AITP study claims Sri Lanka’s approach towards FTAs hinders economic growth

Former DG Commerce, P.D. Fernando

Lasantha Wickramasinghe

The Association of Information Technology Professionals (AITP) has claimed that a self-study has revealed that Sri Lanka’s approach towards Free Trade Agreements (FTAs) hinders economic growth. 

AITP said it has been able to successfully carry out scientific assessments of the economic impact of proposed FTAs.

The assessments are done for the four proposed FTAs namely, ETCA with India, Singapore-Sri Lanka FTA, Thailand-Sri Lanka FTA, and China-Sri Lanka FTA. 

The methodology used; Computable General Equilibrium modelling is considered to be the most comprehensive method for evaluating FTAs across the globe. The results have been obtained with respect to Gross Domestic Production, Economic Welfare, Trade Balance and Industry Output, etc. AITP officially presented the results of the study to the Secretary of Ministry of Development Strategies and International Trade and the other responsible officials. 

AITP presented the results to the stakeholders of FTAs including trade chambers and professional bodies on 2 July at Organisation of Professional Associations. 

Addressing the occasion, the president of AITP, engineer, Kapila Perera mentioned that this study fulfils a needy requirement of the country by setting up the stage for a scientific approach to quantify the economic impact of the proposed Free Trade Agreements. 

Presenting the study, the secretary of AITP, Lasantha Wickramasinghe explained that the knowledge of how to evaluate proposed Free Trade Agreements is widely available, even though the Government of Sri Lanka is not following any of those. In fact, he went on to say that the theory the present Government is based on, that is, any preferential trade agreement would benefit to a country, was proved to be wrong in the 1950s by the famous economist Jacob Viner in his pioneering academic study. Viner proved that a preferential agreement may either be beneficial or harmful to the economic welfare of a society. That is why proper studies should be carried out before commencing negotiations for free trade agreements. Unfortunately, the so-called few economists in Sri Lanka who advocate free trade agreements were unaware of this fundamental theory of liberal economics.

Addressing the gathering former Director General of Commerce, P.D. Fernando endorsed the study done by AITP, saying that this is how the country should systematically address a trade-related issue. He mentioned that, in Sri Lanka, he has not seen this type of a proper approach to evaluate a proposed FTA before, though the rest of the world widely backs their decisions by these types of studies.

AITP has conducted the study for the liberalisation of goods sector by the above-mentioned proposed FTAs. All commodities are aggregated into 18 sectors for the study purpose. Two scenarios of liberalisation for each agreement is considered. First, a full liberalised scenario where tariffs are removed for all commodities. Second, a protected scenario where tariffs are removed except for sensitive sectors; paddy rice, processed rice vegetables, fruits and nuts, livestock and meat products, fishing, petroleum and coal products. Following are the summarised results when all four agreements are in operation:

1.  The trade deficit of Sri Lanka will be further deteriorated by $ 370 million in the full liberalisation scenario and by $ 276 million in the protected scenario.

2.  Sri Lanka’s welfare will be reduced by nearly $ 170 million in both scenarios.

3.  All the partners of the proposed agreements, India, China, Thailand and Singapore gain in terms of the economic welfare for the same policy.

4.  Sir Lanka is the biggest loser and India is the biggest winner.

5.  GDP of Sri Lanka is reduced by 1.14% in the full liberalised scenario, and by 0.54% in the protected scenario

6.  GDP of India, China, Thailand, and Singapore improves slightly.