Enter the dragon

Wednesday, 18 September 2013 00:00 -     - {{hitsCtrl.values.hits}}

As the Government bulldozes ahead with plans to establish a Free Trade Agreement (FTA) with China, there are increasing concerns over what effect it will have on local manufacturing industries that will be pitted against the world’s largest factory. Discussions on negative lists are a key point that remains to be resolved, Investment Promotion Minister Lakshman Yapa Abeywardana admitted to the media, adding that the Government was attempting to promote Sri Lanka’s vibrant apparel industry, which is targeting revenue of US$ 4.1 billion in 2013, for preferential tariffs. The Minister is also upbeat on negotiations focusing on getting a range of items with 100% tax exemptions but declined to elaborate on what the goods were. Abeywardana also expressed hope that the FTA would be signed ahead of a landmark Commonwealth Heads of Government Meeting (CHOGM), which will be held in mid-November. CHOGM, which is the highest decision making body of the Commonwealth, will be chaired by Sri Lanka and will hold a business council on the sidelines to attract US$ 1 billion in investment to the island. China has also been invited to attend CHOGM. Despite the enthusiasm to fast track the FTA, which may be especially effective given that local manufacturers who were vociferous in lobbying against the Comprehensive Economic Partnership Agreement (CEPA) with India have so far been silent, it could well have extremely negative results. Experts have already voiced concern that an FTA would be a massive disadvantage to local manufacturers. Local think tank Institute of Policy Studies (IPS) Executive Director Dr. Saman Kelegama told a gathering of businessmen in Colombo that while Sri Lanka’s exports would benefit from access to China’s emerging middle classes, imports would decimate the fledgling local manufacturers. Dr. Kelegama called for a strong negative list to protect local manufacturers. He pointed out that Chinese imports are far more competitive and would decimate the local manufacturing market. Companies that are now engaged in import substitution products, even those as basic as pens and knickknacks, would find themselves in extremely difficult times. Even India, which has a much stronger manufacturing base than Sri Lanka, has found their toy industry all but destroyed by Chinese imports. Unless special provisions are incorporated into the FTA to provide significant protection, Sri Lanka’s local businesses would face strong negative impacts, he has warned. These are extremely valid concerns given that Sri Lanka’s exports have already declined over 4% for the first six months of this year. If domestic industries are hurt, then sustainable development will likely become a mirage for Sri Lanka. Economists are already worried about the trade deficit and have insisted that worker remittances and income from the tourism sector are not adequate to fill the vacuum created by the dearth of manufacture. So far those concerns have fallen on the deaf ears of policymakers, but the Asian Development Bank in a recent study insisted that Asia Pacific countries should increase their manufacturing base to reach developed status. Highlighting Singapore and Malaysian development models, the ADB has called on governments to increase assistance to industries. Sri Lanka, especially, needs to improve its niche, high-end markets and put itself back on the global export map. The absence of a strong negative list in the China FTA, though, would mean a losing battle with the dragon.