Trade Barriers

As we all know, its really hard to hold an international trade without entree to the domestic markets of other states and this trade facilitation has been continuously encouraged by the WTO/GATT treatment. Although there is high attending sing the free trade, certain barriers imposed chiefly by the importing state are rather normal particularly in developing states. Though this block the freeness of international trade there are statements with just grounds, such as local industry protection, as a solution for dumping behaviour by foreign Governments or companies and besides solution for balance of payments shortage.

As like other states trade barriers in Sri Lanka is besides chiefly of two types,

Duty Barriers

Non Tariff Barriers

Duty Barriers

The most widely utilised barrier to market entree for goods is customs responsibilities ; besides this is referred to as duties.

An import duty is a revenue enhancement that is levied on goods when they imported to a state for domestic ingestion and this has been the most common method used by authoritiess to protect domestic industry from foreign rivals and besides as a agency of raising authorities gross.

In the current universe states are switching from high duties to value-added for gross intents and such revenue enhancements are besides based on the value of the goods

In general there are three types of duties:

An ad valorem duty that is based on a fixed per centum of the value of the good that is being imported ; for illustration, 7 % of the value of computing machine equipment ;

A specific duty that prescribes an sum of money and does n’t change with the value of the imported good but may based on the measure or weight of the good ;

A assorted duty, which is a combination of the two types of duty antecedently mentioned.

Although there are three classs of duties most normally used duty type is Ad valorem imposts responsibilities. These custom responsibilities remain an of import barrier to merchandise because of below grounds,

Most developing states still maintain high imposts responsibilities.

Developed states still have high, to really high, responsibilities on specific groups of ‘sensitive ‘ industrial and agricultural merchandises.

In competitory markets and in trade between neighbouring states, a really low responsibility may still represent a barrier

In simple footings when application of duties it will raise the monetary value of the importation good which most of the clip it ‘s good above the local production as shown in the below tabular array and figure.

Table 1

Figure 1

Current duties in Sri Lanka are under following classs.

Customss Duty

Surcharge

Port and Aviation Levy ( PAL )

Cess Levy

Value Added Tax ( VAT )

Exercise Duty

RIDL

SRL

State Constructing Tax ( NBT )

Tendencies in duty barriers in Sri Lanka

Rs. Millions

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Entire Imports

554209

532964

584491

643749

811138

891359

1066689

1250386

1525705

1172618

Tax Gross

182392

205840

221839

231597

281552

336828

428378

508947

585621

618933

% of Tax on Imp

32.91

38.62

37.95

35.98

34.71

37.79

40.16

40.70

38.38

52.78

Table 2

Beginning: Central Bank of Sri Lanka, Economic and Social Statistics 2010

As per the Table 2, there has been addition of import revenue enhancement part to the authorities gross and this clearly shows that state has failed to ease the international trade with respect to the revenue enhancement place. This may go on chiefly due to the civil war that Sri Lanka experienced during past twosome of decennaries where war disbursals was a important sum of entire authorities disbursal which to a great extent depended on import revenue enhancement.

Figure 2

Beginning: Central Bank of Sri Lanka, Economic and Social Statistics 2010

As per the figure 2, over the last decennary the import revenue enhancement % have maintained between 30 % -40 % which is rather high and at the ulterior portion it has hit more than 50 % which restrict the free trade significantly.

Figure 3

Beginning: Central Bank of Sri Lanka, Economic and Social Statistics 2010

As per the figure 3, entire import value and the revenue enhancement gross are really near and in the ulterior portion of the decennary it became about the same which implies that the imports were to a great extent taxed during that period.

Non Tariff Barriers

Non-tariff barriers are barriers that restrict imports in some manner other than the infliction of a duty. Normally they are many in Numberss and may impact on trade direct or indirect agencies to restrict or curtail free trade. These barriers can be listed as follows,

Quantitative limitations:

Quota

Voluntary Export Restraints

Automatic and not automatic Licensing

Other Non Tariff Barriers:

Exchange controls

Embargos

Production subsidies.

