The proposed ‘Trade Adjustment Program me’ (TAP) is to smoothen the transition of firms and workers to the new market conditions created by trade liberalization. It provides protection for workers and firms who are likely to be affected by free trade agreements.
The paper identifies trade liberalization through removal of Para-tariffs, rationalization of tariffs, and bilateral trade liberalization through FTAs as a much needed and long overdue move. Through the TAP, firms and workers who are likely to be affected will be reallocated to new and productive sectors.
“Several sectors which are labour-intensive face a high level of protection, and so increased international competition following from trade liberalisation can impact wages and jobs. Labour market regulations in the country are still rigid, which heighten the difficulties for firms to respond dynamically to the new conditions and for workers to move more smoothly across industries,” the draft paper analyses.
The paper advices the Government to support local firms to enhance production capacity, venture into new markets, adjust current production to move from one line of business to another, and access new technology to upgrade their products and production processes parallel to trade liberalization process.The paper recommends the establishment of a Trade and Productivity Commission (TPC) to be the independent body that analyses TAP alongside the trade liberalisation process.
The Commission will investigate and respond to industry requests on tariff phase out. The TPC will consist of independent Commissioners possibly appointed by the Constitutional Council. The paper observes that the Government’s ‘National Export Strategy’ and the ‘Innovation and Entrepreneurship Strategy’ are integral to the TAP. The National Export Strategy provides a focused programme for 6 priority sectors to grow their exports and become more competitive.
Innovation and Entrepreneurship Strategy provides the platform for existing and new enterprises to innovate and become resilient.“Additionally, new schemes launched by the Government–‘Enterprise Sri Lanka’ and the ‘Market Access Support Scheme’ also provide specific financial support to firms looking to expand, improve innovation and productivity, and develop new products to new standards,” it adds.
The recommendations mentioned in the paper include making the labour market more flexible to smoothen adjustment, accelerating investment attraction to create new jobs for workers who will be displaced, establishing an Independent Commission to evaluate and recommend assistance, slower tariff phase-out and regional job training centres and job placement services. It also proposes to establish ‘Industry Competitiveness Councils’ to address industry-specific constraints. “The proposed ‘Industry Competitiveness Councils’ are not intended to provide subsidies or special treatment to compensate for low profitability. This institutional framework helps the Government not to give ad-hoc assistance without a proper mechanism, as it could create more inefficiencies, misallocation of resources and waste tax payer’s money. The idea is not to ‘pick winners’, as in the traditional industrial policy schemes but for firms to be ready to compete with international standards,” the paper explains.The analytical work conducted by the World Bank (together with Verite Research) and the Center for International Development of Harvard University has been considered in preparing draft paper.Consultation sessions have been held with officials of the Labour, Trade Union Relations and Sabaragamuwa Development Ministry, and members of leading chambers of commerce and industry to prepare the draft.