Sri Lanka could cut trade costs by 15% through TFA implementation: diplomat

From Left: Commerce Department Director General Sonali Wijeratne, Sri Lanka’s Permanent Representative and Ambassador to the WTO R. D. S. Kumararatne, 
Sri Lanka International Chamber of Commerce Chairman Keerthi Gunawardane, Sri Lanka Customs Director Sunil Premaratne and Shippers Academy Colombo CEO Rohan Masakorala                          Pic by Damith Wickramasinghe

By Chandeepa Wettasinghe
Sri Lankan companies could enjoy up to 15 percent savings in trade costs via trade reforms implemented through the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA), top diplomat said yesterday.

Sri Lanka ratified the TFA—an offshoot of the stalled Doha Rounds on creating worldwide free trade—in May, and global implementation of the TFA depends on the ratification by a two thirds majority (108) of the WTO members.

As at last week, 85 WTO members had ratified the TFA. “The objectives of the TFA are to expedite movement, release and clearance of goods,” Sri Lanka’s Permanent Representative and Ambassador to the WTO, R. D. S. Kumararatne said. He added that other objectives include greater cooperation between government trade agencies and building greater capacities in them.

Kumararatne pointed out that in Sri Lanka, cargo clearance takes around 3-7 days, and sometimes can go to 14 days, compared to a 14-day average in South Asia, and less than 5 days in Singapore.
“In lower middle income countries like Sri Lanka, trade costs could go down by 15 percent,” he added.

Kumararatne noted that upper middle income countries, which Sri Lanka is in the cusp of becoming, could save 13.2 percent in trade costs through the TFA.
“When Sri Lanka becomes an upper middle income country, it will lose preferential trade access and overseas development assistance. So any form of competitiveness will be good,” he added. However, Sri Lanka could take years to reach the standards required under the TFA. The requirements for the TFA are categorized as A, B and C, with Category A representing existing compliance with TFA requirements.
Category B classifications are given one year to ascertain and provide a deadline or request for an extension to reach Category A status. Category C classifications are bound by Classification B conditions, as well as requirements to get WTO technical and funding assistance to conduct reforms.

“The TFA is a binding agreement. The implementation of the agreement is linked to the capacities of countries,” Kumararatne said.
Sources within Sri Lanka Customs said that the Sri Lankan government had classified all its procedures under an overall Category B, which the WTO had downgraded to Category C after its own evaluation. The biggest weakness was found to be customs information availability. Sri Lanka Customs Director Sunil Premaratne said that the Customs Department is required to comply with 40 categories, of which 27 are Category C, and 4 are Category B. “With Single Window facilities, Sri Lanka has ASYCUDA, but the requirements are much higher. It needs to be more efficient,” Kumararatne added. The government agencies that are involved with the TFA have formed a National Trade Facilitation Commission (NTFC), which also has the involvement of private sector chambers, in order to ascertain the degree of technical assistance and funding required from the WTO to adhere to the TFA. Commerce Department Director General Sonali Wijeratne said that the NTFC is prepared to evaluate and conduct reforms even beyond the requirements of the TFA.

However, Shippers Academy Colombo CEO Rohan Masakorala noted that judging from past experiences, there will be no improvements, unless there is a political will, and gave an example of how Dubai was transformed from a desert village to a global financial and logistics capital decades before the creation of the TFA.

TFA implementation: No threat to national security

The implementation of the TFA is unlikely to create security loopholes in the country, one of the Sri Lanka Customs Directors said.

“You can’t definitely say that detection rates will go down, it may even go up,” Sri Lanka Customs Director Sunil Premaratne said.

He noted that currently Sri Lanka Customs conducts numerous ad-hoc inspections without detection rates to match, but expertise and technical assistance gained from the WTO during TFA reforms could increase detections.

“If you look at developed countries, in Australia, they inspect just 4 percent of the shipments and their detection rates are very high,” Premaratne said. 

The concerns on detections are due to the TFA pushing aggressively for time and cost reduction at trade agencies, while only calling on countries to have detection mechanisms they can afford.

“We will have to release a lot of the shipments in a short period of time under the TFA, but I think we can manage the risk,” Premaratne assured.

He added that the Sri Lanka Customs requires its own land to process shipments more effectively, compared to currently inspections conducted on private property.

The government is attempting to bring electronic scanning systems to replace the current manual Customs inspections.