Apr 18, Colombo: Sri Lanka's premier business chamber, Ceylon Chamber of Commerce welcomed the more concise second version of the National Trade Policy (NTP) prepared by the Ministry of Development Strategies and International Trade (MODSIT).
The Chamber submitting its comments on the second version of the NTP said the latest version has avoided the lengthy articulation of the history of Sri Lanka's international trade policy, its FTAs, and other extensive background issues.
The new version has successfully overcome the over-emphasis on FTAs/PTAs that was in the first version and rebalanced towards a focus on other issues, including global supply chains, the Chamber's report said.
The Chamber noted that the new version while contains some emphasis on trade facilitation focuses too narrowly on customs procedures, which the CCC suggests to expand to include all border agencies that get involved in exports and imports.
"Modern trade facilitation (including establishing a National Single Window) requires a much wider focus, beyond just customs automation. This must be recognized in the NTP," the Chamber said.
The Chamber's Economic Intelligence Unit, with overall inputs from the CCC's Steering Committee on Trade Liberalisation and Main Committee, submit the following comments on the latest version of the NTP dated 24th February 2017.
1. Overall Positives: As with the first draft, this document too correctly identifies the need to re-focus on international trade in Sri Lanka, the recent declines in performance, and the role of trade in shifting growth models. The new version of the NTP is also a more concise version compared to the previous one, and this is welcomed. It has avoided the lengthy articulation of the history of Sri Lanka's international trade policy, its FTAs, and other extensive background issues. Additionally, the first draft contained an over-emphasis on FTAs/PTAs, as pointed out by us in our previous submission. The new version has successfully overcome this issue and rebalanced towards a focus on other issues, including global supply chains.
2. Trade facilitation: The new version contains some emphasis on trade facilitation, but unfortunately once again focuses too narrowly on customs procedures. This necessarily must be expanded to include all border agencies that get involved in exports and imports. Modern trade facilitation (including establishing a National Single Window) requires a much wider focus, beyond just customs automation. This must be recognised in the NTP.
- It is important that all these agencies are required to ensure their procedures remain transparent and efficient, to better facilitate trade.
- Also consider introducing Key Performance Indicators (KPIs) for border agencies (e.g. time taken to issue permits, clear cargo etc.). The agencies are required to regularly publish/report performance against the announced KPIs.
- Focus on some specific trade facilitation issues (relating to standards and testing) were articulated in the first version, and is somewhat lacking in the new version
- Moreover, the NTP may wish to consider starting with an 'E-Hub' first - which is an online document exchange, processing and clearance house - as a key first step in a fully-fledged national single window. The CCC's recommendations on establishing such an E-Hub have been submitted to MODSIT previously.
3. Supporting selected industries/products: With reference to paragraph 47, it is important to understand the risks associated with selecting industries that will be promoted/supported, especially if this is to be done by bureaucrats who are not up to date with global trends. Further, there is the risk of politicization and risks innovative exporters who have high potential being neglected. Therefore, it is important to also leave room for exporters/businesses to justify their case (even if the product/service was not in the government identified list) and be eligible for assistance. Ensuring that the selection procedure and criteria is made transparent and accountable is also critical for such schemes to be successful. Moreover, it is important to have a system to periodically evaluate the impact of such assistance schemes.
4. Unilateral liberalization (1): There are legitimate concerns of domestic industries that while high levels of protection do distort the efficient resource allocation, there needs to be a phased and systematic approach to dismantling the existing tariff regime. This needs to be linked to a clearly articulated vision of Sri Lanka's industrial policy specifically, and economic policy more broadly.
5. Unilateral liberalization (2): The document has highlighted the benefits of unilateral liberalization in terms of goods (tariffs etc.). It is important to note (e.g. para 53), unilateral liberalization is even more important for services sectors whose efficiency is a critical determinant of overall efficiency and productivity of the economy. Sri Lanka should get the best services firms in the world to come into Sri Lanka (e.g. logistics). It is important to make note of this point in the NTP.
6. FDI: This version rightly refers to the important role played by FDI in boosting trade, particularly export-oriented FDI (para 65). However, the NTP has failed to recognize the importance of a simple, liberal, transparent and predictable investment regime, lack of which is the key impediment to Sri Lanka attracting more, and good quality, FDI.
7. Agricultural exports: In paragraph 31 and in several other places, the argument is made that regional and bilateral trade agreements will help boost agricultural exports. This gives the impression that market access is the key problem constraining agricultural exports. This is not accurate. Most of the agricultural exporters state the demand for their products or finding markets is not the key problem the face, rather it is not being able to meet the demand from their buyers due to lack of exportable quality supply throughout the year. They often note that they can export much more than they do now, as there is high demand but not enough supply. Therefore, improving market access through trade agreements will be futile in the case of agri exports, without addressing their capacity/supply problems.
8. Macroeconomic balance, policy and institutional coherence: As with the first version, while the challenge of policy incoherence has been identified very little emphasis on how specific complementary policies will be aligned to the trade policy agenda (tax, labour, environmental, investment, industrial, innovation, energy, foreign exchange management, etc.). Once again we reiterate that this area needs to be dealt with greater focus. Moreover, while this section analyses the problem it does little to say how the NTP will address it. For example, with respect to effect on government revenue one would want to see what the government policy is in terms of tax reforms and how this fits in with the trade reform strategy.
9. Supply capacity and competitiveness: While there are repeated references on the need for Sri Lanka to integrate more into the Global Production Networks which will enable merchandise trade, access to a GPN or Global Supply Chain by itself does not guarantee that manufacturing advantage will follow. Access needs to be accompanied with supply - by boosting competitiveness and competencies of firms.
10. Trade adjustment: While this version too mentions that the NTP will consider adjustment of firms and people on account of trade liberalisation, specific aspects have not been articulated. While activities and measures are not expected to be contained in the NTP, at least some more specific elements of such an adjustment strategy needs to be incorporated - especially those aspects that help boost competitiveness of firms.
11. Digital trade/E-commerce: The NTP requires a dedicated section on digital trade - particularly e-commerce - given its growing importance in international trade and its ability to foster trade-oriented SMEs, i.e., inclusive trade. Industry representatives across
Comments on 2nd Version of National Trade Policy - Ceylon Chamber of Commerce sectors have reiterated the need for full implementation of already passed regulations that support E-Commerce in Sri Lanka, for example e-signatures and e-payments.
12. Rise of protectionism: The NTP must acknowledge the rise of protectionism that is spreading globally, particularly in the industrialized as well as G-20 countries. This is a key risk for Sri Lankan exports, and merit mention in the NTP, including an indication of how the government plans to deal with this.
13. Final National Trade Policy: We recgonise that this version too is more of a framework / background paper for preparing the final NTP, rather than it being the draft of the NTP itself. Therefore, we urge the authorities to finalise the actual NTP soon and provide it to the private sector for comment and discussion, prior to finalization.