BUSINESS

> UPFA rejects UNF's Revenue Authority

> Landmark win for Lankan lawyers

> JVP and CBK: can they co-exist?

> Apparel trade in for tough times

> Sand shortage problem under control

UPFA rejects UNF's Revenue Authority

By Mandana Ismail Abeywickrema 

The United People's Freedom Alliance (UPFA) government has decided not to go ahead with the Revenue Authority proposed by the previous regime.

The United National Front (UNF) government during its tenure decided to bring the three main tax collecting departments - Inland Revenue Department, Customs Department and the Excise Department - under one authority for efficient management and to streamline revenue collection in the country.

The proposed authority was also a recommendation of multinational donor agencies in the country, as streamlining the tax collection sector was in turn expected to increase the country's revenue.

However, the proposed Revenue Authority came under much criticism by employees of the three departments who steadfastly opposed the reforms.

According to analysts the authority, which was to streamline the tax sector, was opposed by the employees mainly due to fear that the sudden change and the streamlining process would in turn leave them unemployed.

Speaking to The Sunday Leader, Finance Minister Dr. Sarath Amunugama however said the UPFA government would not go ahead with the Revenue Authority.

He explained that instead the government would revamp each of the three departments and create an efficient management system. Dr. Amunugama observed that the three departments have however managed to increase revenue substantially during the last two months.

When asked how the government plans to improve the departments, Dr. Amunugama said that he would announce the changes in due course, adding that the government would pay special attention to efficient management of the departments.

Dr. Amunugama asserted that the government also plans to bring in legislation for tax collection. He said that some of the legislation would be presented in parliament shortly, adding that he plans to put forward his plans to revamp the departments to cabinet in the near future.

As for the employment of unemployed graduates to the Inland Revenue, Customs and Excise Departments, Dr. Amunugama said that out of the 27,000 to 30,000 unemployed graduates seeking employment under the government's latest employment drive, some would also be employed to the departments once their training is completed.

Commenting on the government's decision not to proceed with the Revenue Authority, Country Head, Asian Development Bank (ADB), John Cooney said that although the bank worked with the previous regime for the implementation of the authority, it is just part of the recommendations to uplift the revenue collection in the country.

Cooney went on to say that since the present government has decided not to implement the Revenue Authority, the ADB would now work with the government to improve the already existing Inland Revenue, Customs and Excise Departments.

He asserted however that the overall objective would be to improve the country's revenue collection.

Landmark win for Lankan lawyers

Two Sri Lankan lawyers recently made a major breakthrough in the sphere of international commercial arbitration when they represented a major multinational company in Hong Kong against a North African state in International Chamber of Commerce (ICC) case no. 12091/ACS/FM and won the case amounting to US$ 2.2 million in damages and costs of suit.

Arbitration proceedings were instituted at the ICC International Court of Arbitration, a globally acclaimed arbitration centre by a multi national company in Hong Kong against the government of a North African state. It was the claim of the claimant that they had entered into an agreement with the respondent concerning an investment of a sum of US$ 5 million. It was the claimant's contention that the respondent has acted in breach of the agreement in delaying the payments due, in particular the advance payment and the sums requested by the progress bills, well beyond the prescribed time limits.

Moreover the claimant alleged that such delays could in no way have been excused owing to the pecuniary nature of the obligation incurred by the respondent and in any event the respondent had behaved carelessly and negligently. In the claimant's view a number of episodes confirmed their allegations, such as the request for a guarantee that could not have been due, the failure to abide by the procedural rules applicable to the drawing of funds granted by the World Bank, etc.

The claimant alleged that the six month delay in the completion of the factory was due to the above defaults by the respondent and this resulted in costs incurred by the claimant totalling US$ 792,850.54 which constituted the claimant's first cause of action.

