Reducing protection yields productivity gains, Sri Lankan exporters told

ECONOMYNEXT – Scrapping protectionist policies could yield efficiency gains that make Sri Lanka more competitive as Australia found, a senior Australian diplomat said.

But the reforms succeeded only because Australia achieved national consensus between government, business and labour unions, said Tim Huggins, deputy high commissioner for Australia in Sri Lanka.

Australia’s economic reforms could be of relevance to Sri Lanka, he told the annual general meeting of the National Chamber of Exporters.

The Australian government was committed to reform including barriers to trade at the border and behind the border.

“Our exporters have enjoyed tariff protection,” Huggins said. “But we learned in Australia tariff protection led us to uncompetitive industries, low productivity growth and loss of market share.”

After reforms started in the 1980s, Australia moved from one of the most protected developed economies in the world to one of the least protected.

Australia has now reduced barriers to trade close to zero even in sensitive sectors like textiles and footwear and has free trade deals with many countries, Huggins said.

“Consumers benefited from the opening up of the economy through cheaper prices. Exporters also benefitted from better market access,” he said.

“Weaning industry off tariff protection has yielded productivity dividends,” he added.
 
“For example, Australia is a high-wage economy but the source of the cheapest of iron ore, even in the current low price environment as we manage to keep the cost of production low.”

The structure of Australia’s economy changed; while some industries have fallen, others have risen to replace them.

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Australia smoothened the transition to open markets by retraining workers. The government gained new sources of revenue to replace tariff income that was lost.

“We looked to competition policy, exchange rate reform, barriers to entry to the workforce for women – we now have full women participation,” said Huggins.

But he stressed the importance of building consensus to ensure reforms succeed.
 
“We were only able to do reforms after national consensus between government, business, and the union movement – all key players were on the same page.”  (Colombo/January 20, 2016)
 

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