SL could face severe consequences from continued import restrictions: experts

• Warn continuous import restrictions could worsen SL’s forex situation and BOP position in the long-run
• Say the policy places SL at odds with WTO rules on global trade

The continuation of import restrictions could lead to Sri Lanka facing severe consequences, cautioned international trade experts, which would eventually result in the national economy facing tariff retaliation.

Former Sri Lankan Ambassador to the World Trade Organisation (WTO) Dr. Dayaratna Silva asserted that prolonged import controls are not consistent with the WTO, and its high time such is addressed.

According to the economist, such forms of retaliation could have a significant negative effect on the country’s exports, thereby worsening Sri Lanka’s existing foreign exchange and balance of payment crisis. 

“My worry is the long-term industrial development of the country because of these restrictions. Resources are being inefficiently allocated as a result,” said Dr. Silva while addressing a webinar hosted by Advocata Institute that focused on the role of trade in Sri Lanka’s economic recovery.

Disagreeing with the government’s repeated protectionist moves was also Emeritus Professor of Economics Professor Prema-Chandra Athukorala.

“Selective intervention, without disturbing the incentive structure of the country as a policy is going to be a recipe for disaster,” said Prof. Athukorala who also pointed out that it must be acknowledged and understood that there is no way Sri Lanka can achieve economic growth without joining global production networks through trade.

The European Union (EU) Ambassador to Sri Lanka and the Maldives too expressed concerns, as he had already done on several occasions before, on the path embarked by the government.

“Without trade, for a small country like Sri Lanka, the prospect is not good,” cautioned Head of EU Delegation Denis Chaibi.

Furthermore, the need for Sri Lanka to actively embark on trade reforms came under fresh spotlight with Advocata Academic Chair Dr. Sarath Rajapatirana pointing out how the island nation has fallen behind its regional peers in this regard.

Dr. Rajapatirana suggested that as a first step towards trade reforms, the government must have a reform agenda that looks at simplifying the current import tax structure. 

He said this can be achieved by doing away with para-tariffs and introducing uniform tariff for imports instead.
Sri Lanka’s trade as a percentage of GDP has been low when compared to neighbouring countries such as Thailand and Vietnam, which indicates that the country has not fully exploited its opportunity to trade.  According to Advocata Institute, import restrictions such as banning a wide range of consumer goods since the beginning of April 2020, have further worsened Sri Lanka’s growth potential and has placed Sri Lanka at odds with WTO rules.