The respondent's default further gave rise to a second cause of action for the loss of income (consequential losses) suffered by the claimant totalling US$ 1,211,557.31 connected with matters such as the inability to fulfill a first set of export orders, with the relative costs, and overhead costs incurred during the six month period when the factory was left idle. A third cause of action by the claimant concerned the direct losses incurred for the training of workers.

The arbitral tribunal after a full hearing in Rome, awarded in favour of the claimant an aggregate amount of US$ 1,717,646.44 in relation to the said three causes of action together with reimbursement of the claimant's expenses. The total award inclusive of costs amounted to approximately US$ 2.2 million.

The claimant was represented at the hearings by Attorney-at-Law Shammil J. Perera and Attorney-at-Law Lahiru Abeysekera. The respondent was represented by Derains Associates of Paris, considered experts in international arbitration.

JVP and CBK: can they co-exist?

By Dinesh Weerakkody 

Capitalising on the revelations of UNF's corruption scandals the JVP promised a new political culture, citing UNF abuses and excesses and promising that this would all end on April 2. Our gullible Sri Lankans believed all this and showed Ranil Wickremesinghe the door because he failed to acknowledge the ground realities that confronted his government and his ministers.

The people turned to the JVP to usher in the new political culture they promised - i.e discipline in governance and delivering the list of promises. Now, two months into its term, it is becoming abundantly clear that like the two major parties, the JVP too is learning fast that the truth is a moving target. The UPFA has already cast aside some of the manifesto pledges they solemnly made to the nation.

The public perception of the JVP is fast changing simply because they are doing very little to stop the President's deviations from the manifesto pledges and the party's sad conduct in the election of the speaker. It seems the JVP's high flowing values and principles were only for the election campaign. In fact it was Ronald Reagan who once said politics is supposed to be the second-oldest profession. I have come to realise that it bears a very close resemblance to the first.

In fact in Sri Lanka today our politicians are one group for which the public has more contempt than any other segment in our society, because they have collectively done very little to bring about national consensus and obstructed economic development. Let us only hope the rot has not set in as far as the JVP is concerned and they realise fast, on the run, that they are elected to serve the people and not to be served by them.

Politicians

The staggering economy and the affect of the north east conflict are only supposed to be felt by the business community and the average citizen of this country. The politicians regardless of the situation drive around in the most expensive cars and dine at five star hotels expecting the people who create jobs for the unemployed, pay taxes to keep the government alive, invest in the economy to keep the engine of growth running, to make all the sacrifices.

After languishing in the doldrums from 1999 and a recession in 2001, the economy had just begun to recover with economic growth being as high as 6% in 2003. The majority of the people of Sri Lanka do not care who enables the economy, as long as it is effectively enabled.

It is high time the people of this country without watching in silence while the politicians do what they desire on a on going basis hold political leaders accountable and responsible for their actions. In this context the J-Biz should exert pressure on both sides to at least work together to resolve some of the key national issues.

The UNF leadership on the other hand will have to prevent its rank and file pulling in different directions if they plan to make any impact on the electorate or for that matter to curb the President's constitutional manoeuvres. We know that Wickremesinghe is a man of principles but he must realise that this is Sri Lanka and acknowledge the reality that his party needs to wake up fast and meet the challenge thrown to him by the President.  So it up to him to stand up and deal with the issues in hand without allowing the party to drift.

Only when our political leaders on both sides learn that political differences should not outweigh national interest and that all political parties put the country ahead of their political agendas and work for the greater good of our nation will our country prosper and grow.

Business community

In 2002-2003 due to peace there was a resurgence of the economy, endorsement from the international community and optimism. The business community took the risk and began to invest and create employment.

Therefore it would be tragic for the country if, having come so far, all the gains in the past are lost because the President is preoccupied in trying to cut a deal to remain in power post 2005 and is not focussed on consolidating the gains made in the last 24 months. The President should not focus on taking short-term decisions at crisis management compounding the economic problems long-term.

