• Says ban goes against SL’s aspiration to achieve regional trading hub status
• Points out closing border at this juncture is not an advantage
• Warns move could put off investors in long term
• Says protecting domestic industries with tariffs might lead to lower productivity 

By Shabiya Ali Ahlam
The European Union (EU) recently highlighted concerns with regard to Sri Lanka’s import restriction that is currently in place to prevent the outflow of foreign exchange, calling the ban “unfair”.

EU First Councillor, Head of Political, Trade and Communications Section Thorsten Bargfrede pointed out that the move to restrict imports was not the ideal avenue, specially since the island nation aspires to become a regional trading hub.

“We feel that closing borders at this point is not an advantage for Sri Lanka, as it looks to become a regional trading hub,” said Bargfrede.

He stressed that imposing tariffs on certain industries to protect domestic industries is not helping their long-term competitiveness, as without feeling market pressure their productivity tends to contract.

Stating that a regional trading hub is one that allows goods to come in and out, Bargfrede said the EU believes that the current import restriction might work well for Sri Lanka in the short term, as there is a need to protect the currency. However, in the long term, the decision would lead to negative effects.

“Over time, it can reduce the attractiveness to European investors and lead to uncertainty and changing regimes is now what investors look for,” he added.

The head of EU trade also pointed out that Sri Lanka’s ability to pay for its imports from the Asian region from the foreign exchange earned by exporting two-thirds of its total export basket to the EU, US and UK, is “something to think about”.

However, he said that the EU does not plan to rectify a negative trade balance with Sri Lanka, as it stands for an open trading system, despite having a deficit.

Furthermore, Bargfrede stressed that the GSP Plus utilisation rate in Sri Lanka is relatively low and concentrated to few sectors and it is hoped the position improves in the future.

He also noted that while it is unfortunate that Sri Lanka has been reclassified as a lower-middle-income country, the good news is that the GSP Plus scheme would be available until there is a reclassification to a 
higher-income status.