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31st January 1999

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Controversial fast track Free Trade Agreement causes concern

Can new consumer authority stop dumping?

By the business desk

A more powerful consumer protection body may have to crack down on unfair trade practices arising from the Free Trade Agreement (FTA) in the absence of strict anti dumping laws, like counterveiling duties. Consumer watchdog, the Fair Trading Commission is expected to get more teeth when it amalgamates with the Department of International and Internal Trade and Commerce this year.

Chairman, Fair Trading Commission, D J Pathirana told the Sunday Times Business that The Consumer Protection Authority Bill of 1997 will be amended to establish a new authority.

The new Authority, the Consumer Protection Authority would ensure healthy competition by allowing market forces to determine prices, Mr. Pathirana said.

With the controversial fast track FTA to be operative from March, industrialists face the stark fact of a slow death, in the absence of protective anti dumping laws.

The negative and preferential lists of the FTA are still in the process of being finalised.

Cheap Indian goods flooding our market at zero duty will kill uncompetitive indigenous industries, industrialists say.

Indian goods may well be sold in Sri Lanka at zero profit or below profit in order to capture the market, they say. Once these cheap Indian goods have beaten the more expensive Sri Lankan counterpart product out of the market, i.e. when some Indian goods have a near monopoly here, their prices usually increase to make up for the lost profits and sell at higher prices, they said. The same products that are exported across the straits at a cheap price are sold in India at higher prices, making a reasonable profit, they say.

The Indian government also is known to have a consistent policy of subsidising many areas of exports which assist dumping policies. Whilst India has anti dumping laws in place, Sri Lanka has no such safeguard for its industry.

According to the Department of Internal Trade, there are over 400 consumer welfare societies islandwide. The FTC and Department of Internal Trade formed a consumer lobby called FORCAST, which is led by Mr. Leel Gunasekera to conduct consumer awareness programmes.

But the lack of funds to hire experts to lobby respective agents is a major stumbling block for most consumer lobbies.

While India has powerful consumer protection lobbies (like Upoktha Mithra), our local industrialists and consumers have little or no protection as the existing legislation and an assortment of consumer lobbies have proven to be ineffective, industry sources said. But officials from the Internal and External Commerce and Food Ministry say the Agreement has inbuilt safety mechanisms where a Joint Committee established at a ministerial level would ensure that benefits of trade expansion are equitable to both parties.

The other option is to raise the issue with the World Trade Organisation (WTO), since both countries are signatories, officials said.

Both avenues are lengthy, costly and time consuming, involving a lot of bureaucratic red tape. For instance, the Agreement permits a Joint Committee to set up a Working Committee/Sub Committee if necessary to look into problems. This would include a joint apex chamber of trade and industries to represent the views of trade and industry. The apex chamber consisting of one chamber nominated from each country, tries to resolve the matter amicably. If they fail, it is referred to the arbitral tribunal.

While the Joint Commission takes six months to settle a dispute, the Agreement is unclear on the time period set for an amicable settlement or arbitration. If it cannot be an amicable settlement, the next question is the time limit for arbitration.

However, Chairman of the Advisory Council for Industry, Mr. Cubby Wijetunge said that anti dumping laws are cumbersome and unnecessary. He says that while the consumer is capable of selecting quality goods, counterveiling duties would to some extent prevent the cheap inflow of goods into our country.


Placement laws to be revamped

By Mel Gunasekera

The SEC will revamp exisiting rules for private placements in listed companies, SEC officials told Sunday Times Business.

Critical areas like pricing, dilution, the buyers and aspects of control are under scrutiny.

These reforms would ensure a high degree of transparency and security while allowing listed companies easier access to capital.

"The proposals are under consideration and a consultative paper would be circulated to market soon," SEC Director General, Kumar Paul told The Sunday Times Business.

Existing rules permit a company to private placements of a maximum of 12 per cent of the issued share capital.

"There has been a noteworthy trend in our securities market last year for placement of new shares privately with institutional investors. Through a private placement a company can raise capital by placing new shares with persons or institutions selected by the company," he said.

Apart from the infusion of fresh capital, a placement may afford the introduction of foreign collaborators with technology and the acquisition of management control.

In a private placement, shares are not offered to the general public. Since the new shares are not offered to the existing shareholders, there is an element of dilution of their holding. Private placements permit the raising of a large amount of capital by obviating the need to conform to the discipline of rights issues.

