Greening the Sri Lankan Trade: Tariff Policy Liberalisation in Non-Plantation Agriculture and the Environment

Sri Lanka has implemented major trade policy reform measures to create an internationally competitive environment for the Sri Lankan agricultural and manufacturing products, during the last two decades. However, the policy analysts have not paid due attention to the likely economic and environmental impacts of trade policy liberalisation, including reforms to be undertaken within the framework of the GATT/Uruguay Round Agreement on Agriculture (GURAA), the South Asian Preferential Trading Arrangement (SAPTA), and the South Asian Free Trade Area (SAFTA). This paper analyses the likely macro and meso economic effects and agro-environmental effects of tariff policy liberalisation as a ‘green’ policy device within the policy framework of GURAA, SAPTA and SAFTA, using an appropriately modified computable general equilibrium (CGE) model of the Sri Lankan economy. The general equilibrium approach is chosen because many of the policy changes have economywide ramifications. The focus of the paper is mainly on the tariff liberalisation, non-plantation agriculture and land degradation-induced environmental management in the hilly regions of Sri Lanka. Proper management of land in the non-plantation agriculture sector is particularly of importance as policy-induced changes in land use patterns in the hilly region impact directly on downstream-irrigated agriculture, and hydropower generation. This model extends previous CGE models of the Sri Lankan economy by further desegregating the agricultural sector by regional land types and crops, and explicit incorporation of on-site and off-site impacts of land degradation. The analyses show that trade policy liberalisation, within the policy framework of GURAA, SAPTA and SAFTA have benign macro, meso economic and environmental impacts. Hence, tariff policy liberalisation can be categorised as a ‘green’ policy device. However, inspection of their quantitative effects on environmental variables indicates that there is a potential for additional and complementary economic and environmental policy options to combat micro level agro-economic issues and land degradation.

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Sri Lankan Journal of Agricultural Economics, Volume 03
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 Record created 2017-04-01, last modified 2018-01-23

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