ETCA, for what and for whom?

01 May 2016 - Editorial

ETCA has become the talk of the town lately. What really is ETCA?

ETCA is the abbreviated term for ‘Economic and Technological Cooperation Agreement’ to be signed between the Indian and Sri Lankan governments. The purpose of the new agreement is to expand the scope of the free trade agreement signed between India and Sri Lanka in 1998 to include services and investment. Free trade agreements are signed to remove tariffs and similar restrictions and liberalise trade between countries. This removal of trade restrictions is called ‘liberalisation of trade’. ETCA is only a part of the larger project by the government to liberalise trade.

Why sudden trade liberalisation?

This is not a sudden change. During the past few decades powerful organizations such as the IMF, the World Bank and the WTO have been exerting immense pressure forcing countries to remove trade barriers. These institutions are of the opinion that the goods, services and capital should flow freely between countries. Such economic policies are called ‘neoliberal economic policies’. Since 1977, the Sri Lankan government has also been following these neoliberal economic policies.

The government is currently facing an economic crisis. However, the government, along with international institutions see this crisis as an opportunity to execute wider and deeper neoliberal economic policies. The current drive by the government to liberalise trade is only one extension of the economic policies that were followed during the last few decades. The outcome of these neoliberal policies strengthen markets and weaken society. Although this facilitates opportunities for wealthy sections of society who possess capital to make more profits, workers and consumers will have to face difficulties like falling wages and rising cost of living.

Consequences of liberalising trade

There are many negative consequences. Because the global economy is in crisis at the moment, the global demand for goods has fallen. Therefore, when a country like Sri Lanka liberalises trade, increased levels of imported goods will start flowing into the country. Sri Lanka does not have a credible industrial policy and the current government has not declared such a policy either. In that context, exports are unlikely to increase. Therefore the higher chances are for imports to outweigh exports which will in turn aggravate the economic crisis facing the country.
At the same time, liberalisation of trade will affect wages. In Sri Lanka the wage levels are relatively higher. When the service sector is opened to businesses, it will result in an inflow of foreign services into the country resulting in the general wage levels to drop, causing a distress to all workers.

Widening economic disparity in society is another problem. Trade liberalisation measures adapted since 1977 caused dispossession of livelihoods and incomes for local farmers, fishermen and small scale producers. For example, import of fish, is directly connected to the livelihoods of communities engaged in fisheries. Though our country is surrounded by the sea, public investments by the state to develop fisheries have been dismal. Importing fish instead of increasing investment in fisheries has negatively affected the fishing communities. Although a few businessmen engaged in the trade of imports and exports could accumulate wealth in the process of trade liberalisation, for the masses it has only caused losses. Income inequalities therefore have widened.

The other major concern is the effect this can have on free education and free health services. Free education and free health services, historically initiated by the government to promote social welfare are still strong in Sri Lanka. However in recent decades, there was a tendency to de-fund these services. Free education and free health services might be negatively affected by private education and health services with private business in those sectors gaining access into the country through trade liberalisation.

Who benefits from trade liberalisation?

Trade liberalisation is in the interest of multi-national companies waiting for opportunities to enter into the markets in other countries and financial institutions which invest on a global scale. While trade liberalisation is harmful for local industries and people, it can be very beneficial to some businesses and the financial sector.

Doesn’t the government argue that free trade will lead to increase in investments and employment opportunities?
We must think carefully about the investments that come into the country with trade agreements. The experience of the past few years suggest that even when investments increase, they are often in the finance, insurance and real estate sectors. These types of investments are called ‘speculative investments’. These sectors do not contribute to the economy with increased production. Since there is no clear industrialisation policy, finance capital which flows in looking for speculative investments is unlikely to increase employment.

Speculative investments create massive wealth for the rich and finance capitalists in the short term. However, as with the economic experience of the US and in Europe, this short term growth in the economy caused by speculative investments leads to economic crises when the economic bubbles eventually burst. When these countries eventually faced an economic crisis, the cost of the crisis was shifted to the people by cutting down social welfare like pensions and subsidies. Sri Lanka is also entering the dangerous path that Greece took, with financial and trade liberalisation.

But some say ETCA is a conspiracy against Sri Lanka by India. Is that true?

Some groups opposing ETCA are trying to articulate it as an Indian attack on Sri Lanka. But this is not a problem that relates only to India. Already, the government has expressed the willingness to sign free trade agreements with China, USA and other countries. Therefore the agreement with India is only a part of the larger project to liberalise trade. When this is depicted as a problem with India, the attention is diverted from the larger dangers of trade liberalisation.

It is very important that we understand the government’s push for ETCA, trade liberalisation and other neoliberal economic policies, which are all harmful to the interests of the people. The ‘Alliance for Economic Democracy’ is holding a public seminar to raise awareness about these issues on May 17 at 3.30 pm at the Public Library Auditorium. The Alliance for Economic Democracy is a movement consisting of trade unions, student unions, progressive intellectuals and social activists who believe that the economic policies of the country should not be for the benefit of a few, but in the interest of all people.

This piece was published by the Alliance for Economic Democracy in the Sunday Times on 01 May 2016.