New proposals include a rule that the size of the offering should continue to be restricted to a maximum of 12 per cent of the issued share capital prior to the issue.

However, in view of the relative smallness of Sri Lankan companies and the requirement of capital for expansion, it is proposed that a company which affords its existing shareholders an opportunity of retaining their percentage shareholding in the company, could be permitted to embark on placements without any size limitations.

This could be achieved through the mechanism of the company first making a rights issue and thereafter placing unsubscribed rights through an open offer/placement.

In an open offer, shareholders will be permitted to retain their percentage in the enhanced capital at a price decided by the company or through a book building exercise.

The present pricing practice where the shares should not be placed at less than the market price of the particular share is to be continued. However, in view of difficulty in determining the strike price in a book building exercise, particularly when placing with international fund managers, shares could be placed at a discount of no more than 10 per cent of the market price.

While a placement affords an opportunity for the company to expand its investor base, the SEC currently does not regulate or mandate the buyer of a private placement. In view of certain minority shareholder concerns that controlling shareholders could consolidate control through placements, the SEC believes it is necessary that some form of guidelines are established to prevent abuse.

The new proposals would state that the issue should be placed with people who are not connected with each other or with any other substantial shareholder/director.

The issuer would be encouraged to give preference to long term investors. It is also proposed that no more than 20 per cent of the total placement should be allocated to one party or discretionary managed portfolios under the management of the same portfolio manager.

It is also proposed that a private placement should be restricted to once in two years.


Econsult to downsize

Econsult (Pvt) Ltd, one of Sri Lanka's private economic research agency, is downsizing its operations and the re-structuring is expected to take place in two or three months, a company spokeswoman said.

Asked to confirm reports that the research agency was closing down, Gayathri Gunaruwan, head of Econsult's Economic Consultancy and Research, said that they were in the process of downsizing the operations. "This process may take two or three months," she told The Sunday Times Business.

Econsult was set up by Dr Howard Nicholas, a well known Sri Lankan economist based in the Netherlands, in the late 1980s to provide professional economic research and economic projections to the private sector. It was the first agency of its kind in Sri Lanka and had a top team of economists including Hiran Mendis, the current Director General of the Colombo Stock Exchange and his wife, Ramya on its staff, during its formative years.

Nicholas was also believed to have been helping in the setting up of the Institute of Policy Studies (IPS), a semi-government thinktank, securing financial assistance from the Netherlands where he has many contacts. Political sources said that Howard was believed to have fallen foul of the new People's Alliance government soon after it assumed power, for preparing a series of economic reports questioning PA policies.

He then went back to research work in the Netherlands, leaving the management of Econsult in the hands of other local experts.

Other economists said that the problems at Econsult arose due to the inability to attract top professionals after Howard's departure.


Across the Kelani in 2001

The gentle old giant that withstood great burdens for more than a century graciously gave way to its successor recently.

A billion rupee project to build two new bridges is underway to replace the Victoria Bridge better known as the Kelani Palama built in 1895.

The construction of the new bridge will be in two phases. Phase one was completed in 1992 at a cost of Rs. 735 million with a grant from the Japanese government. Phase two of the project estimated to cost Rs.1.2 billion commenced construction last year with a project loan by the Japanese government. The loan is payable over 20 years after a 10 year concessionary period. Construction is expected to be completed by September 2001.

Phase one underwent some renovations recently to accommodate the heavy traffic flow between Peliyagoda and Armour Street, Mr. Matoba of the Japan Bridge & Structuring Institute said.

Officials said they planned to re-use parts of the bridge to construct other bridges since they were in good condition. The wood poles used in the foundation of the old bridge too are still in good condition. Pic by Lakshman Gunetilake


Mind your business

Price cut

All this while it was the cellular networks who were fighting each other to woo customers.

Now, the privately owned landline operators are also in the fray and the state sector ex-monopoly is feeling the pinch.

So much so that the latter is likely to announce a reduction in tariffs shortly, top executives say.....

A rethink

There was an uneasy calm in the Colombo Stock Markets in the run up to the Wayamba polls and everyone knew major institutional investors were holding tight to funds until the results were known.

They expected to pump in the dollars if the blues won, but that did not happen.

