Posted on May 21st, 2017


The Free Trade agreement with India, like everything else with India,   has also caused a rumpus. The first India-Sri Lanka FTA (ISLFTA) was signed in November 1998 with just 4 consultations within 4 months. It became effective in 2000   and has been continuing ever since. In 2017 it was observed that   the FTA has been in operation for 15 years but without any tangible benefit to Sri Lanka.

Bilateral trade agreements  are expected to provide favored trading status, expanded access to each other’s markets, purchase guarantees, and removal of  tariffs,. But with India it was not so. The FTA helped India not Sri Lanka.  The Chambers of Commerce in Sri Lanka observed that the FTA did not come up to expectation even after a decade.

In 2007, exports from India to Sri Lanka amounted to USD 2784 million, exports were USD 516 million. Records from 2003-2009 showed that India’s exports to Sri Lanka were up and Sri Lanka exports to India were down. Between 2007-2009 Sri Lanka exports to India declined from USD 515 million in 2007 to USD 324 million in 2009.  ‘If not for the controls imposed by Sri Lanka the local market would have been flooded with cheap Indian goods,’

Sri Lanka‘s industrial sector has not benefited by the FTA although there is much talk about the entry into the vast Indian market, observed critics. Sri Lanka finds it hard to compete in India. Sri Lanka does not have industries that can match the scale of Indian production. Indian factories are huge and the scale of operations is gigantic. The cost of production in India is less than in Sri Lanka. ‘Our cost of production and domestic price are higher.’ Also Indian businesses are heavily subsidized. Large Indian conglomerates can sustain a price war. They can smother competition without feeling it.  Sri Lanka exporters, on the whole, are not interested in the Indian market. ‘India is too a big market for us, elsewhere is better, ‘they said.  ‘Our exports go elsewhere, not to India’.

Sri Lanka has only a limited number of items that can be exported such as tea, rubber products, spices, and garments. Under the India-Sri Lanka FTA, limitations were imposed on these and ‘we were asked to export other things’.   ‘India loyalists’ pointed out that India had granted concession to Sri Lanka for 4000 products, but only a fraction of these were exported. Exporters replied that FTA has a huge list of duty exempt goods, certainly, but these consist of items like aircraft engines, ships and so on which are not produced in Sri Lanka.

The bulk of Sri Lankan exports to India were outside the FTA but there was considerable obstruction to those exports that did come under the FTA. There is a long list of complaints. These complaints indicate that there is an organized campaign in India to harass and discourage Sri Lanka exports. ‘There is special antagonism towards Sri Lanka goods’, said exporters. There was red tape and bureaucratic delays.

Sri Lankan products entitled to concessions were rejected, complained exporters.  Strict quotas were imposed on Sri Lankan exports. There were stringent rules on product origin criteria. Certificate of origin has to be certified by the Sri Lanka High Commission. The goods usually arrived prior to the documents but could not be cleared without this vital document.

Documents are asked for by Indian authorities which are not specified in the FTA and furthermore, when documents are submitted which are in accordance with the FTA, the officials say that these are not the proper documents and request for other documents. Different ports in India classified goods under different duties.   Different ports demand different documentation and this led to  considerable delays in shipping and logistics  Different local organizations in India had different standards and quality requirements for imported products.

The exporter also had to face many Non Tariff measures (NTM) which were outside the scope of the Agreement. There is no end to the long list of non-tariff barriers that confront Sri Lanka goods, complained exporter. There are concealed state as well as federal government trade regulations, lots of ‘fine print’ and ‘invisible’ obstructionist measures. Indian exporters to Sri Lanka do not face any Non Tariff Barriers when they export their goods to Sri Lanka.

When goods on the Open General License arrived in India, the importer is told that Special Import License is required. The licence for non vegetarian food stuffs had to be issued by the Ministry of Agriculture in Delhi. Certification by Sri Lanka Standard Institute was not accepted, despite reciprocal recognition of Indian certificate. These delayed cargo clearance, especially of perishables.

Even when the goods were accompanied by the necessary certificates, the Indian authorities insisted that further tests to be carried out in India. Exporters complained about excessive time taken for product testing. Laboratory testing of perishable exports, often took 5 days, with higher Indian food standard requirements than Japan or the EU. There was excessive spot testing of even garments.

Checking of edible items is done by laboratories situated a distance away. Imports into Chennai are sent to CFTRI Mysore, and imports into Mumbai are sent to CFTRI Pune.  If sausages are exported, the goods have to be examined in Delhi and the container sent will have to be in the harbor for four or five days.  These led to delays, sometimes well over four weeks. And the consignment incurred demurrage and product deterioration.

