Sri Lanka’s COYLE calls for protection, Bhumiputera privileges, foreign investment controls

ECONOMYNEXT – Sri Lanka’s Chamber of Young Lankan Entrepreneurs (COYLE) has called for import duty protection to make goods more expensive for the public, controls on foreigners doing business in the country and Malaysia-style Bhumiputera privileges for themselves.

The call came as Sri Lanka’s Ceylon Chamber of Commerce, the country’s largest business chamber said it had no objection to giving trade freedoms to ordinary Sri Lankans.

COYLE said the Ceylon Chamber had many foreign members.

Samantha Kumarasinghe, of Natures’ Secrets, a cosmetics firm said COYLE had written to all political parties contesting in upcoming polls and said that during the last 15 years many Asian countries had developed by supporting domestic companies and bringing foreign technology.

Selling National Assets

"It was not done by selling assets or natural resources to foreigners in recent history," Kumarasinghe told reporters. "It may have happened in the past but we have said clearly in these letters that it is not happening now."

He said the COYLE was opposed to a planned Comprehensive Economic Partnership Agreement with India as businessmen had not benefitted from an existing free trade deal with India.

COYLE expressed fears that a billion US dollar Indian company will come in, dump their products, kill local producers and then raise prices later.

However it was not clear how that company will retain its market share after all local companies are killed, since in a free trade regime, some other company in India or any other nation can grab its business, if prices are artificially raised.

Kumarasinghe said Sri Lanka needed anti-dumping laws as some countries were giving tax payer money to export milk below cost.

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At the moment global commodity prices ranging from oil to milk to sugar are crashing as the US dollar strengthens and New Zealand farmers are asking auctions to be halted.

Free traders say anti-dumping laws were devised by Western economic nationalists after ordinary people in those countries saw through the ruse of simple import duties as a device to exploit them and forced protectionist taxes to be reduced.

Vietnam Policy

Kumarasinghe said many foreigners were coming to Sri Lanka and doing business under cover of a 2002 gazette, incorporating a 100 percent foreign owned company to engage in retailing or services which did not set a minimum investment level. Foreigners were also given visas to stay.

"This is a mistake we want this corrected," Kumarasinghe said. "Many Indian, Chinese and Pakistan restaurants are operating under this rule."

"I am doing business in Bangladesh and I am soon starting a business in Vietnam and they have more regulations and controls.

"If this country starts to fill up with foreigners – all assets – even retail trade can be done by foreigners. However much this country progresses in the business world, the ownership will be with foreigners. It will go out of the hands our people."

Rohitha Silva, another COYLE member said though there was a requirement for a million dollars deposit to engage in retail businesses there was no time limit to bring in the money.

"One million is too little, it has to be increased to 50 million dollars or a 100 million dollars," he said.

"They can bring their own staff, and it will be their staff, their own profits. There is nothing called Sri Lanka’s.

Kumarasinghe said he was putting up the factory in Vietnam to get easier access to raw materials and export to other countries.

He said Vietnam had ‘strict rules’ such as requiring investments to be brought into the country within three months.

In Vietnam however, he was allowed to own 100 percent of the company. He would also be able to take profits out and planned to bring 100 percent of the profits to Sri Lanka.

Asked whether he aware that a domestic trading license could be obtained by a foreign invested company in Vietnam, he said he was not aware.

Under ASEAN free trade rules which required protection for businesses to be slashed, Vietnamese already enjoy trade freedoms unimaginable to people in Sri Lanka or India.

As a country with a socialist outlook Vietnam quickly recognized the advantage for workers with free trade, which even Karl Marx aknowledged in the 19th century despite his dislike for capitalist entrepreneurs. Taxes on imported foods in particular, are the most damaging as they hit the poor in the stomach, though people can live without industrial goods.

"To burden foreign corn with protective duties is infamous, it is to speculate on the hunger of the people," Marx said in 1848.

"In a word, the free trade system hastens the Social Revolution. In this revolutionary sense alone, gentlemen, I am in favour of free trade."

The plummeting poverty and rising living standards over the last decade in Vietnam did not just from jobs, but because their salaries buy more goods, with lower levels of protection.

Prices for anything from Cheese to beer in Vietnam could cause a heart attack in some Sri Lankans even before they are consumed or even other items found in foreign retail shops like AEON, according to analysts who study Vietnam closely.

Economists say companies setting up shop in Vietnam would have even greater advantages since the country is to sign a Trans Pacific Partnership (TPP), which will create an even freer trading zone covering a number of countries covering East Asia, Latin America and North America.

Mercantilist Profiteering

Even before Marx – whose philosophy may have helped Vietnam cut duties easily – Adam Smith had warned about the propensity of businessmen to control trade and earn unjust profits with the help of the government, in his book the Wealth of the Nations.

Not all businesses are run by true entrepreneurs or capitalists who are willing to allow customers to choose in free exchange for mutual benefit. Some are in fact Mercantilists who try to control the freedom of ordinary folk or get extra profits through the use of state power, rather than engage in free exchange.

In this century such Mercantilist businesses are called ‘crony-capitalists’.

"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," pointed out Smith.

"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."

