Financial Times

Steady tariff policy needed
Successive governments have always talked about how they support local industry. Both our main political parties, whether in or out of power, have mouthed the usual platitudes about protecting domestic industry and how much they value the efforts of local entrepreneurs.

This government is no exception and is perhaps the most protectionist of the governments we've had in recent years, no doubt owing to the influence of the JVP, which has significant support from the SME sector.

Yet, despite these governmental claims, the lack of protection, and of appreciation, has been a perennial complaint of our businessmen, whether big or small, tycoons or SME sector. Obviously there is a wide gap between government claims and perceptions, and reality as seen by the private sector.

Last week we reported how the chairman of Singer (Sri Lanka), Hemaka Amarasuriya, complained about the lack of consistency in government policy on tariffs and how such inconsistency is making things difficult for industry. His company would like to remain in manufacturing but finds that constantly changing tariffs make it impossible to plan ahead. Each time the government changes, the tariff also changes. Local manufacturing industry is sometimes not viable in a globalised economy where big foreign companies that have cost efficiencies purely on account of economies of scale can penetrate local markets with the lowering of tariff and other protectionist barriers.

Small manufacturers in Sri Lanka, where the domestic market does not provide such economies of scale, simply find it impossible to compete against cheap imports because of low import tariff barriers.

Many industrialists have quit in disgust. Others have gone bankrupt while some soldier on with mounting losses hoping for a turnaround. Singer's refrigerator, freezer and washing machine production, which are partly only assembly type operations, will continue. These are not hi-tech products. They can easily be made in this country saving scarce foreign exchange and providing sorely needed jobs. It makes sense to give them some kind of protection by maintaining high tariffs on selected imports.

Developing countries are allowed such protective measures even under the new WTO rules. Even advanced industrialised countries like the USA, EU, Japan and South Korea protect domestic industries.

Another example of how inconsistent import tariff policy has hurt local industry is the fate of our coconut oil mills. Hundreds of mills have been forced to close in the last decade or so because they were unable to compete with cheap imported edible oils, mainly palm oil. This was because different governments tinkered with import tariffs after lobbying by other industry sectors such as desiccated coconut producers. Only now is some effort being made to revive coconut oil mills by imposing a special tax on edible oil imports from January 2005.

Yet another example of how inconsistent tariffs hurt local business is the fate of our paddy farmers. There have been times when governments have lowered import duty and allowed rice imports just when the local harvest was getting under way, creating a glut that causes prices to drop and putting our farmers in difficulty. Of course rice imports were done with the intention of keeping consumers happy but to allow imports during the local harvest is the height of absurdity.

Fortunately sanity seems to have prevailed this time around and aid agencies wanting to help tsunami victims have been told to buy their requirements of rice locally instead of importing it. This is the sort of rational thinking that is required. Maintaining consistency in tariff policy should now be easier because both main political parties have embraced the principle of the open economy.

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