Technical Regulations, Standards and conformance appraisal processs

Sanitary and Phytosanitary Measures

Lack of Transparency in authorities demands

Unfair and arbitrary application of the authorities ordinances

Customss formality and processs

Pre cargo review

Beginning Requirements

Government Procurement Requirements

Tendencies in non-tariff barriers in Sri Lanka

Although Sri Lanka usage duties as the chief manner of barriers to merchandise, there are few non-tariff barriers besides exists which chiefly affect the free trade in agricultural merchandises such as,

In the fruit industry in Sri Lanka there are few authorities ordinances and origin demands such as fruit importing from a non turning country ( Country ) into Sri Lanka is prohibited

Example: Importing of fruits from Dubai is prohibited since Dubai is a non turning country.

and besides fruit that has even a small commercial production are non allowed to import.

Another chief illustration is Fertilizer subsidy ( which is about 10 % of existent cost ) given to the Rice husbandmans make the production cost of Rice well down. This encourage paddy husbandmans to re-engage in the production and as a consequence they have succeeded to bring forth at a really low cost which enable them once more in the rice market. On top of this importing of Rice is restricted through an import licence given merely to import selected assortments such as Basmathi Rice. These alterations have restricted the international trade with respect to rice.

With respect to Sanitary and Phytosanitary demands for an illustration forestalling any agricultural based trade good or wood/timber from South American states are restricted due to the fright of reassigning any insect which may destruct the local Rubber plantation

Tendency in both barriers in Sri Lanka

When measuring last 5-6 decennaries there is a twosome of fluctuations in the trade barriers ; which have caused large impact on the international trade.

In 1950’s-1960 ‘s there were barriers on few selected countries such as limitations on foreign investings and nationalisation of the Port, Insurance and the rider conveyance services ands some rigorous import and exchange limitations. But after 1960 boulder clay 1977 Sri Lanka to a great extent moved towards protectionism trade policies with full of trade barriers.

With the alteration of the authorities in 1977, the trade policy alteration, new set of policies were introduced which more towards the unfastened market free trade, such as,

Infrastructure developments such as Roads and Port sector.

Trade and Exchange controls were liberalized.

Liberalization in Transporting opening to foreign bearers to function

Incentives were offered to heighten foreign and domestic investing

Promote the private sector to take prima function in the economic advancement

Removal of the import quota system

Though there is a good start in 1977 in footings of trade facilitation, after 1990 ‘s we can see clear decelerate down in footings of trade facilitation and besides there were rather a important sum of trade barriers are besides in topographic point. The civil war which Sri Lanka experienced might impact this state of affairs well.

Decision

When measuring Sri Lanka in trade facilitation context, as of now the state shows a really minimum betterments or negative betterments on taking trade barriers, which governments should hold to earnestly set some attempts in bettering the below three major countries,

Border direction establishments – Sri Lanka Customs

Invest in trade related substructure

Transport ordinance policy

Figure 4

When comparing the LPI 2010 mark with the LPI 2007 Sri Lanka lost its place by 45 ranks which display a immense bead in footings of trade facilitation.

Although LPI shows a important bead in the rank, Sri Lanka was among the higher side in footings of World Bank 2010: “ Making Business Report ” among the developing states. For illustration efficiency in managing for both Imports and exports are comparatively higher comparing with developed states.

Since now Sri Lanka is free from the civil war and the major attending is on developing the state ‘s economic system, it ‘s really of import that Sri Lanka should ease the trade by spare down un-necessary high import duties and besides non-tariff barriers which will decidedly hold a really positive impact on free trade.

And besides in this procedure Sri Lanka needs to give strong attending on bettering the LPI ‘s ranks in below countries,

Efficiency of the imposts clearance procedure

Quality of trade and Transport related infra-structure

Ease of set uping competitively priced cargos

Competence and quality of logistics services

Ability to track and follow cargos

Frequency within which cargos reach the consignee within the agenda or expected clip.

If Sri Lanka can make the above betterments at that place will decidedly be a remotion of important sum of trade barriers which facilitate the trade tremendously which will straight assist to develop the state ‘s economic system.