The Prime Minister’s move to fast track the Free Trade Agreements (FTAs) with Singapore and China and a revised ETCA is a good move.
He knows we cannot protect our economy by stagnating behind tariff walls. The best protection possible is a mutual lowering of tariff barriers among friendly nations so that all may benefit from the free flow of goods. Increased economic activity resulting from increased trade will provide more job opportunities for our young workers.
Our industry, our agriculture, our services will benefit from increased export opportunities as other nations agree to lower their tariffs. Increased exports and imports will benefit our ports, steamship lines and airlines as they handle an increased amount of trade. Lowering our tariffs will provide an increased flow of goods for our consumers.
Our industries will be stimulated by increased export opportunities and by freer competition with the industries of other nations for an even greater effort to develop an efficient, economic and productive system. The results can bring a dynamic new era of growth. But the challenge is as the JVP leader Anura Kumara Dissanayake pointed out is to put the right people to negotiate these agreements. Not half baked politicians and bureaucrats. The future of our country is in those agreements he said. Given those sentiments there are three important areas for those promoting free trade to be mindful of;
nFirst, is the need for strengthening of mutual surveillance across the region.
nSecond, countries in the region should share a common view of the future direction of the regional economy and develop concrete policy responses based on their future direction.
nThird, participate in global efforts to stabilize the international financial system and effective and adequately financed export promotion programs.
Growth in exports
Export growth leads to jobs growth. So at a time when jobs are in short supply, building exports is an imperative. But this isn’t just about where jobs are today; this is where jobs for our young Sri Lankans will be tomorrow. They need to be future ready.
Today the world’s powerful customers and fastest growing markets are beyond our borders. So if we want to find new growth streams, if we want to find new markets and new opportunity, we’ve got to compete for those new customers—because other nations are competing for those customers day and night. Often changes in international markets can have a direct, positive or negative, impact on a country. Such an impact may be a result of exogenous shocks (climate change), large market failures (e.g. financial crisis, high volatility in world prices), international agreements (e.g. multilateral or regional trade agreements), unilateral policies of large economies (e.g. agricultural domestic support or biofuel mandates).
While the effects of these changes vary across countries, depending on their trade specialization, degree of openness, and adjustment capacities, the domestic redistributive impact among citizens in a particular country can be quite pronounced. However, there is ample evidence that poverty is not directly the result of a country’s share of trade.
Rather poverty reflects low earning power, poor access to communal resources, poor health and education, powerlessness and vulnerability. It does not matter what causes these features so long as they do not exist, nor what relieves them if they can
be relieved.
International Trade
Trade matters only to the extent that it affects the direct determinants of poverty and that, relative to the whole range of other possible policies it offers as an efficient policy lever for poverty alleviation.
Trade liberalization may have adverse consequences for some – including the poor – that should be avoided or managed to the greatest extent possible. However, the general belief is that trade liberalization promotes growth, which in turn, supports poverty alleviation. In general, only a few people will end up as net losers. Therefore trade policy should not be closely manipulated with an eye on its direct poverty consequences and impact on employment, but set on a sound basis overall with the recognition that some modification may be inevitable for political and other reasons with poverty being treated by general anti-poverty policies.
Removing trade barriers
More compelling is the dramatic upturn in GDP growth rates in India and China after they turned strongly towards dismantling trade barriers in the early 1990’s. In both countries, the decision to reverse protectionist policies was not the only reform undertaken, but it was an important component. In developed countries trade liberalization, which started earlier in the postwar period, was accompanied by other forms of economic opportunities for example, a return to currency convertibility, resulting in rapid GDP growth. Moreover, the argument that historical experience supports the case for protectionism is now flawed.
The economic historian Douglas Irwin has challenged the argument that nineteenth-century protectionist policy aided the growth of infant industries in the United States. Nor should the promoters of free trade worry that trade openness results in no additional growth for some developing countries. Trade is only a facilitating device.
If a country’s infrastructure is bad, or have domestic policies that prevent investors from responding to market opportunities such as licensing restrictions, very little progress can be achieved. Critics of free trade also argue that trade-driven growth benefits only the rich and not the poor. In India, however, after the economic, trade and education reforms nearly 200 million people have come out of poverty. In China, which grew faster, it is estimated that more than 300 million people have moved above the poverty line since the reforms were initiated. Every major trading nation today is actively negotiating bilateral and regional Free Trade Agreements (FTAs). FTAs are, in reality, fair trade agreements. In the final analysis for Free trade Agreements to work for Sri Lanka there is lot more work to be done at home: domestic tax reforms, education, retraining, health and energy reforms and financial policies to promote sustained economic growth and innovation and to improve the competitiveness of our companies and workers.
(The writer is a senior company director)
