Top economists say import restrictions at odds with WTO rules, hurts welfare of Lankans

A panel of eminent economists last week urged that the Government take credible and decisive action to carry out immediate trade reforms. 

Advocata Academic Chair Dr. Sarath Rajapatirana emphasised that “countries that have grown very fast, especially in East Asia, have understood the importance of trade reform,” further adding that the first step of such a reform agenda should be to simplify the taxes at the border by removing the so-called ‘para tariffs’ that Sri Lanka levies beyond the regular import duties and to introduce a single uniform tariff for all imports.

Sri Lanka’s trade as a percentage of GDP has been low when compared to neighbouring countries like Thailand and Vietnam, indicating that we have not truly exploited our opportunity to trade. Research shows Sri Lanka has high tariff rates compared to other developing countries, and while tariffs play a role in protecting domestic infant industries, if tariffs are too high, they can become anticompetitive. Recent import restrictions, such as banning a wide range of consumer goods since the beginning of April 2020, have further worsened Sri Lanka’s growth potential and put Sri Lanka at odds with WTO rules. 

International Trade Economist and former Sri Lankan Ambassador to the WTO Dr. Dayaratna Silva elaborated on the severe consequences for Sri Lanka’s economy if such import restrictions continue. He explained that there is a possibility of tariff retaliation. “Prolonged import controls are not consistent with the WTO, and it is high time such is readdressed,” he went on to say. 

Such forms of retaliation could have a significant negative effect on our imports, thereby worsening our existing foreign exchange and balance of payment crisis, another key long-term concern for the economy. “My worry is the long-term industrial development of the country because of these restrictions. Resources are inefficiently being allocated as a result,” further commented Dr. Dayartna Silva. 

Delegation of the European Union to Sri Lanka and the Maldives Ambassador Denis Chaibi commented on the importance of adhering to global rules on trade. He commented that “the European Union tries to have a rule-based order. When a country does not follow those rules, the rule-based structure is affected. Without trade, for a small country like Sri Lanka, the prospect is not good”. His comments brought into perspective the wider ramifications of import restrictions on Sri Lanka’s multilateral relations. 

ANU Arndt-Corden Department of Economics Emeritus Professor of Economics Prema-chandra Athukorala, who is an authority on global production networks, explained that “no country in the world now produces goods from the beginning to end within their geographic boundaries. Countries specialise in different components within the production value chain. Made in the country X label has become invalid. A country has to identify comparative advantage within the production network,” thereby elaborating on how Sri Lanka cannot achieve economic growth without joining global production networks through trade. 

He concluded by commenting on recent developments of import controls by saying that “selective intervention, without disturbing the incentive structure of the country as a policy, is going to be a recipe for disaster”.

These views were expressed at the event ‘Deep Dive’ organised by the Advocata Institute, which aims to bring focus to Sri Lanka’s biggest policy challenges. The event was moderated by Advocata Institute Research Manager Aneetha Warusavitarana. As a precursor to the event, Advocata released a primer on debt sustainability with the aim of helping Sri Lankans understand the topic. 

The recording of the discussion can be found at Advocata Institute’s YouTube channel (https://www.youtube.com/watch?v=8M981XmlbAs/) to get a comprehensive understanding of trade and how it affects Sri Lanka’s economy and the livelihoods of all Sri Lankans. The event was organised in partnership with the European Union.