Indo-Lanka Free Trade Agreement and CEPA: Some thoughts

The media, both print and electronic, are full of the Free Trade Agreement (FTA) with India, and the proposed Comprehensive Economic Partnership Agreement (CEPA) has almost become a dirty word with some! As a former Head of the Commerce Department, and having served in India, I thought I should make some comments, though both the FTA and CEPA came into being after tenure.

Have discussions and debates been well informed? Sad to say, it does not appear to be so judging by most of the comments. The FTA and particularly the CEPA are somewhat technical documents, and should be well studied, before passing judgment. There was a leading businessman, speaking to an English language weekend paper, lashing out at CEPA, and then ending by admitting that he had not seen the Agreement and was not even interested in looking at it. I hope for the sake of the private sector, that he has been misquoted! There were even hilarious references to Indian barbers flocking to Sri Lanka under the CEPA at the expense of their Sri Lankan counterparts.

With my experience of India and Indian negotiators, one cannot deny the difficulties of doing business in India. India was a protected economy until the early 1990s, and there is a protectionist mindset in the country, though it is changing. The FTA with India was a good first step, though it ensured only partial free trade.

It had a large negative list, and no reference was made to non tariff barriers. It ensured free trade only in terms of elimination of import tariffs. It was the first FTA for both countries and was a good beginning. It cannot be denied that the FTA has resulted in a considerable liberalisation and expansion of trade between the two countries. On the Indian side, 4,150 tariff lines were duty free for our exporters, over three years. On the Sri Lankan side 3,932 tariff lines were made zero duty to Indian exporters over eight years.

There are 1,180 tariff lines in the Sri Lankan negative list, and 429 items in the Indian negative list The overall trade turnover between the two countries, has grown several times, since the entry into force of the FTA. India is now Sri Lanka's largest trade partner. India was the second largest exporter before the FTA, to Sri Lanka, but now it is the largest. India has also emerged as the third largest export destination for Sri Lankan products. The FTA has also enabled Sri Lanka to export new products to India such as furniture, antibiotics, ceramics etc. Restrictions on tea and apparel exports to India have been lifted recently. They were an unnecessary irritant.

Though the trade gap has widened in India's favour, the bulk of India's exports to Sri Lanka --70% --are in the non FTA categories, where trade is carried out without any concessions. There is no doubt that the FTA with India had limitations, and various issues had to be addressed. The Joint Declaration issued at the end of official discussions between the leaders of India and Sri Lanka last week, stated inter alia, 'The two leaders noted the progress achieved under the India --Sri Lanka FTA.

They agreed that it would be timely to build on this achievement through a more comprehensive framework of economic cooperation, best suited to the two countries. ''It is this context that CEPA has to be considered. CEPA basically covers Trade in Goods, Trade in Services. Investments and Free movement of people. The Chapter on Trade in Goods, is the present FTA, with some improvements. India will reduce its negative list by 114 items, while Sri Lanka would reduce 32 items. It would provide for closer cooperation between the Customs Authorities of the two countries It would also address another problem faced by Sri Lankan exporters viz delays owing to testing and certification requirements for certain products in India.

CEPA would provide for a Mutual Recognition Agreement , as well as adoption of Sanitary and Phyto--Sanitary standards. Testing and Certification done in Sri Lanka would be recognised in India. In order to resolve any outstanding problems, CEPA provides for a Standing Committee of Commerce Secretaries to meet every six months; The Commerce Ministers would meet annually to deal with unresolved issues; CEPA also provides for a separate dispute resolution mechanism to address any outstanding issues that could not be resolved by the two countries, CEPA as it covers Trade in Goods is forward looking and non controversial.

The controversy over CEPA is about Trade in Services. There is a misconception among our businessmen that CEPA in the area of Services, would result in an influx of Indian entrepreneurs, which would swamp our local businesses. There was the same misguided fears about the FTA with India, when it was first mooted. In the services sector, India will open about 80 sub sectors , while Sri Lanka will open about 20 sub sectors.

The movement of professionals is much more limited in the Sri Lankan schedule of commitments. India will allow Sri Lankan professionals in almost all sectors it is opening under CEPA to work in India. In the case of Sri Lanka these wide concessions are limited to two sectors viz ship repairs and building, and computer and related services. Here also the concessions made are linked to Investments etc In addition, movement of Indian professionals will be limited to Indian companies that invest here -- commercial presence , or Mode 3 to use WTO language. Already there are more than 2,000 Sr Lankans working in India , having obtained employment visas.

The CEPA would regularise this position. Many may not be aware that at the last Heads of State of SAARC countries, meeting in Bhutan in April of this year, an agreement was reached to liberalise Trade in Services. It is the South Asia Framework of Trade in Services [ SAFTIS ]. This framework agreement is expected to enter into force two years from now. SAFTIS when it takes effect , will liberalise trade in services in all eight countries of SAARC. The Indian negotiators are well informed and well prepared, and negotiate hard in the interests of their country. Our negotiators should emulate them. The joke in Geneva, where I also served, was that '' the biggest NTB barrier in India is the Indian bureaucracy '' It is apparently less now and and the Indian negotiators are more receptive to other countries requirements.

India together with China are the booming economies at present, and we should make every effort to maximise our presence there. Our traditional markets and sources of aid and investments, are wracked by huge budget deficits, debt crises, and severe austerity measures. Hence the need to obtain good terms for our goods and services in the vast Indian market.

It appears that CEPA with India is still being negotiated and not yet finalised. It is best that there is greater transparency, in the negotiations, and all stakeholders are kept informed and consulted.

Parliament too should be kept informed to the maximum extent possible. It would be in the best interests of the country to have a separate Ministry of Commerce handling CEPA. Commerce is now lumped together with Industries as the Ministry of Industry and Commerce. Both Industries and Commerce are important, and should have separate ministries, if they are to perform satisfactorily.

There was an amusing incident in Parliament recently, where an Opposition Member insisted that the Statement by the Government on CEPA was made by the Minister of Industries., and should have been made by the Minister of Trade. He had forgotten that the Minister of Industries was also the Minister of Trade !

Douglas Jayasekera,

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