The way the poll ended - with doubts from all quarters - has made them rethink strategy, so there will be no large scale infusion of funds in the near future, brokers say....

More jobs

And still on the subject of polls, the blues will have to hold the 'big' ones next year, come what may.

Preparations are under- way even now, we hear, and one of the instructions sent to state departments and corporations is to provide more job opportunities.

Each institution will have to fill its ''quota'' of unemployed graduates too, we hear......

Crying fowl

An EGM was stopped in its tracks last week when the law intervened on the entry of new shareholders to a growing company.

Old scores have to be settled first before they could transact new business they were told by lawmakers acting on the orders of those who hold the coffers.


Business community confidence shaken

A singular achievement of the Peo- ple's Alliance government was the continuity of economic policies. The PA government had the commonsense and pragmatism to realise that the only realistic policy framework was a market oriented liberal set of policies.

In fact, some have faulted it for being far too market oriented and for liberalising trade and foreign exchange and going too far on privatisation.

The government also took a number of measures to build confidence in the private sector and made it very clear that the private sector was the engine of growth.

It not only repeated this phrase ad nauseam, but its programme of privatisation gave greater confidence to the government intent to let the private sector manage business enterprise. Successive budgets made this very clear.

There were undoubtedly some lapses which did not enable the private sector to play its lead role, but the last four years had established beyond doubt that the government was supportive of private enterprise.

In fact trade chambers and leading businessmen were rather muted in their criticism of government economic policies and often praised the government, especially its budgets.

A dramatic change has occurred. Leading businessmen and trade chambers feel the government has been rather unmindful of their concerns. Despite trade chambers having expressed their reservations on SAPTA and SAFTA as likely to have adverse impacts on the country's agriculture and industry,the President has gone ahead with an Indo-Sri Lanka trade agreement which appears to have gone further in liberalising trade between the two countries than envisaged in the earlier agreements.

It may be that when the detailed clauses are analysed some of the fears of the business community may not be justified. They may be reacting without an in-depth knowledge of the details and their implications.

The business community cannot be blamed for that as the provisions of the agreement were not made known to them. Be that as it may, the problem that has emerged is perhaps more serious than the issue with respect to the liberalisation of trade between the two countries.

The business community feels cheated by the fact that the government did not consult the business community before coming to such an important agreement, particularly so as many of them had expressed reservations about the liberalisation of trade between the two countries.

It has breached the confidence between the private sector and the government. A sad situation in a country where the government itself expects the private sector to play the lead role and be the engine of growth. The recent breach is only a dramatic manifestation of the fact that consultation between the government and the private sector was very minimal by this government.

It is true that the President had meetings with private sector organisations from time to time and Publicised these events in the media. It is also well known that the President met with certain key private sector leaders from time to time. It is also true that most of these leaders were highly pleased with the assurances she gave at these meetings.

But what was lacking was a follow-up of the discussions with concrete actions. What was missing was an institutionalised channel by which decisions affecting the business community could be discussed, decisions taken and implemented. And that precisely is what is needed even at this late hour to make the oft repeated cliché that the private sector is the engine of growth a reality and make the economy click. Will this happen?


Kill the environment and let people live

By A.R.P. Wijeyesekera

"Environment" was not a word in the English language in the early thirties. This word does not appear in the Shorter Oxford English Dictionary of Historical Principles 1933. Environment is defined in the Concise Oxford Dictionary 1968 as "surrounding; surrounding objects, region, or circumstance".

The Chamber's Dictionary 1950 defines environment as "a surrounding: conditions influencing development or growth". This is the definition which has been expanded today to cover many aspects, some of which could retard the growth of developing countries.

Among many factors, there are three which deserve serious consideration when studying the growth of a developing country. The most important factor is the increase in population. The population of Sri Lanka (Ceylon) was less than 3 million in 1891. It rose to 4.5 million in 1921 and to 8.0 million in 1953. The population was 12.7 million in 1971 and 18.3 million in 1996. It will soon reach the 20 million mark.

The next most important group of factors is food, clothing and shelter. It could be said that Sri Lanka has made great strides in clothing and shelter over the last few decades. It is a fact though that the country does not yet grow sufficient food. The annual imports are too great.

Electricity has advanced rapidly as a vital need for development. It now joins food, clothing and shelter as a measure of the state of development of a country. Let us look at clothing first. There are many textile and garment factories in Sri Lanka today. The design and layout of the buildings are good.

