ECONOMYNEXT- Sri Lanka would face reputational damage and outward flight of investments if it leaves the Singapore free trade agreement (FTA), an Australian trade expert said, urging the government to communicate benefits to the public more effectively.
"Can you roll back an FTA? The damage to Sri Lanka’s reputation would be so bad in international arena," Elizabeth Ward, an Australian Department of Foreign Affairs and Trade official who is negotiating a free trade deal with Hong Kong said in Colombo this week.
She was speaking at an event organized by the Lakshman Kadiragamar Institute and the Asia Foundation.
Ward was responding to a question on what would happen if Sri Lanka exited the Sri Lanka-Singapore FTA, similar to how protectionist US President Donald Trump is trying to change or drop out of trade deals. In the US major business chambers are asking Trump not to exit free trade.
She said the government has to communicate daily that there are problems with protectionism and there is a solution.
"If the government is not out there saying we’re going to do this deal, and this is why it’s a good deal for Sri Lanka, then there will be groups of people out there saying something else," Ward said.
Free trade benefits the poor more than the rich as it stops Mercantilists businesses from exploiting people with higher than world prices hiding under protective taxes.
But in Sri Lanka some businessmen and some trade unions have strong political connections and funding power.
A soft-pegged central bank that follows inconsistent policy and prints money to depreciate the currency has also led to businessmen justifying ‘import substitution’ to ‘save foreign exchange’.
Local opposition legislator and activists are criticizing the newly signed Singapore deal, claiming Singaporean professionals would come and work in Sri Lanka, despite there being no liberalization of so-called Mode 4 services (movement of natural persons).
The deal only allows Singapore businesses who are investing in Sri Lanka to bring in some staff.
Critics also falsely claim that Sri Lanka would become a dumping ground for Singaporean garbage, despite their being no relaxation of environmental requirements in a classic ‘straw man’ strategy, analysts say.
Ward said that if Sri Lanka leaves an FTA, it would affect the country’s current plans to sign more FTAs.
"You wouldn’t be able to do an FTA for a long time," she said.
"There would be capital flight from the country and ramifications on the services coming to this country."
She said the Singapore-Sri Lanka FTA is a good agreement.
Ward said Australia would not have gone for such an agreement, as it looks for even more comprehensive trade ties with FTAs.
"But it’s good for Sri Lanka. It’s a first time footprint for Sri Lanka in all sorts of ways for all parts of the economy," she said.
Ward said the Sri Lankan government has to communicate the benefits of an FTA to the people more effectively, and it could follow the example of Australia.
"One of the things we’ve learned is that you need to have champions in community who can explain value of liberalizing trade to the community in the terms of the community, or it will be hard to maintain dialogue," she said.
"It’s about your capacity to reduce your own tariff that’s going to deliver biggest bang for your economy."
Meanwhile Ward said Australia did not fear its small manufacturing sector losing business and dying out when it started liberalizing trade.
“The effort was on retraining and upskilling so that Australians who were left behind after manufacturing sector left were able to—for example, when a car manufacturer closed—finding new mechanisms for these people to work with Boeing for example as designers, etcetera,” she said.
Sri Lanka too has set up a trade adjustment package and is attempting to upskill workers.
Ward said Sri Lanka should set up a bipartisan or non-partisan policy on trade, so that when governments change, the liberalisation agenda or negotiations for FTAs would not be sabotaged. (Colombo/Sept06/2018)