On the Fast Track to Suicide

Distinguished Sri Lankan economist Dr. J. B. Kelegama's article titledÊ 'Fast track trade liberalisation with India', published yesterday in 'The Island', we hope, will draw the attention of President Chandrika Kumaratunga to the proposed Indo-Lanka trade agreement which she is scheduled to sign when she visits New Delhi, shortly.

Dr. Kelegama after comparing the imbalance of Indo-Lanka trade - vastly in favour of India - has considered the impact of the proposed fast track trade liberalisation agreement on trade between the two countries. His analysis reveals that such an agreement is unlikely to boost Sri Lanka exports to India while there would be a flood of Indian imports to this country - particularly in agricultural products - which will wipe out local farmers.

It has been pointed out that tariff rates imposed by India which had been high as much as 83 percent in 1990 had been brought down to 28 percent in 1997 which are comparable to tariffs imposed by Sri Lanka. Besides India has lifted import restriction on 2000 products. If these products include majority of items, of export interest to Sri Lanka, isn't the fast track agreement superfluous? , he asks.

Secondly, even if the fast tract agreement removes barriers not pledged in removing restrictions on 2000 items, would there be a marked increase of Sri Lanka exports to India? he asks.

Dr. Kelegama argues that it is not so much trade barriers that prevents an expansion of trade with India but the inability of Sri Lanka to produce goods that are in demand in India. Singapore exports to India which amounted to Rs 34,512 million in '97 included products such as TV picture tubes, telecommunication equipment, micro circuits etc. which Sri Lanka does not produce he points out .

It has been said time and again that a major factor that has prevented SAARC from taking off has been the reality that unlike the economies of India and to a lesser extent Pakistan, those of other SAARC countries are agriculture based and their products are common to all countries. India on the other hand produces a wide variety of industrial products that are in demand in these countries. Reading through Dr. Kelegama's article, it is apparent there are very little prospects of small countries like Sri Lanka entering Indian markets both in agriculture and industry.

The analysis also draws attention to a WIDER report in 1993 by Dr. Lal Jayawardena on Indo- Lanka trade. Dr. Jayawardena ,a presidential adviser, was the leader of the Sri Lanka team that had discussions with Indian officials recently on the proposed fast track agreement. Many of Dr. Jayawardena's postulates are being contested by Dr. Kelegama.

Dr. Jayewardena had contended that the success of a fast track agreement would rest on adequate flow of foreign capital to Sri Lanka. Dr. Kelegama points out that in the context of the times, with some of Sri Lanka's biggest investors in Sri Lanka being those affected by the East Asian crisis, this flow of capital is unlikely to come by . It is also said that Indian foreign investments in Sri Lanka have not been tied up with buy- back arrangements for their products by Indian investors. It is also argued that foreign multinational investments in Sri Lanka are unlikely to be attracted by an Indo- Lanka fast track agreement because multinationals are investing in India because they can capture the South Asian market better from India.

An extremely salient point is being made that Sri Lanka is attaching' too much importance to the Indian market' - 'far out of proportion to its relevance in our trade and development'. It is pointed out that Sri Lanka's exports to India account for only 0.9 percent of total exports where as countries like the USA (Rs. 98.3 billion - 35.9 per cent of total exports); UK (Rs. 31 billion -11.3 percent) Japan (Rs. 13.8 billion 5.0 percent), and Germany (Rs. 13.6 billion - 4.9 per cent) are far more important to us now. Dr. Kelegama says: 'The obsession with the Indian market may make us lose our perspective and result in complacency regarding larger and growing markets. What we need are larger and growing markets for our exports; whether they are in India or elsewhere does not matter for we want expansion of our exports not diversion'

By far the most damning part of the article is his comments on free import of agricultural products. He cites the present CIF prices per kg for products such as rice( Rs. 14.57), Bombay Onions (Rs. 11.01)and potatoes ( Rs. 11.83) etc. which Sri Lanka farmers would not be able to match and are likely to be wiped out when the market is flooded with Indian imports.

Where the farmers of Sri Lanka are concerned, this proposed fast track will be definitely a suicidal track for them. We have on many occasions reported and commented on the plight of our farmers - and their suicides - after these free imports took place.

Dr. Kelegama's conclusion is that the national priority should be to build and expand a manufacturing base to increase and diversify manufactures and exports.'Our task is to produce what the world (including India) wants and it is doubtful whether we can force the pace of trade by fast track agreements without building our export capacity and improving our competitiveness', he has said.

President Kumaratunga should consider whether this fast track agreement would be a suicide track for Sri Lanka.