IIFA debacle is a forewarning not to be missed when deciding on CEPA
Posted on June 3rd, 2010

Ramanie de Zoysa

(The writer hoAccountantlds an Honours Degree in Economics from the University of Sri Lanka, a Bachelor of Business Studies from Massey University in New Zealand and is a New Zealand Chartered .)

Sri Lanka, in all good faith, went all out to embrace the International Indian Film Academy (ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”IIFAƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢) Awards event to be staged starting today in Colombo. Mega Bollywood promises of an ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”internationalƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ gala event in the Sri Lankan capital were warmly welcomed with typical Sri Lankan exuberance- sparing no public expense. Sri Lanka evicted pavement hawkers to clear the pavements and beautify the city- a thankless job that needed to be done for the long term good of the country- but at a slower pace inflicting a lesser amount of pain to this sector of public that keeps small enterprises ticking over contributing to the GDP. Public money was channelled to upgrading stadiums, special trains and other public infrastructure and clearing of slumsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢¢”š¬…” all work that needed to be done ƒÆ’‚¢ƒ¢-¡‚¬ƒ¢¢”š¬…” but at a more affordable pace.

Then came the bombshell- one nevertheless that should have been easy to foresee- the Tamilnadu factor! Southern Indian thuggery prevailed and the threatened Bollywood superstars dropped out from the event one by one. Even the Bollywood giant Amithabh Bachchan who came to Colombo to announce the event with so much fanfare has taken the cyanide pill from the Tamil Eelamist South and has backed down from attending as has his son Abhishek and daughter-in-law, Aishwarya Rai. Even the ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”brand ambassadorƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ Shah Rukh Khan became otherwise engaged! Just about at the same time as the Southern Tamil threats started coming everyone just remembered ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”other commitmentsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢- one wonders why their busy schedules were not taken into account when the event was planned.

As usual Sri Lanka stands alone holding IndiaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s baby- reminding everybody what happens to the woman who canƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢t say no!ƒÆ’-¡ƒ”š‚ 

Sri Lanka needs to think again if she thinks that the next Indian bait she is likely to swallow- the Comprehensive Economic Partnership Agreement (CEPA) with India – will produce different results.

The President is yet to make known the full details of the CEPA to the public- that alone signals the lack of confidence in his mind of the desirability or the general acceptability of the Agreement. Daily Mirror (3 June 2010) reports the Co-operatives and Internal Trade Deputy Minister Neomal Perera admitting that the CEPA in its present form would be disadvantageous to Sri Lanka. He has intimated that the President will discuss the agreement with vital stakeholders such as the Sri Lankan business community- this is welcome news indeed.

The biggest carrot dangled in front of Sri Lanka to lure her to sign this deal is the 1.2 billion mega market in India that will potentially open up to Sri Lankan products and services. If you take out from the equation, the desperately poor proportion of the Indian population with an annual income of INR 0 (zero), that will shrink this ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”mega marketƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ by about 40%. What of the hostile South? Sri Lanka can be rest assured that the Southern Indian anti-Sri Lanka mob who control a large part of the wealth and power among the remaining 60% of the Indian ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”marketƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ will boycott Sri Lankan trade, certainly for no commercial reasons. Where is that going to leave Sri Lanka? We would have opened our doors wide for any Indian trader, half-baked professional or Southern terrorist to set up shop in Sri Lanka with no reciprocity. Even if the agreement was impeccably, impartially drawn up to benefit both countries (which it is not at present according to those in authority like Deputy Minister Perera) the reality will always be different to paper due to the Tamil Nadu factor. This is not a factor that the Indian Government can ever give any assurances to Sri Lanka on; nor should Sri Lanka believe otherwise.

This is not the first time CEPA with India surfaced- both sides have held at least 18 rounds of talks since February 2005. This was rumoured to be discussed at the SAARC summit in Colombo in 2008 but was sidelined. India-Sri Lanka trade in 2006-07 was $2.72 billion, marginally up from the previous fiscal yearƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s $2.6 billion. Bulk of Indian exports to Sri Lanka includes petroleum products and transport equipment, supplemented by primary and semi-finished iron and steel and technological equipment such as the non-functional radar systems that nearly resulted in Colombo succumbing to LTTE air-attacks not too long ago. Among the significant Sri Lankan export items to India are coffee, tea, edible oil, non-ferrous metal imports, spices and electrical machinery.

