subsequent speakers repeating the same charge.
An oft repeated debunked conspiracy theory was that articulated by the Government Medical Officers Association, that ‘Mode 4’ services trade where independent professionals will travel to Sri Lanka and seek working, competing with domestic professionals to offer services to consumers.
"No but a ‘doctor company’ can be set up," an opposition legislator claimed.
A smiling Samarawickreme said if a foreign investor set up a hospital in Sri Lanka, there was already provision to bring specialist like it had happened in the case of Apollo Hospital, and it had nothing to do with the Singapore FTA.
Doctor Company, Lawyer Shop
Another legislator claimed that lawyers would come and set up a shop in front of a court house and advise Sri Lankan lawyers, even though foreign lawyers are not allowed to practice in Sri Lankan courts.
Vasudeva Nanayakkara, another opposition legislator said manpower companies would be set up under the FTA and people from all over the world will be brought through them.
Samarawickreme said manpower companies can be set up by anyone in Sri Lanka even now but the people who work in them have to go by standard immigration rules and it had nothing to do with the Singapore FTA.
Under the Singapore FTA companies who set up shop in Sri Lanka can bring employees from their office in Singapore who will help transfer skills. They have to be Singapore residents. Workers can also be brought to do specific jobs on short term contracts.
Samrarawickreme said there was no truth that the agreement was hurriedly with no discussion, but negotiations had taken place over 18 months and the ‘Mode 4’ restriction on independence service providers had already been explained.
Nanayakkara ignored the explanation and continued to challenge the minister to make a statement that a ‘manpower companies’ cannot be set up.
Sri Lanka has a skills shortage which is seen as a key impediment to foreign direct investment.
Consumer Sovereignty
Mujiber Rahman, a legislator of the United National Party slammed professional associations in Sri Lanka saying they are only interested in charging high fees from consumers and increasing profits (goda wedi karaganna) by limiting competition and had little regard for progress.
If a foreign investor came and set up a company in Sri Lanka with some foreign workers, many more Sri Lankans will get jobs.
He said charges that Singapore banks will invade the country were absurd.
"If someone sets up a company with 10 percent foreign workers, 90 percent Sri Lankan workers will bet jobs," he said.
"Foreign banks have been here for many years. At HSBC may be only 1 percent are foreign employees. Foreign banks here have brought competition and higher service standards."
State Minister for Economic Policy Minister Harsha de Silva, said Sri Lanka needed higher exports to bring more income, raise living standards and be able to repay debt which needed more foreign investments.
He said countries like Vietnam and Thailand had exports of over 200 billion dollars while Sri Lanka had a little over 11 billion dollars, though they liberalized after Sri Lanka.
Marxist legislator Handuneththi, said was happy to see a communist country being praised.
De Silva said Vietnam was now practicing free market economy after having failed with a closed economy.
Vietnam had to go through extensive trade liberalization to join the ASEAN and its people have greater freedoms.
Due to lack of private companies, analysts say there was also no producer lobbies to object to when the government began trade liberalization. (Colombo/July18/2018)