Advantages &amp Essay Example

the future lies with trade agreements enter with the neighboring countries. The advantages and disadvantages of such trade agreements are as follows Advantages

 Chance to cater to bigger markets The population of Sri Lanka is around 20 mn whereas in India alone the population is 1210 mn. If we add up the total population of the SAARC region it exceeds 1.7 billion which is nearly a ¼ of the world population. Hence it will be an immense market for Sri Lanka

 Economies of scale When production increases to cater to a bigger market the unit production cost comes down and it will help to increase the domestic living standards and to fight with other multinationals in the region

 Reduce the price level of commodities & services Reduction or the complete wipeout of taxes will help to dismantle the border protection of high tariff, expansion of exports, diversifying the export basket and reduce the prices * Reduce transport cost

Navel routes of Sri Lanka Due to the strategic geographical location of Sri Lanka it is a hub for Air & Sea transportation. Thus, the neighboring countries can use this facility to transfer their goods via Sri Lanka and it helps to generate more jobs & revenue

 Being an Island nation There are no borders of Sri Lanka. Therefore no political barriers for the neighboring countries to import their essentials through Sri Lanka. Especially like crude oil where the India and China as known as the energy thirsty economies and the countries surrounding them have political differences with them

 Establish trade links with growing economies According to recent IMF report India

recorded the highest growth rate of 10.4% in 2010. Also their imports grew by 21%. Hence the opportunities are there for Sri Lanka in long term basis to fulfill their requirements

 Chance to deviate from traditional exports As mentioned above the traditional exports of Sri Lanka (Tea, Rubber & Coconut) is declining and it can be replaced with new products and services like, Porcelain Table ware, Ceramic ware, furniture, edible oil (vanaspati oil), canned food, Fruits & vegetables, etc.

Disadvantages

Unemployment may occur due to removal of trade barriers Some companies may have to close down their businesses as they cannot cope with the low prices offered by the foreign companies from their economies of scale and efficiency

 The domestic economy may stabilize due to the economic downturn of neighboring countries If a country in the trade agreement falls into a recession it will affect all trading partners due to the failure of export income

 International markets are not level playing fields Countries with surplus products or services will try to dump it in other trading countries by hiding behind the rules of the trading agreement (edible oil named vanaspati oil and pepper exports from Sri Lanka to India has almost demolished those two sectors in India and they had to intervene and put a volume cap to reduce the imports)

 Loss of foreign Exchange Since the Sri Lankan currency is weaker against most countries in Asia, there is an exchange loss for Sri Lanka for every import they made

 Loss of Tax revenue When the tariff is removed from many products, it will result in revenue loss

for Sri Lanka, and to arrest that they have to increase the tax portion of other remaining products heavily (The tax for motor cars imported to Sri Lanka is almost 400%)

Conclusion Therefore as mentioned above there are advantages and disadvantages for entering into trade agreements and most disadvantages are due to the underdeveloped economy of the country. Hence, before entering into any trading agreement Sri Lanka must clearly take necessary actions to protect the local businesses