There is no question of CEPA not increasing trade for Sri Lanka. After signing the Free Trade Agreement with in 1999 (a precursor to the proposed CEPA), between 1999 and 2007 Sri LankaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s volume of trade with India increased from $49 million to $516 million ƒÆ’‚¢ƒ¢-¡‚¬ƒ¢¢”š¬…”a 10 fold increase. In comparison IndiaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s trade volume with Sri Lanka increased from $549 million to $2.7 billion- a 49,180 times fold increase. The trade increase between the two countries will be disproportionate to say the least. That in itself is not the problem. India is a larger country and the larger part of the benefit is bound to accrue to India. The problem will be the cost in real terms for Sri Lanka. As of 2008, India placed 598 items (all from the textile sector) in a ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”negative listƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢- a list of locally produced items which will face disadvantage due to the free trade agreement. On the other hand, Sri Lanka had 1,180 items in its negative list as of 2008, comprising mostly products from the agriculture, automobiles and capital goods. In other words, the result of free ƒÆ’‚¢ƒ¢-¡‚¬ƒ¢¢”š¬…”trade agreement with India, Sri LankaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s net gain is less than that of India while her net losses are far higher than that of India. If the trade agreement was fair and balanced, India as the larger player would have a higher proportion of the net gain as well as the lionƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s share of the disadvantages. It is the built in-imbalance and the skewed nature of the agreement that results in a win-lose situation where Sri Lanka is the inevitable loser.

This is where an impartial, apolitical Governor of the Central Bank rather than a Presidential lap dog would have been of value to Sri Lanka. The Central Bank has the means, data resources and the authority to step in and evaluate any trade agreement with Sri LankaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s welfare in mind.

Mr R.M.B. Senanayake- of Sri Lanka Economic Association- has commented to news360.lk that Sri Lanka will lose an opportunity if she does not sign the CEPA agreement with India. This comment merits careful consideration. Especially in the event that India enters into FTAƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s with the Asean countries and Sri Lanka does not sign the CEPA, the country may lose out on opportunities. However, unlike the other trading partners of India Sri Lanka has a unique disadvantage- as far as Sri Lanka goes IndiaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s word can not be trusted as long as the South Indian Tamil Nadu State can manipulate, hold to ransom or intimidate India out of keeping its word to Sri Lanka. The vital questions therefore, are:ƒÆ’-¡ƒ”š‚ ƒÆ’-¡ƒ”š‚ 

  • whether India can guarantee not to dance to the South Indian tune reneging on contractual obligations to Sri Lanka under CEPA; and
  • whether Sri Lanka can increase advantages to her to an extent that it negates or overweighs any inherent negative impacts.

One of the major bugbears of CEPA that local Sri Lankan business fraternity sees is the opening up of the services sector to India. SenanayakeƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s observation that ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”competition from Indian service sector is good for the local consumers who otherwise is being exploited by some of the local service providers such as architects, lawyers, engineers and accountantsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ is short-sighted. Is it better to be exploited by Indian crooks than get exploited by the local crooks? The opening up of the service industry to Indian professionals whose authenticity can not easily be verified by the local consumer places him/ her at far higher risk of exploitation than leaving the borders closed for competition. The importation of professionals under the guise of ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”new entrepreneursƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ (the service providers will need to come in as investors/ new business operators and possibly employ themselves in the new business as the service provider) will only aggravate the already festering problem of graduate unemployment in Sri Lanka. The drive down of prices by the Indian service providers in the services sector is not necessarily a good thing for Sri Lanka. Without an all round decrease in the cost of living in general such a decrease in income of a section of the economy would amount to an importation of IndiaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s poverty to Sri Lanka rather than a true decrease in the price of services for the local consumer.

India may be showing impressive indicators of growth in her economy but to a certain extent these indicators distort the true situation. IndiaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s vast growth is concentrated in a few pockets; the benefits of this growth have not much penetrated down to the billion people who make up IndiaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s ƒÆ’‚¢ƒ¢-¡‚¬ƒ”¹…”marketƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢. Unless any goods and services Sri Lanka is proposing to export to India cater to this small market of the rich few, chances of earning big money in the Indian markets will be a distant dream.

Quality control is another problem that is associated with Indian products and services. Recently the Sri Lankan Health Ministry banned four Indian pharmaceutical companies for two years for supplying sub-standard and adulterated drugs, some with plastic and glass pieces in them. The companies blacklisted were Belco Pharma (manufactuer of Pethidene), U-Medical Laboratories (makers of Hydrocortizone Sodium Succinate), Kilitch Drugs India Ltd (makers of Cerfuroxine) and Mercury Laboratories (makers of Promethacin). Vins Biotech of Hyderabad has been let off after it was found that the snake venom serum it had supplied to the Anuradhapura Teaching Hospital had lost colour because it had not been kept at the appropriate temperature at the hospital. The company had agreed to send a new batch free of cost.

The Sri Lankan business fraternityƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s concerns expressed last week objecting to the CEPA need to be taken seriously- more seriously than they have been treated so far. These entrepreneurs question the need for a CEPA agreement and the lack of transparency in the process.

