Professor Shujiro Urata of the Waseda University, Japan says, with regard to regional economic integration, there has been a shift in East Asia, from market driven mechanisms to institutional mechanisms through processes such as free trade agreements. Consequently it may be in the interests of Sri Lanka to have closer economic relations with East Asian countries through free trade agreements.

According to Prof Urata, rapid economic growth has been occurring in East Asia despite the global financial crisis, largely due to foreign trade and foreign direct investments. Factors that contribute to this are stable macroeconomic environment, availability of low wage workers, business-friendly environment, good infrastructure and liberalization of policies in trade and FDI.

Due to economic crises, ASEAN has become a hub for Free Trade Agreements (FTAs) with 238 FTAs being created by 2010, of which 180 were bilateral and 58 multilateral. The impact of this has been an expansion in trade between FTA members and economic growth in the medium to long run.

The possible negative impact of FTAs is in the short term according to Prof Urata, with non-competitive sectors likely to see reduced production and employment. Nevertheless, Prof Urata said that the potential gains to be made out of entering into FTAs far outweighed the short term negative impacts. He also recommended that if governments were to go down such a path, that they provide financial assistance to those sectors which are affected.

Prof Urata also stated that whilst bi-lateral trade between Sri Lanka and Japan has been relatively constant since 2000, the importance of that trade in terms of overall trade in both countries has been decreasing. He also stated that the potential for an increase in bilateral trade is very high due to high trade complementarity. According to Prof Urata, Japan has the highest trade complementarity with Sri Lanka when compared with any other country.

In the opinion of Japanese firms, the major impediments to FDIs in Sri Lanka, and consequently the areas which need to be improved, are underdeveloped infrastructure such as transportation, lack of consistency in application of policies such as tax policies and finally job hopping by skilled workers. With regard to the final point Prof Urata said, an increase in skilled workers would likely prevent such an issue. Consequently, Prof Urata felt that it is vital for Sri Lanka to improve on the tertiary education systems in the country.

Prof Urata’s lecture was organized by the Embassy of Japan in Sri Lanka and was held at the Center for Banking Studies, Central Bank of Sri Lanka, Rajagiriya. –Channa Fernandopulle