Trade success depends on bribing Customs officers?

A family owned company engaged in imports said that it tried to conduct its business activities without having to bribe Customs officials but had to quit as the company made more losses as a result. "For about eight months we tried to carry out our dealings with Customs without having to pay bribes to get our goods cleared. But we could not continue to do so any longer. "It became increasingly difficult for us to clear goods on time and we had to pay arbitrary duties which made our products more expensive than our competitors," a director of the company told the Island Financial Review on the sidelines of a seminar on Building Integrity and Transparency in Business Relationships organised by transparency international. It was done in such a way that it all seemed legal. "They would openly ask for a bribe for about Rs. 15,000 or Rs. 20,000 and when we refuse it they tell us that the consignment has to undergo a full inspection resulting in a delay which goes on for days. "Sometimes when our documents are submitted for clearing the goods along with the bank cashier’s order for the Customs duty, we are told that the calculations are incorrect or that some new rule or the other had been introduced. "If I had to pay Customs Rs. 500,000 they would tell me that it should be Rs. 900,000. But this problem can be taken care of with a bribe," he said. He also happened to be a member of the Sri Lanka Institute of Directors and we asked him what measures the institute was taking. "Giving bribes to Custom officials is nothing new and I have seen many big companies clear their goods without any hassle at the docks and since our company began to tow the line we have had no problems whatsoever. "The institute asked me to participate in this seminar and we need to work together to fight bribery because alone we will be ineffective and our businesses suffer," he said. During the eight months the company tried to go ‘bribe-free’ it saw its competitors release goods into the market before they did and at much cheaper prices. So clearly, the incentive to satisfy one’s conscience is not a luxury that many can afford. Custom Chief’s response Sri Lanka Customs Director General Sarath Jayatilake said that this is a big problem they encounter. "Bu the culprits are probably the wharf clerks and not the customs officials and we have come across incidents where they inform Customs that a consignment is not in order and that it should be held for inspection. "Many confuse the wharf clerks with customs officials. They are free-lance agents who facilitate the port clearance procedures on behalf of the importer. They may be soliciting bribes to speed up the process. But we have not received any complaints," Jayatilake said. Jayatilake said that no complaints had been made and that it was unclear as to what extent bribery was prevalent. "We have come across instances where importers had colluded with some Custom officials to clear goods unlawfully. "There are instances where big multinationals under-invoice their consignments through Royalty payments, dividends and transfer prices. "Some importers open up LC’s with one bank while the payment is made through another bank, and when they clear the goods they present the document with the lesser value so as to minimize the duty. "But we have computerized our processes, we can now track the whole process," he said.

