Foreign trade door is a revolving one

Sri Lanka, once recognised as a very open economy, has seen trade dynamics shift since 2004. 

We are now reaping the repercussions of excessive protectionism, which supported the narrative of ‘self-sufficiency’ when the globe actually moved away from self-sufficiency and toward interdependence.

As to the Fraser Institute's Economic Freedom of the World Index, Sri Lanka has been ranked at the 138th position out of 165 countries based on our ‘Freedom to Trade Internationally’. 

Despite assertions that Sri Lanka has an open economy, evidence shows otherwise. We are at one of our lowest points in terms of transparency, and much like a revolving door, we cannot close off imports and expect others to open up to our exports.

Since around 2005, Sri Lankan trade policy has been marked by a protectionist stance. The Government was involved in economic decision-making, and import substitution strategies were considerably more important. 

According to the World Trade Organisation's Trade Policy Review of Sri Lanka in 2010, average tariff protection increased. Indeed, frequent and ad hoc modifications in tariff structure can be observed. The trend in protectionist measures resulted in a drop in exports. 

A number of monetary and regulatory impediments are currently putting pressure on Sri Lankan firms and decreasing the country's competitiveness in international commerce. Complex tariff arrangements, quotas, import limitations, high charges or levies, and export and import licenses are examples of such impediments. 

Throughout the trade process, both exporters and importers face ineffective, unpredictable, and less transparent procedures. This is primarily due to inadequate inter-agency coordination and excessive bureaucracy among Government employees.

Furthermore, current firms confront major service difficulties in the distribution and financial services channels, which slows down the final stage of clearance. In addition, because of their limited technical and financial resources, technological hurdles have a negative influence on the export competitiveness of local firms. 

Aside from market limits, price controls are a substantial impediment since they are impracticable in a world of dynamic markets and fluctuating currencies.

The country has suffered a lot of negative consequences as a result of trade restrictions over the years. Net economic losses in the broader economy have increased as a result of this restriction on competition. 

Export and import quantities have decreased, which has harmed domestic output. Consumers are left with a limited selection of products while prices rise. Trade restrictions have an influence on the macro-economy by reducing job prospects, owing to deterrents to domestic and international investment.

Land, labour, and capital constraints have pushed investors to shift from competitive export industries to protected industries and inefficient import substitution. The reduction in economic activity has exacerbated people's economic troubles.

Trade restrictions have put a considerable number of firms in jeopardy. From street sellers to small and medium-sized organisations that rely on imported raw materials to the major garment and construction industries, all businesses are struggling to stay in business. 

The path to increased trade freedom is to reformulate existing monetary policies and laws to increase trade freedom and create more chances for local businesses to engage in trade. Improving import restrictions and lowering import and export taxes or levies would also be critical in the current environment.

Furthermore, if possible, needless Government red tape or bureaucracy should be removed to make customs processes more simple, effective, clear, predictable, and timely. This will help to reduce border processing times and make commodities flow cheaper, faster, and more efficient. 

Making way for increased trade freedom – the ability to freely interchange products and services gives more opportunity for Sri Lankans to achieve greater economic prosperity. It brings up several opportunities for competition, innovation, and economies of scale. 

Sri Lankan citizens and businesses will benefit from cheaper pricing and greater choice as a result of open trade to a great extent. We need to fix this revolving door.