Minister of Development Strategies and International Trade Malik Samarawickrama
- Following are the remarks by Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the Sri Lanka-Singapore Free Trade Agreement (SLSFTA) on 17 July:
Firstly, let me thank the Hon. Members who have made constructive suggestions on this subject during the past few weeks. But at the same time, I am disappointed with the allegations made by some Members of the Opposition as well as some organisations, particularly the GMOA who seem to think they are the experts on every subject. These comments do not have any iota of truth.
It is true that we have had independence for over 70 years, but can we honestly say that our country has gained economic independence? Even after 70 years there are millions of people finding it difficult to place two meals on the tables, who are struggling to educate their children, and those who are looking for decent employment. The inability to attain economic independence is primarily due to petty politics. Whenever a Government tries to do something good for the people and take progressive steps, the Opposition will do their best to prevent such programmes being implemented.
At the same time, we need to change the trade policies that have been followed up to now. Inward looking, protectionist policies have not brought the results that we seek. On the contrary, when we look at our peer countries such as Singapore, Malaysia, Thailand, Vietnam, Taiwan and so on, we see the rapid development that has taken place in those countries by liberalising their trade policies and improving the ease of doing business.
While these countries made trade and investment the centre of their development drive, we didn’t. We now have the chance to reverse that negative trend and try and make up for lost time.
In 2017, Sri Lanka had the highest ever export earnings of 15.15 billion dollars and this year I am confident it will rise further to 17.2 billion dollars. 2017 was also a record year for foreign investment. FDI inflow was a record 1.9 billion dollars last year and I am confident it will rise to around 2.5 billion dollars this year.
However, these are extremely low figures in comparison to some of the other Asian countries that I mentioned before. For example, annual exports in Singapore is 480 billion dollars, in Taiwan it is 340 billion dollars, in Thailand is 254 billion dollars, in Vietnam it is 250 billion dollars, and in Malaysia it is 230 billion dollars. Even Bangladesh, a country that was a much later entrant to the international trade game, is now at 41 billion dollars. Foreign Direct Investment received by these countries were 77 billion dollars to Singapore, 12 billion dollars to Vietnam, nine billion dollars to Taiwan, and five billion dollars to Thailand.
And all these countries focussed on FTAs, trade liberalisation, and attracting foreign investment, to reach this level. All of these countries have been able to grow their economies and bring more good jobs and raise people’s living standards, within a short period of time.
This shows how far behind Sri Lanka is by not thinking new to keep up with our competitors.
Across the world, look at the countries that have successfully breached from low income to upper income – name one country that did it without opening up to international trade and investment? You won’t be able to name even one.
Sri Lanka has a long way to go
What is very clear is that Sri Lanka has a long way to go, and if we concentrate only on our market of 21 million people, we will never be able to achieve the rapid economic development that we need. Our only choice is to integrate with the world markets, and this is one of the primary reasons for the FTAs – to enter into new markets and bring in the investments we need along with new technology and know-how so that we can compete with the best in the world.
I chair the Cabinet Cost of Living Committee and when we talk about the ‘cost of living’ we always tend to think only about how to bring down prices – but remember this is only one side of it – the other side is how to increase people’s incomes so that they can afford a better quality of life. The only way to do that, in this competitive global economy, is to integrate more with world markets.
Naturally, we are mindful of the impacts on the industries present today, but that cannot be our ONLY consideration. Our Government is committed to assisting and improving the local industries. However, assistance does not mean protectionism. Protectionism means inefficiency and higher costs to consumers – to Sri Lankan households. We will assist the local industries to increase efficiency and productivity and help them to be more competitive so that they can compete in the world market. Already we have launched loan schemes and exporter upgrading grant schemes to help SMEs.
We have to also look at those industries that are not even there today and are yet to emerge, with the help of the FTAs. For those who are likely to be affected by FTAs, we are coming up with a comprehensive trade adjustment package which will cover new machinery and technology and skills retraining.
