THE POHOTTUWA GOVERNMENT OF SRI LANKA Part 2 A 4
Posted on October 26th, 2020

KAMALIKA PIERIS

India and Sri Lanka signed an FTA in 1998,  it was done very fast. Discussion started in August 1998and the FTA signed in November 1998 with just 4 consultations. The FTA became effective in 2000, but only the criteria were laid down not the procedures, observed critics. 

A Joint Study Group (JSG) was set up in April, 2003 to expand the FTA to go beyond goods and include services. The JSG report was ready in October, 2003 CEPA negotiations were started in February, 2005 and concluded in July 2008 after thirteen rounds of negotiations. CEPA was to be signed at the SAARC Summit of 2008 but due to reservations expressed by Sri Lanka, it was not.

India did not give up India said that CEPA can resolve the problems created by the FTA.Federation of Chambers of Commerce of India handed over the agreement at the IIFA Business Forum, 2010. Once again Sri Lanka raised objections and the President did not sign it. A copy had come to a few Sri Lankans secretly, and they took action to prevent the agreement. The document has not been made public they complained.

When the government changed in 2015 and Yahapalana came in, the agreement was brought out again, this time with the name changed from CEPA to ETCA (Economic and Technical Cooperation Agreement). Yahapalana was determined to proceed with this Agreement.  The trade sector in Sri Lanka protested strongly against this.

Sri Lanka‘s industrial sector, and the Chambers of Commerce said that the FTA of 2000 had not benefited Sri Lanka, although many people are talking about the entry into the vast Indian market. Our businesses find it hard to compete in India since our cost of production and domestic price are higher. When we analyze the     FTA with India for 2003-2009, we find that India exports to Sri Lanka are up and ours are down.

After 10 years of FTA Sri Lanka exports to India have declined  from USD 515 million  2007 to USD 324 million  in 2009 last year, they said.    India has also not benefited by the FTA due to the checks and balances impose by the Sri Lanka side otherwise by now the local market would have been flooded with cheap Indian good.

India had granted concession to Sri Lanka for 4000 products, of which   Sri Lanka produces very few. New industries are not nurtured, spec icily in the agriculture sector, to make use of these export concessions and we continue to struggle with poor infrastructure, high-energy costs and a shortage of labor which undermines our competitiveness, the trade sector said.  They did not ask why sign a trade agreement for goods Sri Lanka does not produce.

Industrialists complained loudly that India harasses the Sri Lanka exporter. There is no end to the long list of non-tariff barriers that confront these goods. Indian exporters do not face any non tariff barriers when exporting to Sri Lanka.

Sri Lanka exports face numerous non-tariff barriers,   tariff rate quantities, port restrictions, customs delays and cumbersome laboratory tests. Tests are asked for even when the goods are accompanied by certificates. The checking of edible items is done by labs situated far away. Imports into Chennai are sent to CFTRI Mysore, and imports into Mumbai are sent to CFTRI Pune.

Documents not specified in the FTA are asked for.  Documents in accordance with the FTA are rejected by the Indian officials who say that they are not the proper documents and ask for additional documents. Often customs even demand a detailed cost sheets which reflect the value added criteria and there are disputes when these are produced.

The classification of goods is also a problem. While some goods appear on the Open General License when the good arrive in India, the importer is told that Special Import License is required. The SIL for any non vegetarian food stuff, for instance has to be issued by the Indian subject ministry, which is in faraway Delhi.

Different ports in India classify the goods imported under different duties. At time customs declare that although for certain good where there is  Basic Customs Duty but Counter Vailing Duty is applicable. The importer [means the exporter] due to time and cost pays this amount under protest.

The rule of origin criteria are too stringent and can block Sri Lanka exports. The Certificate of origin from Sri Lanka can be used only after the shipment has left.  When goods arrive, prior to the documents, without the essential COO which has to be certified by the local Sri Lanka High commission there is a delay as goods cannot be cleared without this vital document. Delay as every point result in demurrage and other costs be incurred which are prohibitive which in turn make the import unviable.

In addition to central government taxes, sometimes the particular state also has special taxes for some of the items, e.g. Kerala is taxing the tea packaging and the tea tags too. The import of quality Sri Lanka teas, particularly flavored teas has encountered a significant number of problems in India. The Tea board in India has to approve the imports, which is time consuming as there are no procedures laid down.

The business sector in Sri Lanka objected strongly to CEPA.  India has asked Sri Lanka to sign the agreement first and see to the details after. The schedules will come later. Critics said No. It is India that is pressing for this. if we sign the agreement cannot be reversed. It is a bilateral agreement so there is no court to which we can go. If we change terms heavy penalties have to be paid.  The danger is in the annexures said critics.

Our exports go elsewhere not to India, the business industry said. India is not a big market for us, elsewhere is better. We must sign CEPA only after we ensure that it will be in our interests to do so. we must not sign CEPA in a hurry. CEPA must be reviewed by all ministries including defense because there is a national threat involved.

We must first address all the key issues, that are hindering our exports, include the schedules and bring in conditions preventing additions of any schedules outside the discussed areas. we must avoid signing an open-ended framework agreement, have sufficient domestic legislation, and have a patriotic committed result orients and hard working team that should match if not better the Indian team.

