Changing partners in commerce
The calls to boycott American goods and services in the wake of the
recent resolution at the United Nations Commission on Human Rights
(UNCHR) have highlighted the fact that Sri Lanka’s export trade is
heavily dependent on a narrow slew of countries.
An embargo on Sri Lankan goods called by the European Union (EU) or
the USA and the rest of the North American Free Trade Area (NAFTA) could
have disastrous consequences on our economy. The enormity of this threat
is revealed by the fact that, if the European Union is considered as a
block, the countries voting against Sri Lanka on the resolution buy
about 64 percent of the country’s exports. Imports from these countries
are only about 35 percent of our total imports.
The EU is the destination for 35 percent of our exports, NAFTA for 23
percent. The country’s imports from both NAFTA and the EU total less
than 15 percent of all imports, so we are heavily dependent on these
countries for trade income.
On the other hand, the South Asian Association for Regional
Cooperation/South Asia Free Trade area (SAARC/SAFTA) accounts for only
7.2 percent of exports.
US market
Certain countries have a strategic hold on sectors of our economy
which far outweigh the actual quantum of what we export to them; the
garment sector is disproportionately dependent on the US market while
Mexico (a constituent of NAFTA), which accounts for only 0.7 percent of
our exports, imports most of our cinnamon.
With regard to the other regions, much of our trade is with the
countries which voted against us, rather than with our natural allies.
For example, in Latin America we do almost no commerce with Cuba, one of
our oldest friends; while Brazil, one of the fast-growing BRICS (Brazil
Russia India China and South Africa) countries, takes just 0.3 percent
of our exports and sends us 0.4 percent of our imports. Conversely
Chile, with its tiny, stagnant economy, which voted against us, takes
0.3 percent of our exports - the same as giant Brazil - and is our main
source of our tinned fish.
What is often disguised in the trade figures is how much of our trade
actually goes through the metropolitan centres of the West, such as
London, Amsterdam, New York and Hamburg. For example, Hamburg serves as
an entrepot for Ceylon Tea, which is mixed with inferior teas and sold
to third countries.
Free Trade Agreement
It is thus fairly obvious that we need to diversify our trade
patterns, expanding into non-EU and non-NAFTA markets, especially with
SAARC/SAFTA countries. Even within SAARC/SAFTA, we need to shift our
emphasis from India, which dominates our trade - absorbing 5.6 percent
of our exports and accounting for 19 percent of our imports. The
remainder of SAARC/SAFTA is responsible for a mere 1.6 percent of our
exports and 2.3 percent of our imports. There are economic limits to the
speed at which this diversification can be carried out. Some of our
exports are not suitable for certain countries, for example South
America as a whole is a coffee exporter and the population does not
drink tea. Then again, countries like Bangladesh and Pakistan are
exporters of garments and clothing is very cheap in those countries.
One success story from which we could learn much is that of our trade
with Pakistan, which doubled within five years of the introduction of
the Free Trade Agreement. We sell them rubber products, coconut
products, herbal products, furniture and wood products, electric goods,
ceramic ware, plastic goods, betel, spices, fruit and dried fish. We buy
from them, textiles, rice, cement, steel pipes, potatoes, medicaments,
machinery, fruit and dried fish.
Institutional barriers
We need to come to bilateral ‘most favoured nation’ agreements with
our Third World allies, allowing exports and imports at lower tariffs.
Increased trade would also tend to reduce freight rates, decrease
transhipment costs and so on.
There are also institutional barriers to our diversification of
trade. For example, our trade with Cuba and Brazil could be reciprocal,
based on us importing directly Cuban or Brazilian sugar, which would be
cheaper than current imports.
However, all our sugar comes through a cartel known as the Sugar
Association of London, and the prices are highly inflated above the cost
at the source. These road blocks need to be overturned - elimination of
the exploitative middleman generally reduces costs.
There may be other similar barriers limiting our trade with Third
World partners. Why, for example, have Sri Lankan garments not made
serious inroads into the Brazilian clothing market? Brazil is considered
the most attractive growth market for apparel, with consumers spending
six times more on clothes than Chinese consumers. The authorities and
the garment sector need to study this problem in concert and come to a
strategy to increase our penetration into this market.
Export sector
We also need to study our own products and see where we have gone
wrong. A classic case of us losing our way is the collapse of the tea
machinery industry. Sri Lanka had a healthy machinery and equipment
export sector based on tea and rubber machinery. We went from being on
the cutting edge of tea manufacturing technology to being an importer of
tea machinery within a decade.
As our labour costs increase with our rising standard of living, we
need to shift more emphasis to technology. This does not mean more
computers, but a concentration on research and development.
The Industrial Technology Institute (ITI) has been quietly showing
the way, providing a technological input to local manufacturing.
Recently Munchee began producing Kothala Himbutu (Salacia reticulata)
biscuits using techniques developed together with the Institute. The ITI
has also developed ways of increasing the sap yield of Kithul (Caryota
urens), meantime also means of substituting Kithul jaggery for sugar.
The model of ITI/manufacturer co-operation should be extended to
include the Export Development Board and exporters, working within
specific markets. The authorities also need to study the specific needs
of the markets of our allies in order to uncover the product mix which
will expand fastest in each and develop technologies accordingly.
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