Today business confidence is at a low ebb and international assistance will not be forth coming until the peace process is back on track. Therefore both the UNP and the President should at least for the sake of the country cohabit to get the peace negotiations of the ground.

The PA and the UNP both characterised the JVP as murders and barbarians, Kumaratunga ignoring all this took a bold step and formed a grand alliance with the JVP. The people ignored all the attacks on the JVP and gave them a mandate to usher in a new political culture.

The PA-JVP alliance so far has done very little to win back the confidence of the business community or the international community. The JVP unions have destroyed some of the companies in the private sector so it is upto them to win the confidence of the private sector and get them to invest again. The only bright side of this alliance is that the JVP is a disciplined party and therefore they may influence the PA to become more accountable to the country.

On the other hand the JVP is also mindful of the fact that they stand to benefit by working with the PA. This alliance according to political analysts is suicidal politically as far as the SLFP is concerned because the JVP has effectively eaten into the SLFP voter base.

Also, certain PA MPs have advised the PA leadership that aligning themselves too much with the JVP could destroy its popularity in the urban areas in the up coming provincial council elections. The PA and the JVP leadership knows very well that the peace process has to be put back on track fast and if they do not do so now, the reality we will face belatedly may well be that we are without a country.

Gambling

Kumaratunga unlike Wickremesinghe has a mandate so she should stop gambling with the country and fulfill the promises she so solemnly gave the people. The UNP on the other hand must shed its passive and defeatist attitude if it hopes to make any impact. Also the two main parties should shed their political differences and unite behind a common vision to get the peace process of the ground.

In the final analysis, the ground reality is such today that the country will be confronted with a prolonged crisis on the economic, political and fronts unless Kumaratunga and the JVP firstly see eye to eye on policy and the UNP cohabits on the peace front. Now that will only happen when Kumaratunga, Weerawansa and Wickremesinghe realise that whether they think their blood to be blue, red, or green, they are above all and before everything else Sri Lankans.

Apparel trade in for tough times

By Shehan Moses 

Sri Lankan apparel manufacturers and exporters will have to fight a losing battle against China upon the lifting of the present Multi Fibre Agreement (MFA) quota restrictions on apparel exports in 2005, according to a study conducted by McKinsey and Company, which was commissioned by DHL.

According to the DHL-McKinsey report, China would gain over 50% market share of world apparel exports, and almost all export growth, as a result taking away growth opportunities from other Asian countries.

"We have already witnessed the power of China following the removal of quota restrictions on certain categories that began in 2002," said Charlie Taylor of McKinsey. According to the report over the past two years, exports of these categories to the United States increased over 10 times, capturing a market share between 40 to 60% in the United States.

Countries such as Sri Lanka would find it extremely difficult to compete with China due to cheap labour costs, therefore Sri Lanka should find alternatives such as targeting winning and out-compete on service and quality of garments exported.

This would certainly affect small-scale industries since they would find it extremely difficult to grab the attention of large-scale buyers, given that large scale industries would dominate the market.

According to the report, there would be severe competition for the remaining 50% of the world market share among other Asian countries.

Through a study conducted regarding productivity of garment industries within China, India and United States, it was revealed that productivity of Indian exporters is 35% of the United States level compared to Chinese exporters that operated at 55%.

The overall productivity of Indian industry is only 16% of the United States. Although China is only half as productive as the United States, when it comes to labour cost of China, it's only 5% of labour costs in the United States, thereby it is clear that US would not be able to compete in most segments.

If the United States and the European Union (EU) use safeguard mechanisms or increase duties to restrict imports, there is a possibility that China's growth could be constrained to be less than 10% for a number of years, and China may only receive 30% world market share by 2008.

However, if the US and EU decide to liberalise and allow brand owners and retailers to freely source, there is a possibility of China capturing more than 50 % of world exports by 2008, enabling it to grow at around 20% per annum.

India would most certainly take the second place after China on world market share in apparel exports.