Eastern China - a huge market for Sri Lankan exports

The National Chamber of Commerce of Sri Lanka (NCCSL) recens signed cooperation agreement with four provinces in China. The agreements were signed with the regional offices of the China Council for Promotion of International Trade (CCPIT) in the provinces of Jiangsu, Fujian, Hunan and Anhui in Eastern China, the Foreign Ministry said in a statement. The chamber was successful in negotiating with officials from Fujian to train Sri Lankan experts in producing green tea. A Chinese trade delegation from these provinces is expected to visit Sri Lanka later this year. According to the Foreign Ministry, trade between Sri Lanka and the Jiangsu province amounted to US$ 200 million in 2007 and US$ 47 million for the first quarter of this year. Textiles, chemicals, paper and vegetables are the provinces main exports to the island while Sri Lanka’s exports to the province are mainly fibre, rubber and transformers. The Fujian province has 34 counties that make up special economic development zones. The population of the four provinces combined is about 238 million, a huge market for Sri Lankan exporters to exploit. An official of the Export Development told the Island Financial Review that total exports to China in 2007 amounted to US$ 36 million (0.5 percent of total exports to all countries) and imports amounted to US$ 921 million (8 percent of total imports from all countries). About 23 percent of exports are in Tea. China is expected to consider granting more concessions to Sri Lanka under the Asia Pacific Trade Agreement. During the recently concluded First South Asia Economic Summit, the question was raised as to whether the region was ready to face China after quotas restricting its exports are lifted next year. While the South Asian Free Trade Agreement is virtually non-existent, the Summit realized that integration is the only way the region could survive the swarm of Chinese goods which will hit US and EU markets at cheaper prices. Trade statistics showed that India demonstrated a keenness to establish links with the ASEAN trade-block, which enjoyed closer links with China. The summit discussed that despite the fact that integration could give the region better bargaining powers, the seeming preference of India to grow ties with ASEAN rather than with SAARC, could, however, present an opportunity for other South Asian countries to provide supply chain services to India. In 2006, India’s trade with SAARC amounted to 2.8 percent while trade with East Asia amounted to 24.9 percent. Sri Lanka’s trade with SAARC amounted to 19 percent while trade with East Asia amounted to 22.1 percent in 2006. High tariffs, non-tariff barriers and high transportation costs resulting from political wrangling in the region has prevented the effectiveness of SAFTA and with exception of Nepal (no statistics were presented for Afghanistan and Bhutan) the rest of South Asia had more trade with ASEAN than with SAARC. Nepal, a landlocked country, along with Bhutan and Afghanistan (along with the lagging impoverished provinces of India, Pakistan and Bangladesh), depend on the rest of the region to open up borders through transportation and trade linkages so that their people too could benefit from the East Asian connections (if SAFTA fails).

Inflation down in August Interest and exchange rates cause concern

Inflation dipped further in August to 24.9 percent the Central Bank announced last week. In July the point-to-point change in the Colombo Consumers’ Price Index (CCPI) recorded 26.6 percent. In January 2008 the inflation rate was 20.8 percent and it peaked in May at 28.2 percent when world food prices and oil prices increased sharply. The Central Bank always maintained that these prices would ease after July, and as such a decrease in the inflation rate can be seen. An official of the Census and Statistics Department said that domestic food prices have remained static for the most part while vegetables and rice price increases had declined according to expected seasonal trends with the Yala season and the harvesting of other vegetable crops. The new index, introduced this year, is based on expenditure survey of the Greater Colombo area in 2002. The basket of goods that cost Rs.100 then, costs Rs. 206.3 in August 2008 (Rs. 206.4 in July, Rs. 205.9 in June, Rs.198.5 in May, 2008 and Rs. 183.5 in January 2008). In the new index, food items are given a weight of 46.71 percent, where as in the old index, food items consisted of 68.3 percent of total expenditure based on a survey in 1952 survey. The weights for the selected goods had been recommended by a technical committee appointed by the Treasury which prompted some analysts to call it a ‘cooked-up’ inflation index. While the Central Bank continued with its tight monetary policy to curb the expansion of domestic credit resulting in high interest rates, manufacturers are finding it extremely difficult to maintain their competitiveness as working capital costs are high. While both interest rates and inflation rates erode into margins, the exchange rate does not reflect the trade balance. The two rates have steadily increased over the past months, while the exchange rate has more or less stagnated. The export community has accused the Central Bank of controlling the rupee instead of allowing it to depreciate, like it should, according to the trade balance. Although the trade deficit keeps widening, the Central Bank maintains that other foreign currency inflows (FDIs, grants, worker remittances etc) threaten to appreciate the rupee and that the bank has so far recorded a net-buy of dollars to prevent the extreme appreciation of the rupee. The Central Bank last month began to use its own securities when it depleted it stock Treasury bills which is generally used to mop up excessive liquidity in the market. The bank had issued Rs. 8 billion in Central Bank Securities by mid August depending on the foreign exchange inflows will continue doing so. When foreign currency inflows increase, liquidity of the money market increases correspondingly. The Central Bank then auctions its Treasury bills to mop up the excessive liquidity of the market. But Sri Lanka is heavily dependent on imports, so while on the long run, a depreciated rupee could improve the country’s export sector, create employment and bring development, on the short run it may spike food prices even further and the poor could suffer immense hardships. According to Food and Agriculture Organisation (FAO) a record harvest is expected for grains this year, but the high prices will remain. Quoting the FAO, ADB Country Director Richard Vokes said that the production prospects for cereals was good after rice prices increased by almost 100 percent and wheat by 130 percent between the later stages of 2007 and May 2008. "The FAO predicts a bumper harvest and although cereals and other commodities have started to ease since April, the high prices will remain and we may not see the former price levels again," he said, addressing the session on Managing the Food Prices Crisis at the first South Asia Economic Summit. An estimated 40 percent of the world’s poor is homed South Asia and they are more vulnerable to increases in food prices. "Food constitutes 65 percent of the consumption basket of South Asian households and soaring food prices are pushing many of them into poverty and malnutrition. "An estimated half a million people are severely affected by the crisis. An ADB study shows that a 10 percent increase in food prices will push some 7 million into poverty in Pakistan," Vokes said. He called for the need for countries to invest in their agricultural sectors and formulate projects to increase production, develop technologies and manage climatic and disease related risks. The First South Asia Economic Summit issued a declaration at the end of the sessions and said that food price inflation is a major concern for the region. It said that countries should expand existing social assistance programmes that directly targeted the poor who most vulnerable to food price hikes. "These programmes could be expanded by increasing the amount of cash transfers and the number of people receiving low cost grains while still passing the price increase to other domestic consumers who can better afford it, and this is where targeting becomes crucial," the declaration said. The Summit resolved to monitor and pressurize the SAARC process in implementing strategies to improve regional cooperation, where technology transfers and resources can be shared to increase agrarian productivity, give lagging regions access to markets and where a seed bank could be established for the region, as against a food bank which was proposed in 1988 of which no country gained a grain of salt.

