Economist urges more investment protection To drive global production sharing in Lanka

Sri Lanka should cut barriers to trade and investment to attract foreign investors into electronic component manufacture, top trade economist Prema-Chandra Athukorala said at a forum organised by Advocata Institute, a Colombo-based free market think tank.

This would form a natural progression from garment manufacture, on which the country is now heavily reliant. Sri Lanka’s protectionist trade policy and erosion of confidence in the legal system are key factors that have discouraged investors resulting a decline in Sri Lanka’s share in world manufacturing exports from around 2000, said Athukorala, who is a Professor of Economics at the Australian National University and a top consultant on international trade to a host of international organisations. The liberalisation undertaken in the late 1970s resulted in a notable increase in manufacturing exports and a steady increase in Sri Lanka’s share in world manufacturing exports.

The reforms suffered a significant setback from about the early 2000: with the imposition of para-tariffs (taxes over and above normal tariffs), and a proliferation of ad-hoc duty exemptions and case-by-case duty adjustments. Sri Lanka has a bewildering number of para-tariffs including: Ports and Airports Development Levy (PAL), the Customs Surcharge (SUR), the Commodity Export Subsidy Scheme (Cess), and the Regional Infrastructure Development Levy (RIDL).

Sri Lanka needs to continue with reforms if it is to reap the benefits of export led growth. “That is why South Asian countries have not been able to join global production sharing like East Asia. Just having cheap labour alone is not enough.” The global economic environment is changing with production sharing (Global Production Networks- GPN’s) becoming the prime mover of cross border production and trade. GPN’s are of two types, buyer driven and producer driven.

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