Sri Lanka can cut imports by 31%

The Island, Sri Lanka, July 10, 2012
While the country struggles to recover from a balance of payments crisis, a recent study shows that Sri Lanka can cut its import bill by 31 percent, at the least, and make considerable welfare gains if intraregional trade improved.A recent study ‘Consumers and Economic Cooperation: Cost of Economic Non-cooperation to Consumers in South Asia’ authored by Bipul Chatterjee, Deputy Executive Director, CUTS International and Joseph George, Research Associate, CUTS International, shows that South Asian consumers are expected to gain more than US$ 2 billion annually as a result of enhancement of intra-regional trade.

Currently, intra-regional trade in South Asia is hovering around five per cent of total trade of regional economies – the lowest percentage among all regional blocs in the world. Importantly, this will be a static gain estimated from possible sourcing of imports from within the region as against from rest of the world. Dynamic gains would be much higher if tariffs are reduced and non-tariff measures are addressed.

“Though aggregate welfare gains of Sri Lanka amount to a comparatively lower figure of US$ 288.61 million, per capita gains to the country would be the highest, as it is the least populated amongst the selected South Asian countries. On the 27 product categories included in its sensitive lists, diverted imports from within the region would help Sri Lanka to save 31.42 percent of its current import expenditure. Almost all of its expected gains come through imports from India in mineral fuels and oil by-products,” the study showed.

However, the study points out that Sri Lanka would not gain by imports from Bangladesh, as its own export basket constitutes articles of apparel and is price competitive and capable of capturing part of the South Asian textile market with Bangladesh. Though the welfare gains accruing to Sri Lanka, by way of imports from Nepal, are only US$1.88mn, the island nation is set to save close to 60 percent of imports from the rest of the world (RoW) by choosing alternatives from Nepal on certain items.

Sri Lanka also has the scope of improving its exports to the region.”Sri Lanka’s prospects are spread between textile items and cash crops, including rubber, tea and spices,” the study showed.The current aggregate import bills paid to RoW by the SAFTA members under consideration on these product categories amount to US$ 6,212.83 million. Intra-regional trade at reduced prices would generate 31.36 percent savings on this import expenditure, leading to annual savings of about US$ 1,948.15 million for buyers belonging to the region.

Welfare gains that would be made by Pakistan is US$ 206.18 million (59.04 percent savings on imports), India US$ 597.29 million (54.52 percent savings), Nepal US$ 457.50 million (42.83 percent), Sri Lanka US$ 288.61 million (31.42 percent) and Bangladesh US$ 398.56 million (14.33 percent).

The study covered five of the eight South Asian countries, viz. Bangladesh, India, Nepal, Pakistan and Sri Lanka. The quantitative assessment of the COENCOSA study shows a minimum consumer welfare gain of approximately US$ 2bn a year by way of savings on aggregate consumer expenditure on imported products in selected categories.

“However, the estimated figure represents only the minimum gains which will increase exponentially if the long run impacts of positive cycle of growth in intra-regional are considered. In other words, gains to consumers, as estimated in this study, is a static gain as it is based on existing tariff structure,” the authors said.

“It is a well-known fact that today tariff accounts for about 15-20 percent of the cost of doing trade of a commodity. Non-tariff measures including customs procedures and other procedural non-tariff measures account for more than 80 percent of cost of doing trade. In South Asia, if non-tariff measures affecting the cost of doing trade are addressed properly then gains to consumers from an enhanced intraregional trade regime would be much than static gains. Further gains can be achieved from gradual liberalisation of intraregional trade in services and investment.”A survey of some key stakeholders on their perception about enhanced intra-regional trade reveals that lack of reference to consumer welfare gains in the academic literature as well as in popular media has heavily influenced the perception of all categories of respondents.

“Generally, there exist very low expectations about consumer welfare gains, owing to either ignorance about the issue or negligence as an unimportant issue. While among producers/exporters and their associations, consumer groups and media ignorance about the issue is the main reason for low expectations, it is negligence among government officials and academia.”Most respondents, irrespective of categories, believe that intra-regional trade in South Asia is currently underperforming and its potential is highly under-rated. A striking observation is that representatives of consumer groups in general are more unaware about consumer welfare gains from a more open and balanced international trade regime than most other groups. This is because most of them have less knowledge and little/no representation in trade policy making process in their countries and hence, have minimal exposure to the subject,” the study showed.

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