ECONOMYNEXT – Using free trade agreements as the key tool of reform in a multi-party political system is a bold move, an Australian expert said, while a local economist too pushed for widespread liberalisation at a roundtable discussion held last week.
"FTAs are not a quick fix," Elizabeth Ward, Chief Negotiator for Australia in its FTA with Hong Kong said at a discussion at Lakshman Kadirgamar Institute, a Colombo-based think tank.
"Unless you’re a one party government, using FTAs to do reforms will be hard. It’s a courageous thing to do," she said.
Sri Lanka has run into stiff resistance on FTAs from opposition parties and their affiliated special interest groups and activists, who have benefitted from restricting consumer freedoms for decades.
After Sri Lanka liberalised trade in 1977 from a closed economy, protectionism has crept back in by the 2000s, according to the International Monetary Fund (IMF).
The International Monetary Fund has said that so-called para tariffs in Sri Lanka have effectively doubled protection on goods and services.
Protectionism is granted for effective lobbying by a few, and not to further freedoms of the poor and bring prosperity to all citizens. Import tariffs feed corporate greed by allowing producers to sell goods at artificially high prices by eliminating competition with the help of the coercive power of the state.
Ward said as long as the government doesn’t communicate benefits of FTAs properly, groups will be able to manipulate public sentiment.
She said Sri Lanka should set up a trade policy which has bipartisan support, so that changes in government do not sabotage liberalisation or FTA negotiation processes.
University of Colombo Economics Department Professor Sirimal Abeyratne said that widespread trade reforms should be done before FTA negotiations, as using FTAs for reforms is inviting outsiders to fix local problems.
"Opening the economy and cleaning up internal problems should come first," he said.
"We shouldn’t ask outsiders to come in and clean our house. We should clean the house and then invite them for dinner."
"FTAs should come. I have no disagreement with FTAs, but if we don’t have a fairly open trade regime, even FTAs would not bring about anticipated positive outcome."
He said Sri Lanka has to improve its investment climate first.
He also said if Sri Lanka maintains protection against the rest of the world and opens up only to a few countries, natural trade flows will be affected.
"If we have FTAs in this context with a few countries, then distortions are going to be bigger," he said.
"We’re not in for fair trade. We’re keeping protection against others, and opening for a few. Then fundamental flows are disrupted. There should be natural trade flows." (Colombo/Sept11/2018)