The Indo Sri Lanka frame work agreement (CEPA/ECTA) has many irreversible loopholes that will trap Sri Lanka into a helpless situation. The clauses are vague and open ended, such as ‘shall include but shall not be limited to’. Also it says all subsequent agreement shall form part of ECTA. once ECTA is signed any annexes added later will have the same legal binding as the signed ECTA. If we default we have to pay compensation. BOI allows foreign investment which is unilateral and revocable, so why CEPA?

 Why is India so keen when our market is small? India does not need CEPA.  They have already established industries and Indian business houses and their businesses thrive in Sri Lanka. Is there an underlying motive behind CEPA?

 Yes, there is, said critics. It is to get control of the country. Sri Lanka is strategically important.  India can’t control Sri Lanka militarily, so India plans to do so  through other means, by getting control of Sri Lanka‘s goods and services.

CEPA is inimical to our interests. The ground realties are not conducive to signing CEPA.  There is strong possibility of Indian dominance of our home grown industries, taking control of companies manipulating the stock exchange, said critics.

The persons urging CEPA appear to be non-business men, such as economists, who do not have businesses to export to India, but are urging business men on to it.  Those supporting India said that CEAT and Nicholas Piramal have taken over sick units and turned them around. Also Lanka IOC is a notable achievement, entering in 2002, and revolutionizing the petroleum sector. They have plans for further expansion. Also Bharati Airtel has led to a drastic reduction in mobile call rates.  Ceylon Biscuits, Brandix, John Keells, Hayleys, and Aitken Spence hotels have done well, these ECTA supporters said.

 Pathfinder Foundation said that there were provisions in the agreements for safeguards.  And we have the trade negotiators to handle this.

Business people were less enthusiastic. Indians can come and start state trading organizations here. They can repatriate profits abroad. if they start industries here, it will kill the local ones by undercutting for a few years, then they will start to increase prices. Sri Lanka companies will also then have to raise their prices, so no benefit to us.

The factories in India are huge, the scale of operations is gigantic, they have the raw materials. Sri Lanka can only boast of a few FMCG (Fast Moving Consumer Goods) industries what are somewhat large and may the only ones that will survive the CEPA as a niche market.   India is not a level playing field, and the local manufacturers will get hurt.  India can enter with low prices, sustain long price wars, smother competition without feeling it. No foreign exchange will come in, it will only go out.

  Furious business men pointed out that ECTA gives India access to all goods and services in Sri Lanka except the following. Sri Lanka was given exclusive rights to pawn broking, money lending, small time retails trade, personal services, coastal fishing ,  not deep sea fishing.   There would be 50% Indian ownership of 25 cinemas. there can be 10 halls inside each cinema.40% cinema time would be for Tamil and Hindi only. Film makers when alerted objected. Our culture will also be affected critics complained.

If CEPA goes thoughSri Lanka will be swamped by Indian labor in all spheres of work, profession, skilled semi skilled, due to the heavy unemployment in India. All seven copper industries operated in Sri Lanka by Indians had unskilled laborers as their managers. CEPA says India can bring down all technical staff from India. Any Indian can bring his family and they can work anywhere they want. Dependants are not defined. So the family alone can take up about 5 jobs.

The FTA was for trade in goods only, but CEPA included services, investment, and movement of people.  if we open up the service sector without regulation our county will be swallowed up by the mighty India companies, said Bandula Perera.

Services will include the movement of persons. This comes under Mode 4 of the General Agreement on Trade in Services (GATS) of the World Trade Organization. Mode 4   is on ‘the presence of natural persons ‘in the receiving country.  This is a tricky, dangerous issue.  Officials of the   Ministry of Trade said   that they are careful never to agree to anything in Mode 4, ‘because once we agree we cannot get out of it’. India has carefully defined and limited the scope of movement of natural persons. They can stay only for a maximum period of 15 months. Sri Lanka does not have the necessary controls in place.

 Mode 4 could also be used to send   Indian professionals to Sri Lanka. Professionals in Sri Lanka were concerned. Sri Lanka does not have a regulatory system for monitoring professionals. There are no legally authorized bodies.  The few we do have are weak.  Indian professionals will walk in. This is unwise. Indian professional standards are different to ours.    

In the case of engineering, Sri Lanka engineers observed that. India’s degree for engineering is only three years, ours is four years. also, there are many unemployed engineers in India who will flood this country.

Sri Lanka doctors strenuously object to India entering the health sector. They do not think highly of India’s health service or medical education. They say Sri Lanka’s   medical training is superior. it is uniform and invariably excellent. In some of the best research hospitals of the world, a Sri Lanka specialist can be found. Sri Lankans go abroad for treatment because those hospitals have superior technology, not superior doctors. The answer therefore is not to import Indian doctors here, but to get down modern technology.

Sri Lanka could be proud of its health achievements, low maternal mortality, high life expectancy, successful elimination of malaria and free availability of healthcare to all citizens. All this has been achieved at the mere cost of only 1% of National GDP due to the skill and dedication of our health care professionals, said the doctors.

Sri Lanka Medical Association said India was asking Sri Lanka to recognize the qualifications of Indian doctors. They also said that 25 to 30 categories of paramedical professional were to be included in the CEPA.  also CEPA   would  help by pass a number of health laws including those associated with quality control (CDDA no 27 of 1980)and the monitoring of the private health sector ( PMIR no 21 of 2006). 

They also complain that Sri Lanka eradicated polio years ago but cannot get a certificate because neighboring Tamilnadu had frequent polio epidemics. They point out that the substandard pharmaceuticals coming into Sri Lanka are all of Indian origin. Tablet manufacture is a cottage industry in India. (continued)

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