Anyone who says we should be careful before opening up because we might not be able to compete, is doing Sri Lanka a huge injustice. Why should we be scared of competing with the world? Look at some of the exporters we have today – our rubber tyres are used in the world’s top aircrafts, our surgical gloves are used by the world’s best surgeons, our electronic sensors are used in the world’s top car brands, our apparels are worn by the world’s top athletes and major brands are produced in Sri Lanka, and our IT software is used by the world’s leading stock exchanges. We can compete. And our industries are already showing how it’s done.
The Sri Lanka-Singapore FTA provides a binding commitment and framework for bilateral trade and investment, which we did not have earlier. This will encourage much needed investment into our country. It is important to understand that not every FTA is meant to “balance trade between two countries” or “bridge the bilateral trade deficit”.
Sri Lanka has trade surpluses with some countries and deficits with other countries. Sri Lanka would need to sign a range of FTAs aimed at different purposes – some FTAs aimed at boosting exports (to gain new and preferential market access) as well as give domestic producers access to lower cost inputs; while other FTAs are aimed at leveraging on the trade-investment nexus.
Now let me turn to some of the frequent allegations made against the SLSFTA and some of the myths that are being propagated both inside this House and outside.
The first allegation is made is that the signing of this FTA has not received Cabinet approval. Hon. Speaker, for your information, the Cabinet of Ministers was first updated via an Interim Report in August 2017 on the progress, including the areas and extent of liberalisation and the status of the consultative process carried out with stakeholders.
On 21 December 2017, a Cabinet paper was submitted by me containing the draft agreement. Based on that, positive observations were made by His Excellency the President and 14 other Cabinet ministers by 9 January 2018. Taking into account these observations, a revised agreement was submitted to the Cabinet for approval. At the Cabinet meeting of 16 January, Cabinet approved the agreement submitted and granted approval for me to sign it during the visit of the Singapore Prime Minister on 23 January. Furthermore, I would like to inform this House that the agreement came into force on 1 May after the Anti-Dumping and Safeguard Measures Acts were passed in Parliament.
Recently at a press conference Minister S.B. Dissanayake has stated that he is against the FTA. However, he is one of the 14 Cabinet Ministers who have sent in writing that he has no objections to the signing and implementation of the Singapore FTA! His exact words, in the letter signed by him are: “ihatha yojanawa kriyathmaka kereema sambandayen magey virodhathawayak nomatha”
Agreeing in Cabinet then. But playing narrow political games now. This is the hypocrisy of members of the Opposition!
Consultations on FTA
Another argument is that we did this without consultations. I can responsibly state to the members of this House that we frequently kept stakeholders informed of the status of the negotiations and possible commitments that were to be undertaken.
Over the 18 months, about 20 consultation sessions were held with a wide range of stakeholders including business chambers, trade associations, and professional bodies.
Another assertion is that we can never amend the agreement – this is not true.
Article 17.10 of the Agreement provides for amendments to be made to the agreement. Furthermore, under Article 17.1 there is a high-level committee established to monitor, review and supervise the implementation of the Agreement as well as to recommend amendments. The first meeting of this committee will be held within the first year and thereafter at regular intervals and take up issues relating to the agreement that either party would have.
Article 17.12 of the Agreement provides for termination of the agreement by either party by giving notice, and it will be effective one year from the date of notification.
Liberalisation of services
There has been much debate on the liberalisation of services. Let me be very clear – as we have repeated time and again, we are not opening up to any country the independent movement of persons. Under the Singapore FTA, there can be services workers only if they are part of a company here– so it is always linked to investment in Sri Lanka. Even then, we have restricted it to senior management. Such senior managers will initially be issued visa for two years and will get it only for a maximum of five years. The option of renewing this visa is ours.
To be eligible in the first place, that worker should have been employed in the relevant Singaporean company for at least one year and should have five years industry or professional experience. Above all this, our country’s immigration laws will always apply and there is no exemption from that. Look at all the conditions we have built in to this agreement! So for anyone to say we have blindly opened up is irresponsible and is propagating lies.