Managing Director of the Multichemi Group, Samantha Kumarasinghe is reported to have asked ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-Who in Sri Lanka asked for a CEPA? As far as I know, no large scale manufacturer in Sri Lanka or professional body has asked for a CEPA. So why do we need the CEPA? Is it because we want it, or because India says we should have it?ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚ A pertinent question indeed!

These businessmen are not without concrete evidence either. According to the group ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-Indian business set up copper factories here. What they brought was 18th century technology. They also brought untrained, unskilled workers and in one factory there was even an explosionƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦.ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚

ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-Many of these factories, including vanaspati factories, were shut down. They just set up here to use the FTA to bypass Indian duties on vanaspati and copper. Is this the type of benefits we should get from an FTA?ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚ were further comments attributed to this group.

Financial times report ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-More to the point, Sri Lankan businesses say that although Sri Lanka honoured the FTA and allowed Indian business, even those of a dubious nature, to operate in the island, India has not done the same. Businesses say, Indian bureaucracy and countless non-tariff barriers prevented, and continue to prevent, Sri Lankan businesses from using the FTA to export to India. The Sri Lankan government has not been able to resolve these difficulties.ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚

Chairman of Ceylon Biscuits, Mineka WickramasinghaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s comments are an apt illustration of the fickleness of India in adhering even to the written letter of any agreement. He says ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-I faced a lot of difficulties in exporting to India because of the attitude of officials in India and their bureaucracyƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦. I invested in using the FTA and I realised that they (India) were blocking me at every point. They have no respect whatsoever for the FTA. Even their Customs does not accept the FTA and I made losses with my goods stuck in their ports, and by running around to various Indian and Sri Lankan government bodies. So within one-and-a-half years I left India,ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚ Mr Kumarasinghe has said to Financial Times.

It is also reported by this group that India is noted for taking unilateral decisions. Some goods were given free access into India under the FTA, but India went back on the agreement later. The Sri Lankan government has not been able to change this. An instance of this is narrated by the businessmen:

ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-Sri Lanka exported pepper to India, but when their traders protested India just stopped it. Is this how free trade is supposed to be?ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚ said one businessman. Reminds you of the IIFA saga unfolding right before our eyes? Some Indians protest and India capitulates. ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-In the end it was the same with vanaspati and copper exports from here. When Indian businesses protested they just clamped down on Sri Lankan exportsƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚.

IndiaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s fickleness toward Sri Lanka- Have not we seen enough yet?

Ramanie de Zoysa(The writer holds an Honours Degree in Economics from the University of Sri Lanka, a Bachelor of Business Studies from Massey University in New Zealand and is a New Zealand Chartered Accountant.)

6 Responses to “IIFA debacle is a forewarning not to be missed when deciding on CEPA”

  1. jana Says:

    Open economy is a failed entity. SL has to consolidate her industries then we can go for an open economy. To allowe India in is the opening door for subjugation. Already inroads into the economy has been made but this agreement will be the final straw.

  2. GamiGreenGlobe Says:

    If the CEPA implements as is, Sri Lanka will lose short term basis even though the island will gain in the long run. Get France in example. Throughout the Pre European Union era, France used to have regulated yet mixed economic policies with the exterior. With the formation of the EU, France has lost its quality of living and it has become a greener pasture to those who earn much less than the French active population, who are basically from former Eastern European countries as Poland, Romania, Yugoslavia, and so forth. Meanwhile, European countries like Switzerland, Norway, United Kingdom, and Sweden at some extent do not wish not only to be a member of the EU also European Monetary Union ( EMU ) because of this disparity. We do not need to have any phobia over the deal .. But, imagine if we open our door to Indian labor, trade, and investment mass without having meticulously reviewed ..
    If you get the existing Free Trade Agreement between India and Sri Lanka ( ILFTA ), the Import Export Ratio is about 5 : 1 ( Sri Lanka imports more than its exports ) and Sri Lanka is having an enormous Trade Balance ( Hard currency outflow is greater than the goods exchange ) as Indians are applying Unilateral quota system for 58 % of Sri Lanka’s major exports such :
    – Tea
    – Garments
    – vanaspathi
    – Pepper, and so forth.
    Thinking beyond the ILFTA is CEPA. But, ILFTA itself has to be reviewed before CEPA. ( Competing with the Indian labor market, where the Sri Lankan labor market will be definitely losing the ground as the HRD jargon said the human resources those who got the willingness to relocate, are much more productive and flexible if you compare with the local labor market. Therefore, active labor mass of Sri Lanka will be eroded and deprived of their usual buying power while only handful of Sri Lankan and Indian entrepreneurs who exploit the situation will be having few success stories to narrate.
    The sectors that Sri Lanka has to safeguard with CEPA :
    – IT
    – Air Travel
    – Tourism
    – Fisheries
    – Maritime Shipping and logistics, etc.
    Therefore, Sri Lanka has to review its FTA and the CEPA before implementing.

