Export Subsidies in Srilanka

Export subsidies are targeted to enhance consumer welfare,
to maintain and develop infant industries and to protect domestic industry from
import competitions. According to the WTO SMC Agreement Srilanka is exempted
from prohibiting export subsidies as its GNI is $961. As long as it’s GNI is
less than $1000 it can provide export subsidies without any limit. In 2002
srinlanka issued some subsidies programs which include income tax Concessions,
indirect tax concessions, Export Development investment support scheme.
Srilanka can use them till 2015.

After 2002 we can see that the exports increased but then
started to decrease as the export subsidizing policies were not effective
enough.  This was due to the Rates of the
Commodity Export Subsidy Scheme (Cess), Nation Building Tax (NBT), Social
Responsibility Levy, Special Commodity Levy (SCL) and VAT were increased. There
are many raw materials that are needed to be imported in srilanka so the local
companies can produce. So a tariff on them acts as an export tax which results
in lesser exports and less export-oriented FDI is attracted. Srilanka has 10%
export tax on Stainless steel scarp. The recent national trade policy of
2015-16 emphasized on opening of foreign markets for srilanka’s exports. It
also said that the government will try to increase the export supply by
developing SMEs, better infrastructure and export financing. A liberal and
transparent import regime for imported inputs will is set up in order to
attract more export oriented FDI. Due to such policies the government can
stabilize the declining exprorts.

An export subsidy raises the price in the exporting country
which worsens the terms of trade by lowering the price of exports in world
markets. This means that if export subsidies increase then the term of trade
will worsen. This exactly what happened with Srilanka as after 2002(implementation
of Subsidies) the terms of trade has seen a downward trend. But since the
2013(subsidies removed) the terms of trade have seen a slight increase and
after 2015(end of the phase out process) terms of trade continued to increase
more.

Bibliography

http://echelon.lk/home/reviving-sri-lankas-exports-and-attracting-fdi-to-the-export-sector/
http://www.ft.lk/article/24793/Multilateral-trade-rules-on-export-subsidies-and-implications-on-SL

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