Advantages to non-nationals
Another argument is that non-nationals of Singapore can take undue advantage of the FTA. This is again a baseless claim. The SLSFTA Singapore defines a ‘National’ as a citizen of Singapore or a Permanent Resident of Singapore. Obtaining PR in Singapore is not easy – it is a long and stringent process, and more stringent requirements in recent years. It is only this cohort of Singapore nationals who are eligible to enter under the FTA, and all other nationalities are excluded from the FTA.
There have also been ridiculous allegations that this agreement allows for paddy to be freely imported – that is simply not the case. Under the ‘Rules of Origin’ chapter, agricultural produce like paddy, wheat or meat – it must be wholly obtained in Singapore. In the case of meat – the animals must be born and raised in Singapore; in the case of paddy, spices, fruits and vegetables, it must be wholly grown and harvested in Singapore to be eligible for tariff concessions – and remember Singapore doesn’t have a single paddy field!
Furthermore, it is mentioned that Pakistan and Thailand rice can be imported through Singapore. This is not allowed under the Rules of Origin criteria. In any case, rice is kept in the Negative List of the Agreement. On other process or manufactured products too, those products should have 35% value addition or sufficient working or processing undergone in Singapore. Therefore simple diversion of products through Singapore is not possible. So any concerns around agriculture are unfounded.
Another frequently cited issue is about manpower agencies. Even under the prevailing laws and regulations of our land, a Singaporean recruitment services company could set up a company in Sri Lanka. Sri Lanka’s commitment in this sector does not include Mode 4 in any capacity – it is completely unbound. Unlike in other Mode 4 commitments, there is no reference even for senior management personnel for such recruitment companies, under this services sub-sector.
A Singaporean recruitment company can set up an office in Sri Lanka, as is already allowed in the current legal structure, but it cannot recruit personnel from abroad since mode 4 is unbound or no commitment taken to open. Any such recruitment company that wishes to hire work from overseas has to go through the regular processes of immigration, line ministry approvals – the current laws and regulations prevail, and the FTA creates no new liberalisation in this regard.
Waste products dumping
It has also been alleged – very irresponsibly – that the FTA will pave the way for waste products to be dumped in Sri Lanka. Again, this is totally false. The many items called ‘waste products’ are already under the duty-free list and have been included in the India-Sri Lanka and Pakistan-Sri Lanka Agreements and there are no evidence to suggest that these products are coming into the country in any harmful manner.
Even under the Singapore FTA, these products cannot just come into the country and have to go through the regular import licensing requirements and standards and regulations applicable to protect plant, human and animal life. Furthermore, Sri Lanka rights under Article 20 of GATT/1994 of WTO to take measures to protect human animal or plant life is ensured by inclusion of Article 17.7 on General Exemption under chapter 17 of the Agreement.
Therefore Sri Lanka is free to introduce environmental measures to protect human, animal or plant life. Furthermore our rights under International environmental conventions that Sri Lanka is Signatory to such as Basel convention are not affected and Environmental laws and regulation of the country will continue to be applied.
Cleverly negotiated FTA
More broadly, let me reiterate that this FTA with Singapore has been very cleverly negotiated by us. Unlike other FTAs signed by Singapore with other countries where the level of liberalisation is more than 90% of tariff lines, in the FTA with Sri Lanka, we limited it to 80%. So, 20% of tariff lines or 1,487 items, were kept protected because of a concern on domestic industries and revenue. Items like footwear, confectionery and many other sensitive items have been kept out of the agreement.
The liberalisation program under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years!
In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion. The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic!
Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.
There is a much larger issue at stake here – the future of our youth, the next generation of workers, the next generation of entrepreneurs. Ask yourselves – what kind of country do you want to shape for them? A country that is inward looking and isolated – or a country that is integrated with world markets and creates high-paying jobs for our youth?
A new approach for regional integration
Given the onset of deep far reaching technological progress, the nature of cross-border trade and economic relationships is changing at a dizzying speed. Physical goods are becoming more virtual. Services are becoming more tradable. E-commerce is empowering SMEs to go international. This emerging landscape demands that we adopt a new approach for regional integration. Or risk falling further behind in this moment of rapid global change.
Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone. And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole
community, not just the few who may oppose. We owe it to our
people to courageously take decisions that will change their lives for the