Seeking Special & Differentials from WTO!

Sri Lanka owes its global debtors $65 Bn while the lower tariffs have brought in formidable challenges -and any tariff adjustments are only a temporary measure. Sri Lanka also seeks flexibilities as well as Special and Differential Treatments during future WTO negotiations.

“Despite Sri Lanka’s commitments to trade liberalization, a lower tariff structure has forced formidable challenges to the government in particular to the revenue sources” said the Industry and Commerce Minister Rishad Bathiudeen on 02 November in Geneva. Minister Bathiudeen was addressing the fourth review of the trade policies and practices of Sri Lanka on 2 November in Geneva. The Review taking place from 01 November to 03^rd, takes place on the basis of reports by WTO Secretariat and by the Government of Sri Lanka.

In his lengthy submission to the Review session, Minister Bathiudeen elaborated on Sri Lanka’s achievements in various development indicators and stressed the country’s commitment to WTO’s trade measures. “We have received around 138 questions from 12 member countries. We have already submitted written responses to most of the questions.  I consider that the Fourth Trade Policy Review of Sri Lanka at the WTO is taking place at a historic moment of my country mainly for two reasons. Firstly, it takes place under the National Unity Government of Sri Lanka. The National Unity Government was established for the first time in the history in January 2015 by the coalition of the two main political parties in the country.  Secondly, this Review is focusing on the developments in the country after ending prolonged civil conflict against terrorism of 30 years in 2009.  The rehabilitation and rebuilding process in my country cost the government dearly both in capital and recurrent expenditure which have substantially increased and the government had to rely on debts from international sources.  We are thankful to all those who generously assisted Sri Lanka in this exercise” ” said Minister Bathiudeen, and added: “Developing its infrastructure to increase its economic potential has resulted Sri Lanka’s reliance on foreign debt. The official estimate of what Sri Lanka currently owes its financiers is $65 billion. The country’s debt-to-GDP currently stands around 75% and significant portion of all government revenue is currently going towards debt repayment. As a result of the above, the government started experiencing fiscal difficulties to meet with country’s both development and rehabilitating needs.  The fiscal deficit to GDP has increased from 6.5 % in 2011 to 7.5% in 2015.  As a result the government is making every effort to consolidate its fiscal position. We will give priority to enabling an increase in earnings, through a policy of minimizing regressive taxes, increase the ratio of direct and indirect income tax generation in the medium term from 80%: 20% to 60%: 40%, strengthening the tax management processes while removing tax holidays and benefits.  The GDP of Sri Lanka is at US$ 82.2 billion in 2015.  The per capita income has increased from US$ 2744 in 2010 to US$ 3924 in 2015 becoming a lower middle income country.  Sri Lanka was able to maintain its economic growth at an average rate of 6.4% over the period from 2010 to 2015. With regard to import and export trade, Sri Lanka maintains a greater openness to international trade.  The consecutive governments of Sri Lanka continue to engage in the policy measures towards trade liberalization. Sri Lanka has been a founding Member of GATT and WTO. Sri Lanka believes in multilateral trading system for establishing a level playing field for all its members in the international trade, with due recognition for development needs of developing countries and  in particular, small and vulnerable economies. While appreciating recent outcomes of multilateral negotiations and in particular outcomes of Nairobi Ministerial, Sri Lanka looks forward to effective implementations of the decisions reached at this Ministerial. Flexibilities through Special & Differential Treatments have been widely recognized for smaller economies during the DDA process. Further, Ministerial Declaration of MC-10 made in Nairobi (Para 26) emphasized on such flexibilities for SVEs with the aim of facilitating their fuller integration into multilateral trading system by taking into account the needs of SVEs in all areas of negotiations. Sri Lanka seeks such flexibilities and Special & Differential Treatments during the process of WTO future negotiations. With regard to tariffs, Sri Lanka’s bound commitments made to WTO are relatively at a lower level in both agriculture and non-agriculture products. With regard to applied rate, currently Sri Lanka maintains three bands tariffs at zero, 15% and 30%.  Over 56% of tariff lines are at zero duty level.  Out of the remaining tariff lines, a majority is confined to lower bracket of tariff. Despite Sri Lanka’s commitments to trade liberalization, a lower tariff structure has forced formidable challenges to the government in particular to the revenue sources. The global market slowdown and the fluctuation on the global demand for the commodities that Sri Lanka trades with have increased the country’s vulnerability to external pressures. As a net food importing country, the situation has been critically reflected in the Balance of payment.  The Country’s exports which stood at 30% GDP in the year 2000 has decreased to 15% in 2014.  Our total exports in 2015 to the world were at US$ 10.5 billion while imports remained at US$ 19 billion.  This is further aggravated due to lower import tariff structure maintained by the country.  In certain instances, the government has been compelled to adjust its applied tariffs to manage external vulnerabilities and domestic sensitivities. I observed that many questions raised by the Members of the WTO have also concentrated on these temporary measures.  I wish to inform them this is a temporary phenomenon and those measures are not at the expense of our commitment to the multilateral trading system. At the same time, I solicit attention of the WTO Members to assess the development needs of the country as a small economy. The external sector performances during the period of the review have reflected challenges encountered in the global trading environment as well as domestic economic concerns. As mentioned, the trade deficit in absolute terms has widened during the period reaching over 10% of the GDP. Despite the benefit of lower expenditure on fuel imports, the slowdown in the growth of world demand for Sri Lanka’s exports and resulted declining process have negatively reflected on the trade balance. Pressure on the balance of payment due to this significant gap has somewhat compensated from the remittances to the country by the Sri Lankans working abroad. However, it is necessary for the Government to introduce policy directives to ensure exports led growth to the economy. These developments directed the new unity government to embark upon on a new strategy of its trade relations with major trading partners and to work on an export-led economic growth strategy and it emphasized on developing an enabling environment to strengthen the country’s entry into global value chain, developing competitive business environment and facilitating FDI to the country, moving away from traditional manufacturing engagements to knowledge-based industries in the country, developing strategies to enhance Sri Lanka’s bilateral and regional trade engagements thereby diversifying country’s products and markets and integrate into the global value chain of production in both goods and services, Promoting the country as the economic hub in Asia. While upholding the country’s commitments to multilateral trading system, Sri Lanka will explore further opportunities for bilateral and regional trade with emerging economies.  Sri Lanka has already initiated negotiations for bilateral FTAs with China and Singapore, in addition to its Bilateral Agreements with India and Pakistan.  Sri Lanka believes that this approach will provide opportunities to diversify its products and markets. We are hopeful that Sri Lanka will also regain GSP+ market access to the EU in the near future and in developing necessary infrastructure for this purpose. Towards this objective, the government of Sri Lanka has expanded its seaports capacity by establishing a new port in the south of the country. Sri Lanka aims at effective implementation of Trade Facilitation. Sri Lanka, being a country open for trade, believes that minimizing trade barriers and reducing transaction cost of trade are effective and efficient ways for future development. Sri Lanka has placed great importance on the adoption of the Trade Facilitation Agreement.  Sri Lanka has ratified the Trade Facilitation Agreement and our Instrument of Acceptance has been submitted to the Director General of WTO on 31st May 2016.  I am pleased to mention here  that my country  in close liaison with WTO, World Bank Group, ITC, UNCTAD, World Customs Organization, UNIDO and World Economic Forum, is working on an implementation programme  and our objective is to establish a productive trade facilitation programme in the country with the assistance of the above international agencies and donor community.”

The 02 November Policy Review session was presided by the Chairperson of the Trade Policy Review Body Ms Irene B.K. Young.