Businessmen Smith pointed, out are used to developing strategy and making plans, and are therefore skilled at putting their interests disguised as the interest of a public who are generally good hearted and generous, but may not really know what is in their own interest.

"Their (businesmen’s) superiority over the country gentleman is not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his," Smith said.

"It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction that their interest, and not his, was the interest of the public."

Bhumputera

COYLE member Nayana Dehigama from EPIC Technology, had a company in Malaysia, which had beaten global competition to supply not just private firms but even the Malaysian government.

He said there were many controls to help domestic firms in that country.

"It was also a problem for us sometimes," he explained. "There is a policy called Bhumiputra. Only a company with at least one Bhumiputra director to get a contract. We must praised those policies that Malaysia has implemented."

Reporters however pointed out that it would be dangerous to implement discriminatory Bhumiputera (sons of the soil) policies in Sri Lanka which was just emerging from a long drawn out ethnic war.

Bhumiputera laws it was pointed out were enacted to give an advantage to mainly Malays who were mainly Muslims over Chinese and Malaysians on Indian and Sri Lankan origin including Tamil Hindus and Sinhalese Buddhists who had migrated there after independence from British rule.

"Now there are Chinese and Tamil Bhumiputras," Dehigama claimed.

In 1969, a little over a decade after independence from Britain as much as 2,000 Chinese were believed to have been slaughtered in Malaysia in race riots. Some of the nationalists who promoted raced riots in 1983 also pointed to Malaysia as an example.

Political analysts say the nationalist concept that a country ‘belonged’ to a certain ethno-religious polity emerged in the West and gained ground in Eastern Europe especially after the break-up of the Austro-Hungarian Empire and spread to Asia with the end of the British Empire.

Article 153 of Malaysia’s constitution critics have said, violated the basic principle of constitutionalism, a tool that was devised originally in the West provide absolute guarantees of equality to all people and restrain the power of the state and increase peoples’ freedoms.

Analysts say just a few centuries ago Malaysia was in fact part of a Hindu-Buddhist polity the origins of which can be traced to colonial North East Indian empires that stretched as far as present day Vietnam and Indonesia.

Lalith Kahahatapitiya, another COYLE member, said he favoured policies adopted in the Middle East.

He said free zones had started in UAE, ten years before Sri Lanka.

"There is only sand there. There is also no people," he said. "Because policies are right, because facilities are there, massive investments have taken place. In Sharjah in one zone there are 7,000 companies. Compare this with 100 in Katunayake."

"We have to benchmark and learn from these countries."

He said foreigners were allowed only 49 percent of a company in the UAE.

Dehigama said he was not completely against foreigners as he also had a company in which 49 percent was owned by a Malaysian partner.

When questioned by reporters Kahatapitya said he believed that in Dubai import duties averaged 5 percent.

Foreign guest workers also outnumber residents about 10 to 01.

Kahatapitiya claimed that Sri Lanka will run out of foreign exchange if foreigners are allowed to do business and take money out.

However analysts have pointed out that Sri Lanka’s foreign exchange troubles came only after 1951 with the establishment of a money printing central bank it tried to simultaneously target the interest rate and exchange rate which is impossible in practice without exchange control, a problem economists call the impossible trinity of monetary policy objectives.

Reforms to the monetary authority are needed to fix the problem.

Even now the rupee is coming under pressure due to money being printed to finance state expenditure and keep interest rates down.

Infant Industry

Kahatapitiya said the CEPA agreement was negotiated in secret by a few officials and they wanted it made public and debated in parliament before signature.

Kahatapiitya said his company was capable of exporting and had supplied components to a Nokia pant in India.

"But we are saying don’t open the stage before the dancers are ready," he said. "There is a long way for local entrepreneurs to grow."

COYLE members said they opposed reductions of import duties ‘without proper controls’ in place.

Free traders however say import duties oppress a large majority of the public, in a regressive way, hitting the poor the hardest and giving easy profits to producers.

Raising taxes on cosmetics for example may not really hurt a lady living in Colombo 7, but it hurts a girl working in a garment factory to a greater degree because her income is lower.

Import duties and ‘infant industry protection’ was also devised by Westerners.

Protection for industries was advocated first by Alexander Hamilton in the US and brought to Europe by Frederick List, a German. So-called ‘German historical economists’ later extended it to food and the country eventually ended up with Nazism.

Government intervention in markets and controlling the freedom of ordinary consumers is the first step in path to ultimate minority discrimination, economic philosophers who closely watched events in countries like Germany have pointed.

"The consumers are the masters, to whose whims the entrepreneurs and the capitalists must adjust their investments and methods of production,"

"In a world in which people have grasped the meaning of a market society, and therefore advocate a consumer’s policy, there is no legal discrimination against Jews," wrote Ludwig von Mises, an Austrian economic philosopher.

"Whoever dislikes the Jews may in such a world avoid patronizing Jewish shopkeepers, doctors, and lawyers.

"On the other hand, in a world of interventionism only a miracle can in the long run hinder legal discrimination against Jews.

"The policy of protecting the less efficient domestic producer against the more efficient foreign producer, the artisan against the manufacturer, and the small shop against the department store and the chain stores would be incomplete if it did not protect the ‘Aryan’ against the Jew." (Colombo/Aug07/2015 – Update II)

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