Trump and free trade

When President Donald Trump arrived in the snow-sodden Swiss resort of Davos, many were prepared for him to direct further assaults on globalisation but the opposite happened with the global elite invited to invest in the US and Trump even going so far as to indicate that he would be willing to revisit the Trans-Pacific Partnership (TPP) deal provided it was renegotiated on different terms. Globalisation, it seems, has won for now.

Last week Sri Lanka entered into a Free Trade Agreement (FTA) with Singapore, which was the first time in a decade it had signed a bilateral trade deal. The agreement was also praised for its inclusion of services, another first for Sri Lanka, and opening doors for ecommerce. The deal guarantees zero tariffs on 80% of product categories for 15 years, a move that is expected to bring $ 10 million in tariff savings for Singapore annually and allow its companies to bid for Sri Lankan Government procurement tenders.

It is less clear how the FTA will benefit Sri Lanka, which has a considerably smaller economy and a much smaller export basket. However, as even Trump has conceded, globalisation is a worldwide club that all countries aspire to join. However, opening doors to trade has to go further than inking FTAs and domestic policy has to match with stronger regulations, support and consistent policymaking - all elements Sri Lankan governments have traditionally struggled with, sometimes for decades.   

FTAs have a tendency to focus solely on tariff-related barriers at the border of the importing country while ignoring the numerous other obstructions that hinder export growth, and if Sri Lanka’s exports are to see a significant improvement, companies need to build the capacity and competitiveness of their exports.

While diversifying a country’s products and markets is a solution that has been touted like a mantra, exactly how said diversification must be carried out should be examined. Another strategy that has been suggested is that barriers that prevent certain sectors’ exports from doing better need to be removed in order for the sectors in question to take off.

Trade barriers are anything beyond the control of the company that undermines its export competitiveness. If Sri Lanka’s companies are lazy, if they’re not innovative, if they’re not improving their processes, if they’re not investing in their skills and quality, that’s a problem nobody can address. But if companies are doing all of that and there are still factors beyond their control, then that affects their competitiveness.

Competitiveness is determined by price, quality, quantity and timeliness of delivery.

There can be lots of barriers that make companies non-competitive. It can be institutional inefficiencies, it can be the more macroeconomic environment - tax policy, infrastructure, lack of information, rules and regulations, complying with various government requirements - all of this can affect the competitiveness of markets. Barriers – which can be anything from taxes and red tape to corruption – can occur at different stages of the export process.

The Government has been working towards introducing measures to reduce these barriers but few would disagree that efforts need to be faster. Anti-dumping legislation, which has been under discussion for over two years and should have been passed before the FTA was signed, is still before Parliament. This is just one example of how transparency and regulations need to be improved. Trade agreements are fundamentally about market access. But market access does not necessarily translate into market success.