By: Staff Writer
September 11, Colombo (LNW): Sri Lanka’s tariff liberalisation plans face a potentially dangerous contradiction: the Government wants greater trade openness and renewed Free Trade Agreement negotiations, but the institutional machinery required to manage the economic disruption caused by those reforms remains weak, according to the Centre for a Smart Future (CSF).
The issue extends beyond tariff rates. Opening the economy can expose inefficient domestic producers to foreign competition, forcing companies to restructure and potentially displacing workers and capital. Without an adjustment mechanism capable of anticipating and managing those consequences, tariff reform could quickly become politically unsustainable.
CSF’s analysis warns that Sri Lanka has already travelled down this road. A tariff reform initiative launched around a decade ago faced intense industry opposition and political pressure, ultimately contributing to the reform effort being stalled.
The Government now has an opportunity to avoid repeating that cycle.
Significantly, the institutional solution is not entirely new. A comprehensive framework for a trade adjustment programme was approved by Cabinet in early 2019. Yet the mechanism was only nominally operationalised, leaving Sri Lanka without a fully functional system for managing adjustment pressures.
CSF argues that the technical groundwork therefore already exists. What is missing is the political and institutional commitment to implement it with credibility.
At the centre of its proposal is an independent Trade and Productivity Commission with a dedicated Secretariat and strong analytical capacity. The commission would be expected not merely to listen to affected businesses, but to independently evaluate evidence, identify genuine adjustment needs and monitor whether agreed measures are implemented.
This distinction could become critical when powerful industries begin demanding protection once tariff barriers are reduced.
If the adjustment process becomes another ministerial lobbying channel, the danger is that temporary support could turn into permanent protection. That would defeat the purpose of tariff rationalisation and potentially keep inefficient industries dependent on state intervention.
CSF consequently proposes Industry Competitiveness Councils to tackle regulatory and trade-facilitation constraints affecting individual sectors. Such councils could identify whether an industry’s difficulties arise from excessive regulation, poor infrastructure, financing constraints, skills shortages or genuine exposure to import competition.
Workers require a parallel adjustment pathway. CSF recommends TVET-based retraining to help displaced employees move into emerging industries rather than leaving them dependent on unemployment or welfare support.
Investment promotion should likewise be time-bound and targeted towards activities capable of absorbing displaced workers and capital.
The fiscal dimension cannot be ignored. Sri Lanka’s limited fiscal space means adjustment assistance cannot become another open-ended subsidy programme. Public funds must be concentrated on interventions that demonstrably improve productivity, employment and competitiveness.
The central lesson is therefore clear: tariff liberalisation cannot be sustained through political firefighting after opposition erupts. Sri Lanka needs the institutional architecture before liberalisation generates pressure.
Establishing that machinery now would allow the Government to manage resistance transparently, protect genuinely vulnerable workers and firms, and prevent trade reform from becoming another unfinished economic transformation.
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