Trade Trick

Lanka Business online, March 16, 2012
Sri Lankan consumers seen cheated by protectionist lobbies

Powerful protectionist lobbies and lack of awareness are denying Sri Lankan consumers the benefits of free trade which could significantly reduce costs if more imports are allowed from neighbouring countries, a new study said.

Consumers as a group form a strong political constituency and should be better organised to influence trade policy making bodies just like protectionist business lobbies do, said Ashani Abayasekara, a researcher at the Institute of Policy Studies, a think tank.

“Prospects of consumer welfare benefits from free trade can bring about a major attitudinal change in the political leadership towards greater regional trade liberalisation,” she told a forum on the cost of economic non-cooperation to consumers in South Asia.

She advocated the setting up of networks of consumer organisations in the region to spread awareness of consumer welfare gains from trade liberalisation.

Intra-regional trade is “strikingly low” in South Asia compared with other regions, accounting for a mere five percent of total trade, as against 60 percent in Europe, 45 percent in North America and 20 percent in South East Asia, she said.

A new study in which IPS took part found that the minimum consumer welfare gains from trade liberalisation in the South Asia Free Trade Agreement (SAFTA) area, or the potential saving on consumption spending on imported products, would be around two billion US dollars a year.

Sri Lanka could save almost 32 percent of its current import expenditure by redirecting imports from the rest of the world to within South Asia, according to the study, based on 27 product categories included in its sensitive lists under the trade deal which restrict imports.

“SAFTA suffers from many shortcomings,” Abayasekara told the forum, jointly organized by the IPS and Federation of Chambers of Commerce & Industry of Sri Lanka to mark World Consumer Day Thursday.

Political tensions are often blamed for it but resistance by member states to import risks, through large sensitive lists, are equally important, she said.

“Unfortunately, trade policy regimes are still influenced by the notion of import substitution. Producer welfare is emphasised but benefits to consumers are ignored.”

Opening up trade within the region through free trade deals could help avoid high cost to consumers mainly through cheaper imports.

When negotiating trade deals, imports are often viewed disapprovingly owing to challenges they pose to domestic industry, Abayasekara said.

A perception survey that was part of the study showed that political economy concerns from conflicting interests of diverse stake holders have marred pure economic reasoning on trade policy decisions in South Asia.

Ninety-six percent of those surveyed felt trade talks were influenced by political priorities rather than economic logic and 61 percent of them felt SAFTA was not an effective instrument to get benefits from trading in the region.

Opposition from influential business groups to the proposed Comprehensive Economic Partnership Agreement with India, to replace the existing free trade deal, meant it was politically safer for the government to stall in the negotiations, Abayasekara said.

The study found that consumers were generally unaware of the consumer welfare benefits of liberalising trade.

“Most consumer groups have limited knowledge and little or no representation in the trade policy-making process, as opposed to lobby groups among domestic producers and industrialists which make it easier for political forces to align with local businesses,” Abayasekara said.

The study also noted misleading publicity campaigns telling consumers that buying local products is ‘patriotic’.

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