Sri Lanka’s ceramic firms snarled in regulations; calls for more protection

ECONOMYNEXT – Sri Lanka’s ceramic tile makers are snarled in a plethora mining and transport regulations blocking access to raw materials and increasing costs, officials said amid a call for greater protection.

Sri Lanka’s ceramic firms are struggling to get raw materials, with a plethora of mining and transport regulations making it difficult to access raw materials.

Regulatory Muddle

A company trying to mine clay has to go through 16 different agencies, making it extremely difficult for ceramic firms even to mine their own land, industry officials said.

Owners of clay deposits were also barred in practice from digging deeper by authorities, though there appeared to be no regulations against it.

Aravinda Perera, a board member of the Sri Lanka Ceramic and Glass Council, an industry body, said companies have resorted to buying raw materials from third parties due the regulatory burden.

For sanitary ware, clay is imported. There are no import taxes on the material, at the moment, he said.

There were also long processes to get permission to transport, for both clay and silica, which is adding more regulatory burdens, ceramic and glass manufacturers told reporters.

Again, firms were relying on third parties, which were adding to costs and making Sri Lankan products less competitive in world markets.

Observers say it is better to develop a simplified system of clear regulation so that the companies themselves can mine their own land since it will be easier to monitor and enforce the rules when fewer players are involved.





Protectionist Taxes

Meanwhile, the industry called for a hike in protectionist Hamilton-List tariffs to give them more profits and get market share from importers.

Higher import duties to give bigger profits to local firms were started in the US by Alexander Hamilton.

It was taken to Europe by Friedrich List, a German, who was part of a school of thought called the German Historical Economics, which paved the way for more state interventions and nationalism. Germany eventually ended up in National socialism (Nazism).

Philosophers had pointed out that a process which started as discrimination against foreigners naturally ended with discrimination against minorities within a country.

Sri Lanka already has an import duty of 30 percent or a cess 100 rupees per square metre, whichever is higher. The cess had been reduced from 200 rupees. Imports are also charged port and airport levy on top of freight.

Reporters pointed out that high costs of toilet fittings and tiles was making it difficult for low income earners to build houses, with the bathroom now becoming the costliest room of a house.

Import taxes force a homeless person to borrow more than otherwise, and pay more interest reducing his disposal income for decades.

Industry officials said they realized that people wanted to move away from squatting pans to proper toilets. However, squatting pans are also taxed.

Competitiveness of the entire export industry in the country and services ranging from hotels to information technology was also undermined by high building costs, reporters pointed out.

Protection given to steel markers in Sri Lanka was pushing up construction costs across the board, making Sri Lanka uncompetitive.

Backfired Initiative

The Ceramics and Glass Council was set up with support from the US Agency for International Development’s ‘The Competitiveness Initiative’, to carry out a ‘Unified Strategy for Industry-wide competitiveness’.

However, the body had now become one of Sri Lanka’s strongest protectionist lobbies, undermining the competiveness of an entire nation by pushing up building costs.

Sunil Wijesinha, a former head of Dankotuwa Porcelain and an expert in Japanese management techniques, helped bring the industry together in a bid to boost collaboration and lower cost through initiatives like joint procurement.

Even Board of Investment-approved export firms, which were allowed to import construction material duty free for factories and hotels, were forced to buy ceramic items at artificially high prices through a so-called ‘negative list’.

The Ceramics Council called for a renewal of the negative list.

Sanjeewa Narangoda, from Fernwood Porcelain claimed that some imported tableware had poisonous substances like cadmium. Badly fired products could also leech lead from the glaze, analysts say. He called for more stringent regulations and quality controls at the import.

Spot checks carried out by Sri Lanka Standards, was not enough, he said.

Reporters pointed that the import of lower quality tiles or other products was encouraged by high import duties. Sri Lankan firms also sell ‘factory rejects’ though making public calls for quality.

Economic analysts, however, say selling factory rejects at a lower price is a completely capitalist and free market idea, unless they are incorrectly fired and leeching led.

They say 70 years after independence from British rule, a buyer who has earned their salary through hard work should have the freedom to decide how to spend their money and whether they want to buy a higher or lower quality product or a factory reject as long as they knows what they are buying.  (Colombo/Feb16/2019 – Update II – SB)

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