ETCA will be detrimental to Sri Lankan IT sector

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By 2017-06-19

Making a submission to people's commission on National Trade Policy, Secretary of Information Technology Society of Sri Lanka claimed that ETCA would be detrimental to Sri Lankan IT sector. Giving his submission to the commission headed by Prof. W.D. Lakshman, Wickremesinghe said that ETCA could adversely affect the Current Account and could widen the deficit.

"In the current account of the external sector there are for segments: Trade account, Services account, Primary income, and Secondary income. In 2016 we nearly reported 9 bullion USD trade deficits in the trade account. In the services industry, we recorded 2.8 billion USD surpluses. In the secondary income account where interest payment and dividends to foreign investors included recorded 2 billion USD deficits. The main income source to Sri Lanka is the Secondary Income where the foreign remittance are dominating. The net income from the foreign remittance is about 6.5 billion USD where Sri Lankans working in foreign countries are sending 7.2 billion USD and foreigners working here are sending 800 million USD outside the country. If we look at the other experience in such agreement we can easily refer to CAFTA (The Central American-Dominican Republic Free Trade Agreement) and NAFTA (North American Free Trade Agreement) agreements. NAFTA is signed between US, Canada and Mexico. The seven CAFTA members are Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic, and the United States. If you consider these counties US and Canada have excess capital with their big Corporates. The other countries got low cost labour. Exports to US improved from low cost countries. This increases the trade deficit of US to these countries. (US President Donald Trump in January 2017, claimed that US has 60 bullion USD trade gap with Mexico and he was against NAFTA and CAFTA agreements.) Some of the manufacturing plants in US such as automobile and textile were relocated in low cost labour countries take the advantage of reduced cost of production. That leads to loss of 500,000 to 750,000 jobs in US," his statement said.

He added, countries like Costa Rica privatized their government owned service sectors to US companies. Increased the movements of natural persons 'Mode 4', from other countries to the US, both legally and illegally as well via these agreements.

ETCA - beneficial or detrimental

He noted, the low cost labour India's Imports to Sri Lanka will grow rapidly increasing the trade deficit. Even now unbearable trade gap which is about 40% of the entire trade deficit will worsen, added that some of the manufacturing plants, for example in the tile manufacturing sector and the apparel sector are already planning to move to India from Sri Lanka. This will create some job losses in Sri Lanka.

"The government is privatizing our strategically important economic locations and industries such as ports, oil tanks, energy sector, and financial service sector. The Indian and Chinese corporates will buy those opportunities. As a result, many Indians will be moved to Sri Lanka legally and illegally as well. Looking at our current account, we can decide whether ETCA is beneficial or detrimental. Trade deficit will be increased due to increased imports from India. Income from the services will be declined due to the fact that those opportunities are given to foreigners. Foreign Service providers will take more dividends out of the country and therefore Primary income deficit will be further developed. Foreigners working in Sri Lanka will take more and more money out of the country which will reduce the net foreign remittance. 50% of the foreign remittance is earned by our mothers who are working in the Middle East. Their contribution to save the country from its huge trade deficit will be in vain due to this," he said.

Wickremesinghe noted, therefore it is absolutely clear that ETCA is detrimental for all four segments of Sri Lanka's current account. It is really sad that handful of so-called economists with vested interest are keep on promoting the ETCA agreement.

"If they are not with vested interest, then they must lack the economic analytical skills to understand the impact of ETCA. One of those is a chairman of a leading multinational company in Sri Lanka which imports more than 800 million Rupees from China and he is the chief negotiator in the Sri Lankan team with China-India FTA. This is clearly a conflict of interest. We urge the government to remove this person from this discussion adhering to the mandate for good governance," he added.

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