"We believe India could grow much faster if it implements an aggressive reform agenda," Taylor said. However for India to capture 5% of world market share, several key reforms are needed to be implemented by the government.

Firstly product market barriers should be removed, thereby attracting more foreign investments and further reducing import duties on fabric and garments on Asian levels. Secondly, labour market reforms such as flexible labour force needed to be implemented.

Finally, other reforms such as simplifying taxes and improving infrastructure and signing bilateral agreements with the US and EU would certainly create the right incentives and infrastructure to encourage rapid export growth.

In the case of Sri Lanka, which cannot gain the advantage of cheap labour, it would need to develop competitive propositions with winning customers.

The report states that for manufacturers to win in the long-term, they need to supply for winning brand owners and retailers.

Optimisation of time to market and logistic costs would help the supply chain, since customers are looking for solutions from suppliers and logistic providers that reliably reduce time to market.

"We see an opportunity for manufactures in partnership with logistic providers to offer an optimal combination of ocean freight, airfreight and express services to assist customers to reduce product development time and manage chasing at minimum cost," he said. Other methods that can be adopted are to enhance reliability and security and security chain visibility.

CEO, DHL (Asia Pacific region), John Mullen stressed the concern DHL has towards the apparel industry - "This industry is a very important sector to us, we have an interest of any outcome due to any changes, since it would affect us as it would affect you," he said.

Sand shortage problem under control 

By Mandana Ismail Abeywickrema 

The government last week said that the acute shortage of sand faced by the construction industry has been resolved, although a long term solution is still being looked in to.

Housing and Construction Minister, Ferial Ashraff told The Sunday Leader that after many discussions, the problem has been sorted to a great extent.

She explained that the Environment Ministry has relaxed the rule imposed with regard to sand mining, adding that the problem would be solved within another month.

Ashraff observed that the government is still looking into other options in a bid to find a long term solution to the shortage of sand, which would at some point affect the construction industry very badly.

When asked what these other options would be, Ashraff said that the Environment Ministry is still studying the usage of sea sand for construction purposes.

However, she added that there are places in the country, where people could still take river sand without the usage of heavy machinery. When asked where such places exist in the country, Ashraff said that she was unable to give them off hand.

Ashraff observed that it is the Environment Ministry that would look in to the matter and conduct feasibility studies before recommending them to the Construction Ministry, which will then follow the matter.

Environment Minister A. H. M. Fowzie told The Sunday Leader that there is no shortage of river sand in the country as the Ministry has given the green light for sand mining, but the miners should possess a valid sand mining permit. The mining should also take place in places identified by the Ministry.

"A person who has the permission of the divisional secretariat and has a valid permit could mine for sand," he said.

When asked about the usage of sea sand as an alternative for river sand in the future, Fowzie said that it would cost a lot of money to clean the sand in order to be used for construction purposes.

However, he did admit that the country might very soon run short of river sand. At such an instance, he said that sea sand would have to be used by the construction industry.

Speaking of the prices of sand, which saw a sharp increase recently, Fowzie observed the prices have come down, adding that they would see a further reduction in the coming days.

The past few days saw the prices of a sand cube rise from Rs. 1,400 to Rs. 3,000 and finally Rs. 5,000 when the government claimed the issue was under control.

President, Chamber of Construction Industry, Surath Wickrema-singhe told The Sunday Leader that due to the acute shortage of sand, many large scale projects around the island were delayed, resulting in companies incurring heavy losses.

The mining in the Kelani river, Deduru Oya and Maha Oya was stopped by the government as heavy sand mining in the rivers left nearby wells dried up and posed a severe environmental hazard.

However, with the government lifting the ban, sand mining has begun.

Apart from quarry dust and silica sand, which are in short supply, the other option is the usage of sea sand. But the sand has to first be washed and clean of chemical impurities. Otherwise, the sand would not be suited to construct buildings and also to be used for concreting.