Sri Lanka begins implementing Singapore free trade deal
EconomyNext | 8 April 2024
Sri Lanka begins implementing Singapore free trade deal
ECONOMYNEXT – Sri Lanka has begun implementing a free trade agreement with Singapore as part of efforts to improve market access, diversify market and draw investments, the island’s top trade negotiator said.
Sri Lanka’s government’s policy was that to achieve economic growth, export market access had to be increased, products had to be diversified and investment had to be attracted, K J Weerasinghe, Chief Negotiator, International Trade Office at the Presidential Secretariat said.
Sri Lanka is playing a catch-up game with the rest of Asia, he told a business forum organized by the Import Section of Sri Lanka’s Ceylon Chamber of Commerce.
Vietnam and Singapore already had 19 free trade agreements in place and India 15.
Negotiations initiated or agreements signed by Sri Lanka in 2017-2018 were put on hold.
Under the terms of the agreement 50 percent of the tariffs were liberalized to zero duty on day 01.
In the next 5 years 10 percent of tariff lines have to be liberated, another 10 percent up to the 10 year and another 10 percent, up to the 15 th year.
About 20 percent of products of 1,488 tariff lines would remain under tariff protection under a ‘negative list’ to give extra profits to certain businessmen and producers.
These include food and agriculture, fisheries, personal care, paints, rubber, leather and foot ware, metals, ceramic and tile products.
High import duties on building materials makes shelter more expensive for the people of the country, exploiting the homeless, while taxes on personal care allows businessmen to exploit women and working girls, footware school children, critics say.
Building material taxes also makes the country less export competitive and also pushes tourism costs up, critics say.
Singapore was a country that liberalized trade unilaterally after its separation from Malaysia in August 1965.
Until that time the country was pursuing import substitution and a protected common market in the Federation of Malaysia.
Import substitution was widely promoted by UN agencies and development economists at the time as macro-economists printed money for growth (policy rate) and created forex shortages bringing the Bretton Woods agreement to breaking point.
Singapore freed trade and set up a currency board at the same time blocking the ability of any macro-economist to print money and allowing Singapore to trade freely, prevent crises and draw investment by creating an oasis of stability.
To this day the country does not have a policy rate.
Top civil servant Ngiam Tong Dow later explained in an interview how the country ended the promotion of domestic industry and went on an export drive with full competition.
“Before that, we were pursuing import substitution,” Ngiam explained. “So the aim was to get local industry going, and that is why we had duties and tariffs. The Malaysian common market was the flavour of the day.
“But the moment we left Malaysia, there was no more Common Market. There was no more domestic market. So I F Tang (a Chinese born US trained foreign advisor who later became a naturalized citizen and civil servant) told Dr Goh (Keng Swee, Finance Minister) “OK, from now on must be export-oriented”
“And in one stroke we removed all the duties and tariffs.”
Import protection or imports bans on agricultural products including rice and maize in particular makes food more expensive for children in poor families contributes to malnutrition, critics say.
In the 1970s amid severe import controls, Sri Lanka started the Thriposha nutritional supplement for children of poor families. Sri Lanka is now importing maize without duty for Thriposha.
