Export Subsidies in SrilankaExport subsidies are targeted to enhance consumer welfare,to maintain and develop infant industries and to protect domestic industry fromimport competitions. According to the WTO SMC Agreement Srilanka is exemptedfrom prohibiting export subsidies as its GNI is $961. As long as it’s GNI isless than $1000 it can provide export subsidies without any limit. In 2002srinlanka 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 thenstarted to decrease as the export subsidizing policies were not effectiveenough. This was due to the Rates of theCommodity Export Subsidy Scheme (Cess), Nation Building Tax (NBT), SocialResponsibility Levy, Special Commodity Levy (SCL) and VAT were increased. Thereare many raw materials that are needed to be imported in srilanka so the localcompanies can produce. So a tariff on them acts as an export tax which resultsin lesser exports and less export-oriented FDI is attracted. Srilanka has 10%export tax on Stainless steel scarp. The recent national trade policy of2015-16 emphasized on opening of foreign markets for srilanka’s exports. Italso said that the government will try to increase the export supply bydeveloping SMEs, better infrastructure and export financing. A liberal andtransparent import regime for imported inputs will is set up in order toattract more export oriented FDI.
Due to such policies the government canstabilize the declining exprorts.An export subsidy raises the price in the exporting countrywhich worsens the terms of trade by lowering the price of exports in worldmarkets. This means that if export subsidies increase then the term of tradewill worsen. This exactly what happened with Srilanka as after 2002(implementationof Subsidies) the terms of trade has seen a downward trend.
But since the2013(subsidies removed) the terms of trade have seen a slight increase andafter 2015(end of the phase out process) terms of trade continued to increasemore. 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