  3. Lorenzo Says:


    CEPA has long term benefits for Sri Lanka? Rubbish! It is not phobia driven but fact driven. The fact is India is in the process of exploiting the Sri Lankan economy with no real benefit for Sri Lanka. All trades are at risk. We cannot expect, given the track record of ILFTA (or ill-FTA), that India will allow reciprocal benefits to Sri Lanka. There is more to it than the CEPA agreement. Bottlenecks created by bureaucracy play a big role as in the case of Maliban. Then it all boils down to bargaining power of India and Sri Lanka which India wins easily.

    EU cannot be compared with India and Sri Lanka. EU has many (a number of) key economic power houses. So the relative trade between them is at a level playing filed. In the case of India and Sri Lanka it is certainly not.

  4. GamiGreenGlobe Says:

    Lorenzo FYI : I never compared the EU with India. What I meant the phenomenon happens in France due to the open border policy, will repeat in Sri Lanka. Instead of having phobia to India, we can always negotiate an accord. ( Suitable Deal or No Deal ) The other factor we should consider very seriously that the World Food Program ( WFP ) repeated warning over Global Food Shortage due to an increase of food consumption by the emerging giants as India and China. Sri Lanka can be self sufficient by itself but Sri Lanka simply could not feed India as we are right by the epic center. THX .. RGDS !

  5. Fran Diaz Says:

    Lanka should aim toward SELF SUFFICIENCY in whatever way we can, in essential fields such as food, clothing & shelter, education & health first. After that we can enter into competing with businesses from abroad. Besides, entering into further business ventures with India may result in an ‘business invasion’ from some in Tamil Nadu which sees Lanka as a sort of extension of Tamil Nadu ! Lanka is a Non-aligned Democracy and we should see to it that it remains so forever. Guarding Democracy means constant vigilance by every citizen of Lanka, now more than ever before.
    Co-ops & Worker Owned Businesses are the way to go for Lanka. 14% of America’s top business organisations are Worker Owned.

  6. unison2k1 Says:

    Hello Ramanie de Zoysa

    A nice article indeed, but there is lot of mathmatical errors in your argument.

    “Sri Lanka’s volume of trade with India increased from $49 million to $516 million –a 10 fold increase. In comparison India’s trade volume with Sri Lanka increased from $549 million to $2.7 billion- a 49,180 times fold increase.”

    Could you please validate this statement? How come 549 Million $ : 2.7 billion $ become 49,180 times???? That is 4.9 times. Going by your argument how is 10 times increase is to 4.9 times increase work out???? Whose share increased more in terms of percentage???

    The above arguments shows only emotional quotient of you Guys….

    And one more point I wanted to put forth here. You pointed out that Bollywood super star didnt go to IIFA becuase of south Indian appeal. Why do you think so???? He gave respect to Tamil sentiments….. To be frant I am an Indian Tamilian. But I never shed a tear drop because SL killed Mr. Prabakaran. He is a Terrorist no matter what his cause was….This is the real thinking of 99% of Tamilians in India. We salute your victory.

    At the same time try to learn some lessons from the past and understand how a tamil request was accepted by a North Indian. that is India. It is the most successful pluralistic society the world has ever seen.

    Now coming to CEPA….

    Why do u think u will lose out because of CEPA??? Again this is an emotional argument rather than a factual one. going by the numbers you gave above becuase on ILFTA…..

    By the way did any Tamil group in India protested CEPA??????? It is u guys making much noise about this CEPA…

    You Guys put forth an argument that out of 1.2 Billion people only 60% has income… Can u imagine more than 5% of Indian population is in high income bracket. That is 65 Million which is 3.2 times your population is earning more than 3400 USD a month. Now workout your equation on how much u can export to India????

    On the blocked list itself, Sl has blocked 580 products compared to 16 of India in CEPA. That shows SL can export more to India than India to SL.

    If you and I can think and talk this much about this CEPA. Imagine the policy makers of your country and my country. Do you think they will loose out on any factors????

    The decision you and I take are emotional decisions….the decisions they take are Policy decisions….. Even in India we had opposition for 123 Nuclear agreement between India and US…. But visionarieis and Knowledgeable persons appreciated the agreement. You Guys also will realise the worth of CEPA if you Guys sign it.

    Sorry if i wrote any thing bad on your sentiments…

    Either Tamil or Sinhalese you are our next door neighbours… Aibhovan Guys….

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