Sri Lanka free trade agreements generate three times more exports than imports

ECONOMYNEXT – Several free trade deals with Asia and Pacific has generated sharply more exports than imports in the first six months of 2020, with the Indo – Lanka Free Trade Agreement bringing most of the results, official data shows.

In the six months to June 2020 Sri Lanka had exported 93.7 billion rupees under several trade agreements and imported 26.64 billion rupees of goods or three and a half times the imports.

One Way Street?

Sri Lanka had exported 52.3 billion rupees of goods or 239 percent of imports of 21.8 billion rupees to India via 4,883 goods under concessions, data from the finance ministry showed.

Sri Lanka has a trade deficit with India, with most of the imports coming from heavily taxed items such as cars, which are not included in the Indo – Lanka Free Trade deal.

But the trade deficit has been used by Mercantilists to discredit free trade deals.

Current Account and trade account deficits are an outcome of a savings-investment gap where the government borrows abroad to finance deficits or foreign direct investment comes in or expatriate savings in the form of remittances come in to create import demand when spent within the economy.

Sri Lanka had exported 7.46 billion rupees of goods to Pakistan under a free trade deal, or more than five times the imports of 1.33 billion rupees.

A South Asia Free Trade Agreement (SAFTA) had generated 2.72 billion rupees of exports or 381 percent of the imports of 715 million rupees.

An Asia – Pacific Trade Agreement (APTA) had generated over 10 times the imports with 28.5 billion rupees of exports and 715 million rupees of imports.





It is not clear what role import controls, imposed in April 2020, played in the trade.

But exports to India had grown rapidly under the free trade agreement with the country becoming the third largest export destination after the UK.

In the first eight months of 2020, India had bought 396 million dollars of Sri Lankan goods, (about 73 billion rupees), behind UK’s 552 million dollars.

In 2019, India had bought 768 million US dollars of goods, behind UK’s 998 million dollars and US’s 3.14 billion dollars.

Items under Indo Lanka concessions had generated more exports than imports consistently, though Mercantilists (crony-capitalists) who want to force-sell overpriced goods to consumers cornered by import duties had opposed it and funded a campaign against free trade.

A budget for 2021 had revised duties of a number of items, which may benefit the country, though over 2,500 items remain under very high protectionist duties.


Sri Lanka publishes trade taxes for import substitution economy, new duty list

The Indo-Lanka Fee Trade Agreement was the brainchild of Saman Kelegama, one of the top economists produced by South Asia.

He was attacked by Mercantilists, despite Sri Lanka having a large negative list (items which are not given tariff concessions) than India. While India had 429 tariff lines under a negative list Sri Lanka had 1,180 items under a negative list.

The Institute of Policy Studies, a think tank he used to head had shown that the Indo Lanka Free Trade Deal had consistently brought in more exports than imports.

However trade deficits, deficits of with individual countries current account deficits are also neither neither good nor bad, but is a consequence of having a savings – investment gap.

Remittances (foreign savings of expatriate workers) and tourism recoipts, triggers a trade deficit as the recipients spend the money, while government foreign borrowings for deficit financing and foreign direct investment will trigger a current account deficit.

Imports are vital to keep economies ticking, generate revenue for public services (exports are postponed consumption) keep monopolies in check, get people out of poverty by lowering the cost of goods and services, and make economies competitive and efficient.

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Sri Lanka imports from India mostly outside free trade deal, 70-pct of exports from FTA

Related Link

India-Sri Lanka Free Trade Agreement: Sri Lanka Reaping the Benefits from Preferential Trade

Interest of the dealers

Before Adam Smith helped educate people on economics, Mercantilist exploitation was the driving philosophy of business in most of the world, with corporations such as the Dutch East India Company and British East India Company playing a key role.

He had warned that the public can be easily duped into believing that extra profits of businesses were in the country’s or public’s interest.

But the general public, especially low income earners, who pay the highest price for restricted competition, are still deceived in the 20th century.

“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,” explained Smith in Wealth of Nations.

“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.

“The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.

“It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.” (Colombo/Nov25/2020)

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  1. While it is true that the public suffers if the imports are highly taxed, the successive Governments have not followed an export oriented industrial policy with the notable exception of the garment industry. This has led to poor quality of economic development in the country, resulting in low wages – not having high value added export industries as well as persistent deficits in balance of trade. These deficits have lead to impoverishment of the country. The value external of the SL rupee has plummeted over the last 40 years.

  2. Glad to see hard core evidence stand as proof of effectiveness of sound policy options available for Sri Lanka. My enquiry and research, as ex-Director – Industry Trade and Technology in the then Ministry of Finance & Planning, always revealed that the vast Indian market is a gold-mine for Sri Lanka. But, the stronger mercantilist ghosts had the day.

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