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Sri Lanka business leaders cry for protection

Sep 17, 2018 07:09 AM GMT+0530 | 0 Comment(s)

ECONOMYNEXT - Top business leaders made a rousing call to sell goods at high prices, taking cover behind import tax barriers erected with the help of the government, to 5.4 million households in Sri Lanka, of which 1.4 million families are on Samurdhi income support.

No Respect for Protection

"When Sri Lankan entrepreneurs invest in business activities in Sri Lanka, there is no respect for it,” Federation of Chambers of Commerce and Industry of Sri Lanka President Ruwan Edirisinghe started the ball rolling at an economic forum organized by Sri Lanka's Ceylon Chamber of Commerce.

"Once I went and met a finance minister of this country, and I demanded for protection for Sri Lankan industries.”

"He said ‘There are only 10 to 15 industries always giving trouble to the government. We are looking for thousands of Chinese guys coming to Sri Lanka for investments’.

"I asked him, 'When we invest in dollars, is it not dollars?" Edirisinghe said employing a classic 'straw man' tactic to push his argument against free trade.

A straw man tactic involves misrepresenting an opponent's argument so that it is easier to attack it and win favour from an audience because the original premise is too difficult to refute.

Proponents of free trade simply argue for a level playing field and competition so that businessmen can no longer exploit a struggling family by selling goods at high prices, hiding behind import duties.

It was not shown that the finance ministry was giving import protection for foreign investors who bring in dollars, and that it was denied to anyone dealing in another currency.

There was no evidence to show that the finance ministry is giving special import protection for Chinese or other foreign investors that was denied to local investors.

Protection is now discouraged for all investors, big or small, whether they invest rupees, dollars or some other currency and regardless of the country of origin.

Strawmanning

However when unrelated factors (straw men) like dollars or Chinese are introduced, the original premise relating to denying import tariffs, can be confused in the minds of an audience.

It is a logical fallacy.

"A fallacy is a common error in reasoning which people (even well educated, careful people) often fail to notice in their own arguments or which devious people might use in their arguments in the hope that we won't notice them," explains Andrew Latus, a professor who teaches philosophy at Canada's Memorial University of Newfoundland.

"It misrepresents the position of the opposing side in such a way that the opposing position appears obviously false or ridiculous. (That is, it creates a 'straw man' just so it can be knocked down.)”

"It's worth noting that 'straw manning' often takes place on both sides of charged debates like the one concerning abortion.

'Strawmanning' your opponent can be an effective strategy in an argument. If your audience doesn't realize that's what you're doing, you may succeed in convincing them that your opponent's view is wrong.

"However, it's an intellectually dishonest strategy & so not useful for getting at the truth about things."

At the economic summit in Colombo, the audience applauded Edirisinghe.

The 'disrespect' from the Finance Ministry is only for investors who demand protective tariffs to victimise domestic consumers. It is not based on nationality or the currency of investment.

Patrick Amarasinghe, a former head of the FCCISL, lobbied against tax holidays when they were only available to foreigners with active support from the business press at the time, and got it removed.

A tax concession involving accelerated capital allowances for example is now available to investors, with extra allowances for some geographical locations.

Free Trade

An argument for free trade involves respect for consumer sovereignty, which simply says businessmen do not have any prior right to collude with the government and sell goods to consumers at high prices by blocking access to alternatives since the poorest sections of society have to bear the biggest burden.

For example if import taxes on cosmetics are pushed up, garment factory girls would be hardest hit and while high society ladies in Colombo, including wives of businessmen, will not feel it.

Edirisinghe said the government puts overnight shocks on industries by taking away protective benefits without discussion with affected manufacturers.

He said the government is allowing Chinese construction companies to come in with financing for projects, which has resulted in the Chinese now controlling 45 percent of the sector.

"In two years, the Sri Lankan construction industry will be over," he predicted.

He was asked whether businesses need protection, and if local industries cannot compete in the global market, since several Sri Lankan brands have proved that they could.

"The world is different than 50 years back. We’re talking about developing our county. What are the ways? We have to improve our exports and reduce imports," Edirisinghe said.

Edirisinghe said Bangladesh and Vietnam have become net exporters, overtaking Sri Lanka which was ahead of these countries in the past.

In the 11 months to July 2017, Bangladesh's trade deficit surged to an all-time high of 17 billion US dollars.

When Vietnam liberalized trade to enter ASEAN, analysts say it was not that difficult since as a country with a communist past, at the time, most large firms were state-owned. The Vietnamese socialist rulers did not have to deal with protectionist oligarchs.

Most of the large Vietnamese private firms originated after the mid 1990s.

Karl Marx, who opposed British 'capitalists' in particular who were also free traders, had to accept that the free trade benefited the poor by ending the grip of protected businessmen, on the working classes, laying the ideological ground to establish free trade, analysts say.

"It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point," Marx said in 1848 in a speech in Brussels. "In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.

Hand Holding

National Chamber of Exporters of Sri Lanka President Ramal Jasinghe too backed protection.

"We understand we have to be competitive globally, but at the same time we need some sort of hand holding," he said.

Prime Minister Ranil Wickremesinghe told the economic forum Friday that the cabinet had approved a 'trade adjustment package' to help domestic firms to become more competitive. An anti-dumping law had also been brought in.

Jasinghe said 'negative lists' in free trade agreements have to be monitored.

"Are there shortcuts where these items included in the negative lists could seep into the country? It can have a direct impact on our local manufacturers and producers," he said.

A negative list allows import duties to remain in on the listed items in a free trade deal, allowing businesses to continue to exploit domestic consumers, while in other, ordinary families are given economic freedom to choose at global prices.

SME Protection

The Ceylon National Chamber of Industries Chairman Raja Hewabowala said that imports should be protected for the sake of small and medium scale enterprises (SMEs).

"One of the issues we have is protection of SMEs," he said.

"We welcome FDIs (foreign direct investments) but we have to have some protection for the SME because SMEs are currently giving 52 percent to GDP and providing employment of 32 percent," he said.

He said industries such as yoghurt and noodle manufacturing should be protected.

Foreign companies with local investments are already market leaders in noodles.

Chamber of Young Lankan Entrepreneurs Chairman Dinuk Hettiarachchi said that there should be protectionism to a certain extent.

"To certain extent. It shouldn’t be a blanket thing," he said.

"We have champion brands. If we open up those industries to the global market, the brands won’t have scale to go overseas."

"They need to be champions here first. So we need to protect those players."

National Chamber of Commerce of Sri Lanka President Sujeeve Samaraweera said there was a scale problem.

"If we don’t protect industries, we will have large scale businesses which will come here and sell to local markets," he said.

"They will have zero marketing costs, because they already have global marketing. So the only cost is cost of distribution," he said.

"Their pricing will be very much less. Can our businesses meet product price and volume of large companies producing abroad?"

He said without protection, the mudalalis (tycoons) of Sri Lanka’s past will not be created.

Ceylon Chamber of Commerce Chairman Rajendra Theagarajah was the sole voice of reason, explaining that imports and exports are both required to have holistic supply chains.

"One danger in crying for protectionism is that you’re going to be in a comfort zone instead of coming out and transforming," he said.

"Some industries have steered challenges domestically and gone out."

However, he added a degree of justification to protectionism, saying that the arguments of the others were relevant. (Colombo/Sept15/2018)


 

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