Trade in the age of FTAs

Focus has returned to the Sri Lanka-Singapore FTA signed in January with professional organisations once again raising protests over its supposed impact on trade and expectations by the Government to ramp up legal protection ahead of other FTAs with India and China under negotiation. In this context, it is worth looking at the anti-dumping legislation passed by Parliament. 

The anti-dumping legislation has been a long road for Sri Lanka with about 17 years spent on formulating the legal changes. The initiative was finally taken as far as Parliament by the Government, which saw it as a critical need to protect local industries ahead of several Free Trade Agreements (FTAs) and rationalisation of trade tariffs in the pipeline. The first of these FTAs was also signed earlier this year with Singapore, and passing anti-dumping legislation is a key requirement ahead of it becoming effective.  

The two new bills will empower the Director General of Commerce of the Department of Commerce to initiate investigations relating to unfair business practices under the legislative provisions of the Trade Remedy Law and effect additional duties, countervailing duties, and safeguard action against imports which enter the country under unfair business practices. A high-powered committee consisting of senior officials and ministers of relevant line ministries will also be involved in the process. The legislation broadly follows guidelines and recommendations by the World Trade Organisation (WTO). About 76% of WTO members have some form of anti-dumping legislation.

However, in recent months, the US, under President Donald Trump, has led the charge against free trade, calling for stronger measures that go beyond anti-dumping legislation. The raising of steel tariffs, which President Trump signed into law last week, seek to undermine decades of open trade practices and has provoked other countries to hint that they will respond with tit-for-tat measures that could trigger an all-out trade war. 

The difference here is clear. Anti-dumping does not guard against cheap imports which benefit consumers and give them access to goods at a better price. This is the core give-and-take of free trade that countries sometimes find difficult to control, as they have limited control of vast value chains that span the globe. Sri Lanka, being a small island nation that is moreover late to liberalise and for decades has maintained para-tariffs as a way to protect random industries with little logical reasoning, could find this distinction difficult to grapple with. Local businesses that expect anti-dumping laws to help them may find that their assistance is less than initially expected. WTO advocates defined specific criteria to determine when a product is to be considered dumped, allowing for competition at a proactive level. 

Therefore, anti-dumping legislation alone, no matter how powerful and well-meaning, cannot tackle the challenge of liberalisation as a stand-alone measure. It is important for local businesses to be aware of this aspect, and also for the Government to work on improving its overall ease of doing business initiatives. There may be lots of barriers that make companies non-competitive. It may be institutional inefficiencies, it may be the more macroeconomic environment – e.g. tax policy, infrastructure, lack of information, rules and regulations, complying with various Government requirements – all of this can affect competitiveness of markets. This complex set of circumstances, as well as rational diversifying of exports, is all essential to improve Sri Lanka’s limited quota of tradable goods.