COLOMBO (EconomyNext) – A tax arbitraging fish canning factory in Sri Lanka which was set up under the cover of high prices artificially propped up by the state had closed after a series of food import taxes were brought down, a media report said.
Sri Lanka’s Ceylon Today newspaper said Happy Cook Lanka Foods (Pvt) Ltd, a joint venture with state run Ceylon Fisheries Corporation was closed this week.
The firm was started in April 2012. It had 60 employees, the newspaper said. Sri Lanka’s ousted Rajapaksa regime kept import duties high to protect and set up domestic industries which produced goods at higher than world prices.
Canned fish is eaten by some of the poorest in the country, and along with potatoes and onions were used by construction workers to make their staple ‘wadi bath’.
The prices of all such ingredients are kept high by import taxes, creating a dog-eat-dog society where one segment of population preys on the other through high food prices in a bid to achieve autarky or self-sufficiency.
Free trade advocates say such daily paid labourers are among those worst hit when their food freedoms are robbed by landowning farmers or other producers with the help of protectionist taxes imposed by the state.
Protected industries are cost-inefficient, and go through the motions making products to get part of the taxes that would otherwise have gone to the state, by selling goods at near the import duty levied goods price, a process known as tax arbitrage.
Businessmen who own protected industries usually shed crocodile tears about the ‘low quality’ of imported products, as if their fellow man is not qualified to put his own hard earned money where he wants.
Protected industries cannot compete in export market either due high prices, low quality or both and they eat up capital and labour that can be used in competitive domestic production or export industries.
By keeping basic food prices up, protected food sectors can drive wages up and make the entire country export uncompetitive, lower living standards while also increasing mal-nutrition of children of poor people.
Protectionism and self-sufficiency was a part of ‘German Historical Economics’ nationalist ideology which eventually led that country and many other European nations into discriminating against not only foreigners but also their own minorities.