I am a little puzzled why you would want an economist as your chief guest. It is often said that the definition of an economist is someone who sees something working in practice and wonders whether it might work in theory. But I hope I can break out of the economist’s mould and make some interesting and practical observations.

Economists often have a very high opinion of themselves. Witness John Maynard Keynes perhaps the most influential economist of the 20th century,

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

Let me say at the outset that I do not subscribe to this point of view – anyone who is not an economist will tell you that for the most part economists’ ideas end up on a shelf or discussed in the back pages of an obscure journal. But the opposite is true for exporters, when it comes to exporters; I have nothing but the highest regard for you. The men and women in this room tonight are the backbone of the national economy and the source of the vast majority of Sri Lanka’s foreign exchange earnings. Your taxes help pay for our schools, hospitals, roads and other services and your exports help to pay for our imports. As a small island economy, the cliché, “export or perish” has rarely been truer of any other country.

Sri Lanka has a long and distinguished history as a trading nation, a nation that is open to ideas from outside, and open for business with outsiders. I suspect it comes at least in part from geography, being a small island nation sitting firmly astride the traditional trade routes between East and West. I am originally from Egypt but now very much an adopted Sri Lankan. In any case my fellow countryman Cosmas Indicopleustes, an Alexandrian says this of Sri Lanka in the early sixth century:

“The island is a great mart for the people of these parts… Being as it is in a central position, it is much frequented by ships from all parts of India, and from Persia and Ethiopia, and it likewise sends out many of its own. And from further East, I mean China and other trading places, it receives silk, aloes-wood, cloves, sandalwood and other products, and these again are passed on to marts on this side…”

In the 14th century, Marco Polo described Sri Lanka as the best island of its size anywhere in the world and Ibn Battuta, the Moroccan traveler tells many wonderful tales of trading with various Sri Lankan communities and of his adventurous expedition to climb Adam’s peak on an elephant.

So much for Sri Lanka’s long and glorious past, what of her long and we hope glorious future?

Before we look at the future it is worth summarizing what has happened to international trade in the recent past. Perhaps the most important trend is the increasing integration of the world’s economy – a process that we have come to know as, “globalization”. Over the past thirty years global trade has grown from US$1.5 trillion to over US$8 trillion or about 25 percent of world GDP. The World is integrating. This expansion of world trade has been driven by unilateral economic reforms, including the liberalization of trade and investment flows in the 1980s and 1990s. So cross border trade and investment has been the engine of growth, the “machine” that has allowed countries to transform one set of goods and services for another. This means that Sri Lankans are no longer limited to consuming only what they produce. We can send out our tea and bring in DVD players, send out our porcelain and bring in petroleum and fertilizer and in the process the whole world benefits.

You don’t have to take my word for this – all the economic literature demonstrates that countries that are more open to trade grow faster, and have higher income levels for their populations including the poor within those countries. So trade is good for growth and trade is good for the poor. Trade has been at the heart of Sri Lanka’s economy for thousands of years and it will no doubt continue to be so. Of course as exporters you already know the practical truth of this fact – but no doubt you are pleased to hear that the economic theory also supports the reality that you know well.

In terms of Sri Lanka’s glorious future, I would like to focus my remarks on two simple points. The first point is that we can compete with the rest of the world and the second point that we need the rest of the world to provide us with a level playing field to do so.

Let’s look first in terms of our ability to compete. Can anyone deny that we have the best cricket team in the world? The English invented the game and they pride themselves on having a strong team, but you don’t need me to tell you what happened when our boys matched up against theirs in the last series of one day internationals. We didn’t just beat them, we crushed them. It was nothing short of a complete annihilation of the English team. How can a small island nation rise up not just to beat the English at their own game but also to take the World Cup and establish ourselves as a world power in cricket?

The answer is very simple, we select the best talent from all over the island, we get the best coaching possible and we play against the best teams in the world on a level playing field. This is the model that we should follow for our export sector. As I often say, talent is blind to ethnicity, it is blind to religion, it is blind to gender. To get the most talented team together we need to recruit on the basis of meritocracy alone. What would our cricket team look like if we only recruited a single religion, if we only recruited from the Western Province or if we only recruited Sinhala speakers or friends of the politically powerful? Clearly the team would be a shadow of its current stature. And yet when it comes to some of the most important positions in the country that require the most talented individuals, we fill them not according to ability or merit but according to political loyalty or ethnicity or some other irrelevant criteria. This is true of positions in both the public and private sectors. The evidence is clear, if we want to be the best in the world, we need to beat the best in the world and that means putting together the best team that we can, an inclusive team, a team that is selected purely on the basis of merit and ability.

Once we select our team we then need to compete with the best in the world. Did our cricket team get to be the best by only playing against Switzerland, Tonga and Sudan? Did they insist that visiting teams bowl left handed, or bat with their shoelaces tied together? Insisting on such restrictions would simply stunt the growth of the team and ensure that we would never be able to play on a world stage. But that is exactly what some Sri Lankans would like to see when it comes to building our domestic industries and our export economy. They argue that we cannot compete, that our industry has to be protected, that foreigners are better than we are, they have more money, better technology, better infrastructure – all these excuses are used by certain industries to raise tariffs and ensure that the domestic industry remains as stagnant and sclerotic as it was in the early 1970s or as India’s was until the early 1990s before liberalization. As a nation, we need to move beyond the protectionist mindset and embrace competition knowing that we have the talent to compete in the global marketplace and knowing that this competition will ultimately make us stronger.