Sri Lanka envisioned as maritime hub for the region

A recent study, one among a galaxy of studies on the South Asian transportation, shows that if inland connectivity in the region is developed, Sri Lanka could play the role of the region’s maritime hub, and all countries stood to gain. This is according to a working paper published by the Research and Information System for Developing Countries (RIS) of India, titled ‘Restoring Afghanistan-Pakistan-India-Bangladesh-Myanmar (APIBM) Corridor: Towards a New Silk Route in Asia. Prabir De, Fellow, RIS, made this observation at the First South Asia Economic Summit in Colombo last week. He said that 74 percent of the SAARC region’s intra-regional trade potential is yet to be realized. "In 2006 intra-regional trade amounted to US$ 10.48 billion whereas the potential is estimated at US$ 40 billion," De said. This is attributed to high trade barriers, tariff and non-tariff, poor transportation links, inadequate trade facilitation links (measure that would reduce or eliminate non-tariff barriers) and the lack of supply capabilities of the least developed countries of the region. "In Asia, transport costs outweigh tariffs in the region. Fuel surcharges on sea freight increased from US$ 455 in January 2007 to US$ 1,130 in July 2008 and it continues to rise, hurting manufacturers in the developing world. "South Asian countries are paying more towards trade transportation costs compared to custom tariffs," he said. Transport Policy Advisor Bangladesh Planning Commission, said that according to the SAARC Regional Multimodal Transport Study (SRMTS), 10 sea ports had been indentified for priority attention, with Colombo identified as the hub port for the region. The First South Asia Summit identified the need to improve custom procedure in the region and reduce administrative barriers in ports and provide land locked countries and lagging regions with easy access to ports. However, developing a regional inland transportation network has to overcome the intelligence concerns of each country, which has led to the non-implementation of proposals in the SRMTS report, commissioned by the New Delhi SAARC Leaders’ Summit in 2004. However, the South Asia Economic Summit passed a declaration that a report will be prepared on the summits progress in terms of influencing policies with their academic findings by its next installment in India next year. Transport connectivity is vital to lift the least developed countries and lagging regions out of poverty. While South Asia is said to be one of the fastest growing regions in the world, the growth is not inclusive and 40 percent of the world’s poor call South Asia their home.