Home > Editor's Picks > WILL TRADE REFORMS USHER IN TOUGH TIMES FOR SMEs?

WILL TRADE REFORMS USHER IN TOUGH TIMES FOR SMEs?

'

 

"The Government is ready to tackle any negative fallout of trade liberalization" - State Minister of Finance, Eran Wickramaratne.

It has been empirically proven that friction-free international trade drives economic growth. Thus, it is argued that trade reforms are key in creating sustained economic growth. Trade accelerates economic growth through the efficient allocation of resources. It enhances competitiveness, and increases the variety of choice available to customers. However, free trade is not without liabilities – those local industries who cannot stand up to global competition fall victim of trade liberalization.

Loss of revenue of local companies may also negatively affect fiscal revenue, though such losses could lessen greatly in the long run as displaced labour shifts to higher-productivity jobs and higher rates of formal employment, including in export-oriented sectors. 

Some countries have shown that such negative impact could be mitigated to a certain extent. State (and in certain cases private sector) sponsored programs that assist local industries to step up their competitiveness, and initiatives of reskilling labour carried out in parallel to trade reforms, have shown results in curtailing losses to local industries and minimizing impact on income of affected workers. Such programs have especially helped those SME sectors that are most vulnerable to external threats.

Sri Lankan government is cognizant of potential adverse impact of trade liberalization. State Minister of Finance Eran Wickramaratne shared with Economy.lk similar measures the government is taking.

"The New Trade Policy highlights that tax revenue will increased in the short run due from higher imports. But we are also developing a trade-cost adjustment programme to address any short-term potential negative impacts of liberalization," said Wickramaratne.

The Government has formulated initiatives to enhance the competitiveness of Sri Lankan firms, in particular, SMEs, in domestic markets "by reducing barriers on imported inputs and getting rid of monopoly control of domestic inputs, maintaining competitive exchange rate, reducing the cost of regulation, and spurring service providers as well as producers of goods throughout the domestic production networks to become more efficient. In addition, a program of tariff phasing-out will be built into the proposed trade reforms so that import substitution sector will have adequate time to adjust and enhance their competitiveness."

The Minister added that the government will take steps to ensure that disadvantaged groups of the society too gain from trade liberalization. Trade reforms will assist women, whose labour force participation is much lower compared to males, despite them being increasingly educated. He added that trade reforms will promote gender inclusion.

Trade liberalization will enhance the export sector of the country, and that could lead to higher female participation in workforce.

 

Professor Rohan Samarajiva, the founding Chair of LIRNEasia, an ICT policy and regulation think tank active across emerging Asia and the Pacific, states that examples from other parts of the world have shown that higher gender equality can raise economy-wide productivity and thus raise the growth rate. This is backed by IMF and World Bank research which indicates that trade reforms and FDI reduce gender inequality in developing countries, improving labor rights and reducing discrimination. 

In the 2009 publication 'The Gendered Impacts of Liberalization: Towards "Embedded Liberalism"' edited by Shahra Razavi, on the impact of trade liberalization on rural communities states that women are usually disproportionately employed in export sectors such as agriculture, for example in the Sri Lankan context, tea, garments, tourism and IT-based remote provision of back-office services and call centers. These export sector jobs, which usually come with better pay, provide vital income for women, but also tend to contribute to their greater autonomy and empowerment as well as to family and social stability.

Leave a Comment

Comments