Is there anyone who can doubt that Sri Lankan tea is the best in the world? Tea is one of the mainstays of the economy. Once the plantations were privatized and management improved in the mid-90s, we became the largest exporter of tea in the world. But there were still many that said that Sri Lankan tea could not compete with other teas. The producer lobby has succeeded in maintaining 100% tariffs on tea imports to Sri Lanka. What impact has this had on the tea industry? Despite having the best tea in the world and the most productive plantations we are still selling the majority of our tea unprocessed in bulk at roughly $2 per kg. We have not been able to import tea and blend it with our own to develop a tea-related industry exporting at $10-15 per kg. We are not adding enough value to our key commodity, we are not bagging and packaging as much tea as we can. Bagged tea formed less than 15% of our tea exports in 2005.

Where has that industry developed? Not in the world’s major tea exporter but in the middle of the Arabian dessert - in Dubai, a country which grows no tea, has zero knowledge of tea production but has put in place a liberal trade regime and has a vision for adding value and growing an economy that is based on trade and services rather than the production and sale of raw materials. Again my message to everyone here tonight is a simple one – we need to add more value to our raw materials, we have nothing to be afraid of, we can compete.

When I look at other export industries I see world class Sri Lankan companies open for business and beating the competition. In the garments industry we started at a disadvantage. We have no feedstock, we had no knowledge of the sector and our costs compared to our neighbours were high. But still we managed to develop a US$2.5 bn industry that accounts for half of all our exports. The naysayers said that this was built on quotas and that the industry would disappear following the withdrawal of the Multi-Fibre Agreement in 2005. As we know, that didn’t happen. In 2005, the garment industry continued to grow at a respectable 4% and garment exports to the US increased by 11.5% in the same year. How come the industry did so well? Simply because a few far-sighted leaders, and several of them are in this room tonight, sized up the competition and decided to take action, moving up the value chain to higher value products, addressing the lack of accessories and developing just-in-time processing to meet the new needs for quality, a quick turnover of styles and timely delivery. They chose competition over protection. And this is what every Sri Lankan industry must do to survive and thrive in the globalized world of the 21st century.

So let me sum up the first half of my remarks today by saying that to succeed in a global world our exports, by definition, have to be world class. We have the ability and talent to compete on a world stage and we need to ensure that our industrial and trade policies support our historical and future role as an Asian trading hub.

Now I turn my attention to what the rest of the world can do for us. As I mentioned at the start of my presentation, trade is good for growth and growth is good for the poor. So far I have talked about our need to compete and bring down domestic barriers to trade but there is also another external force that inhibits developing countries like Sri Lanka from reaping the benefits of trade – that is first world protection, especially the agricultural subsidies of rich countries. Rich countries, especially the EU, Japan and the US, have erected massive tariff and non-tariff barriers to trade in agriculture and garments from developing countries. These barriers prevent many poor countries from benefiting from globalization. Removing these barriers will expand the opportunities for exporters from developing countries –people like you. It will increase growth and most importantly it will enable more people to improve their lives and escape from poverty.

The OECD spent more than US$ 300 billion on trade distorting subsidies for their farmers. That’s US$300 billion to plough apples into the ground, to build ever higher butter mountains and ever deeper wine lakes. Moreover, OECD tariffs are also structured specifically to exclude the poor – for example the US tariff on fresh tomatoes is 2.2%. The tariff on dried tomatoes in a package is 8.7% but it goes up to 11.6% for tomatoes in a sauce. This ensures that developing countries cannot easily add value to their raw materials. Other tariffs discriminate against cheap imports. For instance decorated glasses valued under thirty cents have a tariff of 38% while glasses valued at over US$5 incur only 5%, thus effectively discriminating against low-cost producers.

Although the US and Canada have an average manufacturing tariff of about 3% the average tariff for garments, our biggest export, is 20%. So rich countries are rigging the world’s trading system to allow them to trade freely with each other while simultaneously excluding poorer countries from the benefits of the global economy. This practice has to stop.

But you might say that poor farmers need protecting – I’ve argued earlier against taking up this argument for Sri Lanka’s farmers – what about America’s? The American farm bureau estimates that the average American diary farmer has more than 100 cows, assets of over a million dollars and a net income of over US$80,000 – which to my mind would make him or her a rather implausible target of government welfare payments. But the situation is even worse than this. In the US, the largest 9% of farms receive 41% of public subsidies, while in Europe the largest 17% of farms receive 50% of public support. Taken in isolation this is economy folly – but when such welfare payments come at the expense of poor Sri Lankan farmers it is nothing short of an economic crime against humanity. Rich countries are spending billions of dollars subsidizing the lifestyles of millionaire farmers while more than a quarter of our children go to bed hungry.

It is perhaps not widely known in Sri Lanka, but the World Bank has been an outspoken critic of rich country protectionism. Nick Stern the Bank’s ex-Chief Economist, from whom I have got several ideas for tonight’s talk, once said that “hypocrisy is not too strong a word to describe this situation”. I can think of more colorful language - but being a gentleman, I can’t repeat that in public. But what is clear is that the cost to the domestic tax payer is huge, it is regressive for the domestic consumer - as basic food items form a larger part of their consumption basket, it damages the environment, it undermines faith in the WTO trade talks and it is deeply damaging to developing countries. And the World Bank will continue to do its utmost to dismantle such ridiculous and immoral practices.

Let me summarize my remarks by putting on my economist hat once again and saying that the World Bank’s trade models estimate that the gains for developing countries from getting our own house in order, (unilateral liberalization) are around US$120 billion while developing countries stand to gain only US$75 billion from liberalization by rich countries. So I suggest that as exporters you focus your efforts on these two areas; lobbying for a liberal trade regime in Sri Lanka and lobbying OECD countries to make good on their rhetoric and the numerous pledges given at the Uruguay and Doha rounds of trade talks. The World Bank stands ready to support you in both these areas.

Thank you.