COLOMBO: Following is a presentation made by Rohan Samarajiva to the People’s Commission for National Policy on International Trade recently. We must look to the future, not the past. We must be realistic about where we are at present and what our potential is. We must always take into consideration our external environment, especially the actions of the competitively-positioned countries. We must give priority to the broad public and national interest, not those of narrow interest groups. My brief comments are organised around the above principles. 1.0 The future is Asia. Most models of international trade assume that greater trade will occur with nearby countries than with those which are far distant. At present, Sri Lanka’s goods exports violate this assumption, going primarily to the US and Europe. This was also the case with the Mode 2 service exports in tourism until recently. But things have changed in tourism service exports, with India and China becoming the principal sources. We must make active efforts to reorient goods exports to Asia because Asia is where the highest growth is occurring.
With turbulence in trade policy caused by the failure of the Doha Round of World Trade Organisation (WTO) negotiations and the US withdrawal from the Trans Pacific Partnership (TPP), we must focus on plurilateral agreements within Asia, giving primacy to the emerging single market of ASEAN, India and China. Joining some form of ASEAN plus agreement such as the Regional Comprehensive Economic Partnership (RCEP) would be optimal. A comprehensive goods, service and investment agreement among the BIMSTEC countries would also be desirable. But bilateral agreements with willing countries are a necessary step for a small economy such as ours to get to the negotiating table where these plurilateral agreements are reached. But the immediate impact of completing the ongoing negotiations will be substantial. Firms located in Sri Lanka, which satisfy the preferential rules of origin stipulated in the various agreements, will have access to a market of three billion people. These firms may be fully owned by Sri Lankan citizens, joint ventures or fully owned by foreign investors. 1.1 Both India and Vietnam have entered into multiple bilateral agreements, which is yielding them good results, but also giving rise to the “noodle bowl effect”. But these complications are likely to be reduced when they join the RCEP or a similar plurilateral arrangement.
The good results are illustrated by Table 1, which compares Sri Lanka’s and Vietnam’s investment and trade performance. The increase in foreign direct investment (FDI) was in the same range (seven times and nine times); but Vietnam increased exports by 9.5 times versus Sri Lanka’s paltry doubling. 2.0 Trade policy in the 21st century is not a zero-sum game where scores are kept in terms of positive/negative trade balances. In the context of global production networks (GPNs), components of end products (including services) cross and re-cross borders. Here is what the economists at the Central Bank of Sri Lanka say about our failures to catch this wave: “Regional competitors, particularly East and Southeast Asian countries such as China, Taiwan, South Korea, Thailand, Malaysia, Vietnam and Indonesia, have dramatically increased their manufacturing exports through global production networks.
India, which traditionally focused on labour-intensive manufacturing exports, has integrated successfully with global production networks producing technology-intensive parts and components for data processing machines, electrical machinery and semiconductor devices. Conversely, only a fraction of Sri Lanka’s manufacturing exports moved through global production networks during this period.”