The imported machinery is modern though the factories are not fully automated. The conditions of work are satisfactory. Electricity is vital for this industry.

Sri Lanka has done well in recent years in providing housing for its population. The mud huts in the villages in colonial days, have given place to structures with cement, bricks and clay tiles. Line rooms on estates are giving way to twin cottages. There are many new multi-storied buildings in cities and towns.

The search for votes has prevented successive governments from reducing the drift to cities and the squatting on public property. Increase in housing stock has resulted in substantial increase in the consumption of electricity. Well-lit housing is today recognised as a basic need and this has to be done with electricity.

Electricity does not play as great a part in agriculture as it does in clothing and shelter. Factories processing food, use electricity for refrigeration and drying. The lack of success in agricultural policy in Sri Lanka could be attributed, to some extent, to an excessive emphasis on environmental considerations.

The needs of humans must take priority in any decision to increase reservations. Special fauna and flora should be confined to defined areas.

A wild elephant destroying paddy, or a leopard threatening a village must receive short shrift. A rare plant must be transplanted or propagated in the Sinharaja forest or other appropriate location.

The needs of human beings in Sri Lanka today are far more important than any other considerations.

What is more important? The preservation of sanctuaries for birds within a few miles of the centre of Colombo city or the use of such lands for housing as the city gradually expands outwards? Should wild elephants be allowed to destroy sugar plantations or vital paddy fields? If a pest destroys vital agriculture, then such pests must be effectively eliminated.

Let us now look at two instances where unacceptable environmental considerations impede progress on projects which are as vital to the progress for this country as our increase in food, clothing and shelter.

The first of this is the Upper Kotmale power generation project. This has been stymied by people to whom the government has given excessive powers which, even in good faith, can retard development.

We have an absurd and laughable situation in which one set of persons appointed by the government threatens to take another set of persons appointed by the government before the judicial authorities of this country. Surely, government could knock heads together and instruct the two authorities to stop acting like peevish school children.

It appears that a change in scenery is the main objection adduced by the Environment Authority in support of its objection to the implementation of the Upper Kotmale power project. Most specifically, it is said that a few waterfalls will lose their water and disappear when the Upper Kotmale power project is completed.

Cannot environmentalists project their thoughts forward to the not-too-distant future when thirty million Sri Lankans hungry for electricity would not care a damn as to whether there was even one six foot high waterfall in .the country. Does even one environmentalist in Sri Lanka dare place the St. Clare's falls in Talawakalle alongside Niagara falls or the Victoria falls? The Environmental Authority must be put in its proper place.

The other power project which is encountering heavy weather today is the coal-fired power station in the Kalpitiya peninsula. People with no knowledge of the subject are enjoying themselves drawing on their imagination.

They claim that a church in the neighbourhood will be damaged very seriously. Crops will disappear and fertile agricultural land will soon turn in to a desert. Plant life and forest trees on the mainland, downwind of the power station will diminish. Fisherfolk in the areas will lose their livelihood. This is nonsensical!

The whole Industrial Revolution in England and Europe was powered by coal. There were some mills powered by water wheels. America too would have depended on coal during the initial stages of its industrialisation. There was some oil. This brought the motor car to the fore. Middle-East oil started flowing into America and Europe only after the Second World War.

London was lit by electricity from coal-fired power station until long after the Second World War. So too was the rest of the United Kingdom and most of Europe. Can any visitor to England and Europe say with conviction that he can see signs of deterioration attributable to the Age of Coal. Are not the cities clean and countryside green?

Was it not acceptance of pollution during their developing years the chief reason why western countries are the richest in the world today?

Should not Sri Lanka send its Environmental Authority home immediately and concentrate it's government's attention on rapid development of all its resources for the benefit of its human beings. All obstacles must be dealt with swiftly, summarily and without sentiment.

Let the government therefore authorise Ceylon Electricity Board to override the objection from the Environmental Authority or other like misguided persons. Let the Ceylon Electricity Board proceed, even faster than it can, with the implementation of Upper Kotmale Power Project and the Kalpitiya coal-fired power station. Let the Ceylon Electricity Board also speed up the Kukule Dam and the associated power station.

Let the CEB also introduce rapid movement into the Uma Oya Project. Electricity from this project too must be brought on stream as quickly as possible.


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