Economy Next | 10 February 2021
Sri Lanka to eyes re-negotiating trade deals amid import controls
ECONOMYNEXT – Sri Lanka has given the nod for the Ministry of Trade to examine ways of re-negotiating existing free trade agreements and enter into new ones, the government said, as the country remains mired in import controls after money printing.
“Sri Lanka had entered into a number of agreements which have an imbalances,” Cabinet spokesman Keheliya Rambukwelle said.
“So we thought this it is appropriate to look into them and present a report to the cabinet.”
Though Sri Lanka had entered into free trade deals, expected results had not been obtained, the cabinet had been told.
The proposal to re-negotiate trade deals come as the clout of powerful rent-seeking domestic producer lobbies have risen along with their profits, analysts say.
The attempts to re-negotiate deals also come as data shows that exports from Free Trade Deals outpaced imports, though the real benefits of free trade comes to the poor in the form of cheap goods which reduces malnutrition and stunting of poor kids.
Sri Lanka free trade agreements generate three times more exports than imports
The Indo-Lanka Free Trade Deal has generated 238 percent more exports than imports, South Asia Free Trade Agreement 381 percent.
Most of Sri Lanka’s imports from India and China come under high taxes.
Sri Lanka is now trapped under the worst import controls over 600 billion rupees were printed in 2020, of which about 500 billion dollars had flowed out as forex reserve losses and over 100 billion remains as excess liquidity waiting to trigger forex losses.
Monetary policy also deteriorated from the third quarter of 2015 with open market operations and outright debt monetization triggering forex shortages and depreciating the currency, giving more justification for rent seeking lobbies.
Trade is restricted to give profits to Mercantilists – generally now known as cronies in Sri Lanka – who try to make easy profits by unleashing the coercive power of the state against the general public in the form of trade controls.
In the 17th century such ideas, known as classical Mercantilism was prevalent in Europe. Companies such as the Dutch East India Company and British East India Company were set up using such principles.
Economics emerged with philosophers such as Adam Smith using reason to show the exploitation of the common people, whom he called ‘country gentlemen’ from Mercantilism by Mercantilists whether traders (dealers) or producers (manufacturers).
“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public,” explained Smith in Wealth of Nations.
“To widen the market and to narrow the competition, is always the interest of the dealers.
“To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.
“The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.
“It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”