Courtesy Adaderana

A large number of Sri Lankan products exported to India receive duty-free access under the IndiaSri Lanka Free Trade Agreement(ISFTA). However, these benefits are undermined by the existence of Non-Tariff Barriers (NTBs). One significant NTB facedby Sri Lankan exporters (especially food exporters)is the additional costs and delaysat the Indian port of entry resulting from products being checked for compliance with standards and technical regulations of India. Sri Lankan products have to undergo these checks at the port of entry because Indian Authorities do not accept test reports and compliance certificates issued by laboratories located in Sri Lanka. However, Indian exporters to Sri Lanka do not suffer the same problems since Sri Lanka Standards Institute (SLSI) has agreed to accept compliance certificates issued by Indian Authorities through an agreement entered in 2002 with Export Inspection Council (EIC) of India. It is important to make the current one sided agreement a mutual agreement. That will help eliminate the additional costs and delays faced by Sri Lankan exporters in India.

Research conducted by Verité finds that as a result of compliance checks conducted at the point of entry, products are held at the port for a significant time period. The time taken to issue test reports can sometimes even take from 5 days to 3 months. As a result, exporters incur additional costs in the form of demurrage and storage. The cost of test reports in comparison to shipment size tends to be high, and excessive sampling makes the process even more expensive. Further, the inconsistencies in time taken to check compliance makes it difficult for exporters to predict when the cargo will be released from the port. This in turn adversely affects planning of distribution and marketing of the product in the Indian market. Uncertainty in costing and timing of products makes it challenging for Sri Lankan exporters to find and retain Indian buyers.

MRA in CAPs : Do unto us what we did unto you

These costs and delays faced at the point of entry into India can be avoided if the Indian Authorities agree to accept test reports and compliance certificates issued by competent and accredited labs located outside India. Currently Indian exporters to Sri Lanka have an advantage over Sri Lankan exporters to India as their products entering Sri Lanka on the other hand do not incur delays and costs to the same extent because Sri Lanka in general accepts test reports and compliance certificates issued by competent and accredited labs located outside Sri Lanka. In addition to this general practice, in the case of India, an agreement between SLSI and EIC of India permits the EIC to test and certify Indian exports to Sri Lanka for SLSI standards, effectively eliminating the need for rechecking at Sri Lankan ports. It is important to extend the same facility to Sri Lankan exports destined to India to ensure that exporters from both countries can equally benefit from the duty concessions extended by the ISFTA. MRA on CAPs being a mutual agreement will extend the facilities currently enjoyed by Indian exports entering the Sri Lankan market under the 2002 agreement to Sri Lankan exports entering the Indian market.

An MRA in CAPs is neither a novel nor unfamiliar solution to India. The country has provided for MRAs in trade agreements with several other countries, including Singapore, Malaysia and China – the latter despite the lack of a FTA between the two. Further, the Comprehensive Economic Partnership Agreement (CEPA) between Sri Lanka and Indiaproposed in 2003 included a MRA to overcome compliance related NTBs. However, delays in implementing CEPA has delayed implementation of the MRA. In order to ensure that ISFTA benefits exporters from both countries, the MRA should be taken out of CEPA and implemented first. Further, lack of provisions in the current ISFTA to address NTBs of this nature along with weaknesses in existing solutions have made Sri Lankan businesses lose confidence in the potential benefits of further liberalisation of trade and investment between India and Sri Lanka through CEPA. Therefore unbundling MRA from CEPA and implementing it first will help build confidence among Sri Lankan businesses on the benefits of bilateral trade agreements.

Recommendations : An Export Inspection Scheme

Verité’s research finds that in addition to the standards, exporters experience further delay and cost in complying with technical regulations imposed by other government agencies (e.g. Food Authority, Department of Animal Production & Health, National Plant Quarantine Services etc.). Hence an MRA on standards alone will not be sufficient to completely overcome compliance related NTBs. It is therefore vital that the MRA is comprehensive in scope and not limited to standards alone. In this light,Veritérecommends that Sri Lanka explores the possibility ofsetting up a dedicated Export Inspection Scheme or Body, similar to the Export Inspection Council (EIC) of India. This scheme/body can facilitatenot only the India –SriLanka MRA in CAPsbut alsosimilar future agreements with other trading partners.

Verité’s research