Sri Lanka's poor paying sky high prices as 'protection': Minister
Jun 19, 2018 14:06 PM GMT+0530 | 5 Comment(s)
ECONOMYNEXT - Sri Lanka has introduced an anti-dumping law and countervailing duties to help local businessmen who may face sudden competition from foreign products, but there is no protection for consumers who pay sky high prices for protectionism, a minister has said.
While protecting domestic businesses that can create jobs in some sectors, consumers are paying sky high prices due to unreasonable taxes, and they find it difficult to build a house, State Minister for Finance Eran Wickremeratne said.
"There has to be some balance," Wickramaratne told parliament. "There are a lot of low-income people in this country.
"A big noise is made against trade agreement. But the noise is coming from big businesses and high income earners."
Mercantilism, involving the fattening of profits of business by exploiting consumers is one of the oldest rackets in international trade, effectively practised by the Dutch East India Company and British East India Company, until Adam Smith, came up with what is now called economics.
Minister Wickremeratne said he was sure that most parliamentarians listening to him, had tiled floors at home.
But people with lower income could not do so.
"We have imposed taxes of 120 to 130 percent of tiles," he said. "Yesterday I went to a house and asked how much they paid for a tile. They said 550 rupees a tile. Without taxes it would have cost only about 150 rupees."
He said there was also some taxes on cement.
Steel taxes were very high. He said steel for house building was taxed at 91 to 103 percent.
"We have to balance the interests of consumers and businesses," Minister Wickremeratne said. "The less affluent have expectations of building a house."
He said in general import duties were found to be extremely regressive and delivered a bigger blow to low income earners than the affluent.
He said the government wanted to remove so-called 'para-tariffs'.
He said the government has introduced an anti-dumping law to protect businesses from exporters abroad who may sell in Sri Lanka at a price lower than they did it home, as well as a safeguards law.
Analysts say food, footware, housing and clothes are item that people cannot live without, and are quite helpless and it is here that businessmen and producers will try to exploit consumers most.
In Sri Lanka a squatting pan is taxed at a 30 percent import duty, a 35 rupees a kilogram cess, as well as a 7.5 percent port and airport levy, in addition to a 15 percent value added tax and 2 percent national building tax on top.
Due to high food taxes to protect a farming lobby, analysts have pointed out that consumers are taxed at both ends of the digestive tract.
Protectionism was promoted in the US for so-called infant industries by Alexander Hamilton, a founding father of the country for a limited period.
Friederich List then took the idea to Europe, and also adopted it for agriculture, as part of German historical economics, which was part of the nationalist project in the country, which philosophers say eventually helped pave the way to minority oppression and Nazism.
Wickremaratne said Sri Lankan kings on the other hand had engaged in active international trade.
Analysts have pointed out that protectionism does not end in 'infant industry' after a few years, but through various ruses the taxes are being used to keep 'geriatric' industry alive. Sri Lanka is one of the best remaining examples.
Protectionism, lowers living standards, destroys people's purchasing power in inefficiency, denying them the ability to buy more goods with their earnings, killing potential new jobs. (Protectionist taxes plunder the weak, destroying potential new jobs in Sri Lanka).
Protectionists have political power because consumers in general are unable to fund politicians or carry out public relations campaigns.
Economists have pointed out that because the cost of a single item for a consumer is small it does not make sense for an individual to campaign in the media or agitate even if they had the public relations skills to do so.
Businessmen on other had the planning and implementation skills to push a message hard because their reward for restricting the freedom of individual consumers, could be measured in hundreds of millions of rupees.
Mercantilists were especially good at convincing ordinary people pioneering economists have pointed out.
"Their superiority over the country gentleman is not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his," wrote Smith in Wealth of the Nations.
"It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction that their interest, and not his, was the interest of the public."
"The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public.
"To widen the market and to narrow the competition, is always the interest of the dealers.
"To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens."