8.2 International Trade and Partnerships
Sri Lanka currently exports mostly textiles, garments, tea, spices, gems, coconut products, rubber and fish. The major export destinations are the United States, the United Kingdom, Germany, Belgium and Italy.
Sri Lanka currently imports petroleum, textile fabrics, food stuffs, machinery and transportation equipment. The main import partners are India, China, Iran and Singapore.
Sri Lanka signed the first ever bilateral free trade agreement with India in 1998. It is a member of the World Trade Organisation (WTO) and the South Asian Association for Regional Cooperation (SAARC).
SAARC promotes development of economic and regional integration. It launched the South Asian Free Trade Area in 2006. Under the agreement, SAARC members have brought down their duties to 20 percent in 2009.
The purpose of the WTO is to ensure global trade flows smoothly, free and predictably. The WTO creates and embodies the ground rules for global trade among member nations, offering a system for international commerce. Being members in the WTO, the countries will have the advantage of lower trade -related barriers among themselves.
The WTO has following objectives:
to set and enforce rules for international trade;
to provide a forum for negotiating and monitoring further trade liberalisation;
to resolve trade disputes;
increase the transparency of decision-making processes; and
to cooperate with other major international economies.
WTO decisions are absolute, and every member must abide by its rulings. WTO acts as judge and jury. WTO members are empowered by the organisation to enforce its decisions by imposing trade sanctions against countries that have breached the rules.
The highest Foreign Direct Investment (FDI) into Sri Lanka in 2017 came from China according to Sri Lanka’s board of investment (BOI). As a percentage of GDP, FDI currently stands at a mere 2 percent compared to Malaysia at 3-4 percent and Vietnam at 5-6 percent.
Currently, the larger share of FDI inflows has been focused on infrastructure. They will only boost jobs and growth temporarily during the construction period. These investments have little long-term impact. Other businesses such as manufacturing and IT services which would employ people as long as it makes a profit, and export, pay taxes and contribute to Sri Lanka’s growth for decades.
Policy uncertainty in Sri Lanka has proven daunting for investors, with lack of information on regulations. Inconsistency in policy-making, frequent policy changes and slow policy implementation are impediments to investment and trade. It is important to have long-term policy strategies and commitment to policy continuity.
One of the most important actions is to eradicate corruption at all levels to make trading and investment partners comfortable. This can be done using the mechanism to report to The Broad-Based Anti-Corruption Commission (IBAC) recommended to set up as discussed previously.
It is important to commission a study to identify drawbacks and finding solutions to the logistics issues such as port operations, customer operations and creating a business-friendly environment mutually beneficial to both, investors/ trading partners and Sri Lanka. The terms of reference should include investigating the democratisation of port operations as well.
It is also important to conduct further studies on how to increase export volumes, expand export product range and find local substitutes for imports wherever it is possible. The study should extend to investigate the restrictions and opportunities Sri Lanka’s memberships with WTO and SAARC entail.
Global Political Challenges
To improve on a healthy trade and investment regime, it is imperative to be a responsible global citizen. Nowadays, when international community chose to take punitive action against recalcitrant players, the trade sanctions are the most powerful weapon used.
Therefore, it is important to comply with Paris agreement by taking measures to reduce carbon footprint. We will endeavour to foster bilateral and multilateral trade deals that can be in either short- or long-term best interest of the country.
Human rights violations and discrimination against minorities could be major stumbling blocks in the road to improving trade relations and investment opportunities. If Sri Lanka is accused of such behaviour, it is important to work through those accusations and improve rather than treating the accuser as an enemy and ignore at our peril. Sri Lanka’s majority population being Buddhist, we should be able to utilise the teachings of the Buddha on nonviolence and compassion for all life and resolve such issues easily.
It is a globally accepted notion that nation states belong to all its citizens irrespective of their ethnic or religious background. Therefore, internationally accepted norm is not to deal with the nation states that will not distribute benefits to all its citizens in an equitable and fair manner.
Those who point out these shortcomings to Sri Lanka with the intention of fixing them are certainly our friends. They have a rule-based order and not dangerous to deal with. Sooner the broader masses in Sri Lanka realise this, it is better for the prosperity of the country. For example, on 19 May 2017 the European Union granted Sri Lanka better access to EU for its exports. It did so under the EU’s Generalised Scheme of Plus (GSP+) and this was conditional on Sri Lanka advancing human and labour rights and working towards sustainable development.
As a result of this initiative Sri Lanka gained enhanced market access to the EU. These one-way trade preferences will consist of the full removal of duties on 66 percent of tariff lines, covering a wide array of products including textiles and fisheries.
Sri Lanka will have to be cautious about those who would like to liberally offer massive loans without giving consideration to anything else, not even the repayment capacity. That is how a country is risking losing chunks of the land, valuable assets, independence and finally end up being bullied to fall in to line with them in international forums. In the longer term their trade and investment terms will also not be favourable to Sri Lanka. We need to investigate the situation and try to get out of such arrangements.
Non-Government level relationships
People to people relationships and relationships between entities with similar philosophies and ethics would play a vital role in heightening the level of trade and investment opportunities.
People to people relationships can be established through sports, arts, tourism and diaspora. For example, the government could take initiatives to facilitate building relationship between the cricketers of cricketing nations and Sri Lankan cricketer fraternity. This could apply to other sporting and arts communities participating at an international level. In this way, friendly gestures could be displayed inviting them to visit Sri Lanka and learn about the people of Sri Lanka and the opportunities presented. It certainly is a good strategy in introducing sporting activities very close to the hearts of certain nations. For example; Australian rules football, American baseball, Gridiron etc. It is noteworthy that Australian Rules football (AFL) is treated as a religion in the Australian state of Victoria where 50 percent of the people of Sri Lankan ancestry in Australia live.
The government should have a plan to induce tourism from first world countries to Sri Lanka by subsidising chosen tour itineraries to provide maximum exposure. It is also important for the government to provide a safe friendly environment for our visitors.
The expansion of tourist numbers in itself is an investment for the country.
The government should have a mechanism to work with the non-resident Sri Lankan communities from first world countries providing them an opportunity to reminisce about their past in the birthplace and welcoming them to embark on trade and investment just by themselves or with the compatriots of their adopted countries. The non-resident Sri Lankan community that has relinquished their Sri Lankan citizenship should be able to resume that without impediment. This will encourage them to rebuild the connection with the land where their umbilical cords were buried.
The cooperative businesses are growing fast in Europe, UK and many other parts of the world. The cooperative entities affiliated with the International Cooperative Alliance prefer to do business with other cooperative entities rather than with conventional businesses as a matter of ethical behaviour. There are organisations that are happy to help out in passing technical know-how to set up cooperative business units in less affluent areas. The building of relationships with global cooperative entities would certainly help opportunities for trade and investment as we are strongly promoting the expansion of the cooperative sector.
All the above measures have to be complemented by government’s direct action. The government has to proactively look for opportunities in the international arena and explore all the connections stated previously. In the end, the government has the authority and resources to take such initiatives.
The Minister with the Trade and Investment portfolio needs to generally work closely with Ministers holding other portfolios in the cabinet, particularly with the portfolios of Industry, Agriculture and Treasury.
The government needs to make decisions on providing incentives to potential investors and conduct research on international markets where there is a potential for Sri Lankan products to be marketed. It is also necessary to identify what new goods and services Sri Lanka should produce for an international market. Sri Lanka also needs to diversify the product range for bigger and better trading opportunities. It could range from small scale operations such as providing technical services to small businesses around the world to large scale manufacturing opportunities such as building motor vehicles.
The government also should reassess its procurement practices and tariff arrangements to support locally manufactured goods attracting foreign capital investment. For example, we would strongly advocate that government will signal to the international vehicle manufacturers its preparedness to purchase all government vehicles locally if they want to relocate their manufacturing plants to Sri Lanka.