There is harassment at Customs, very visible at Chennai. When there is no customs duty payable, other duties are presented. The exporter, due to time and cost pays this amount under protest. In addition to central government taxes, each state also has special taxes.   Kerala taxes the tea packaging and the tea tags too. Tea Board, India has to approve the imports. There are delays in customs clearing of cargo,

Other issues faced by Sri Lankan exporters at the Indian end, included Ignorance of Indian customs officials of FTA concessions for product categories.   Complexity and difficulties in obtaining information on new regulations, especially by SME exporters, regarding say, recent new food safety regulations.  Absence of an Indian agency or ‘help desk’ to resolve problems like the above, where a quick response is critical due to ensuing high costs from delays, negating FTA benefits and discouraging Sri Lankan exporters.  Also exporters needed to make informal payments to oil the machine.  There are a myriad other loopholes and bottlenecks experienced by Sri Lankan exporters to India, especially SMEs, said exporters.

The head of Ceylon Biscuits observed that those who worked with India had sad tales to relate. Ceylon Biscuits was blacklisted at Chennai ‘claiming that we were under invoicing’ .A regular exporter of floor tiles was suddenly called on to pay duty as customs challenged the validity of the HS classification. The exporter got redress after a long drawn out court case and great expense. In marble and granite a minimum floor price was imposed to hurt Sri Lanka exports.  In the case of fresh fruit and tea, there was excessive time for lab tests.

This FTA is still in effect in Sri Lanka and in 2017 critics noted that while India has imposed various product specifications on Sri Lanka,   ‘we don’t have any product specifications for Indian goods, which is why Maruti cars are imported into Sri Lanka on a large scale even though they are not exported to any other country.’ Inferior motor vehicles made in India such as the ‘Alto’ brand, not marketed anywhere else in the world, are also imported.

In 2002, Sri Lanka and India agreed to replace the existing India Sri Lanka Free Trade Agreement with a Comprehensive Economic Partnership Agreement (CEPA).  When CEPA negotiations took place in 2005, the only persons who represented Sri Lanka were government officials, non-government persons were left out, complained exporters. CEPA was originally scheduled to be signed in 2008 during the SAARC summit. No one had seen the agreement.  At the eleventh hour, CEPA was shot down by angry business men, very critical of India.  ‘A secret copy came into the hands of a few people who stopped it.’  President Rajapakse then decided not to sign it, despite considerable Indian pressure to do so.

Sri Lanka’s business sector said ‘No’ to CEPA very firmly. Business concerns, such as Maubima Lanka opposed CEPA. India is not a level playing field and the local manufacturers will get hurt, the business sector said. India has not treated Sri Lanka businesses kindly. Exporters cited their experiences with the earlier FTA. India harasses the Sri Lanka exporter. Sri Lanka exports face numerous non-tariff barriers, port restrictions, customs delays and cumbersome laboratory tests. 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, exporters said.

Trade in goods was still bleak. The volume of bilateral trade, which stood at USD 4.6 billion in 2014, was heavily in favor of India. Sri Lanka share was USD 600 million. Sri Lanka’s small size and inability to produce items in required numbers to meet the demand of the huge Indian market was one factor.

India had asked Sri Lanka to sign the agreement first, the schedules can come later.  No, said exporters, we must not sign CEPA in a hurry.  We must avoid signing an open-ended framework agreement.  We must include the schedules at least as drafts and bring in conditions preventing additions of any schedules outside the discussed areas as in India-Singapore agreement. In the India-Singapore CEPA all the schedules are very clearly attached.

We must sign CEPA only after we ensure that it will be in our interests to do so, continued exporters. We must first address all the key issues that are hindering our exports.  We must have the necessary domestic legislation for incoming imports and have a patriotic committed negotiating team that should match if not better, the Indian team.  Once agreed to, the agreement cannot be reversed. It is a bilateral agreement so there is no court to which we can go either.  If we change terms heavy penalties, including compensation, have to be paid.

Critics noted that CEPA is pushed by India not Sri Lanka.  India is actively pursuing this, critics observed. India has already established its industries in Sri Lanka. Indian business houses and their businesses thrive in Sri Lanka. They get subsidized energy.   The Sri Lanka market is too small to attract India, anyway, so why is India so keen on CEPA? Answer, to get control of Sri Lanka.  Sri Lanka is strategically important.  India cannot easily control Sri Lanka militarily, so it is best to try to control it through its economy. CEPA was intended to tie Sri Lanka’s economy firmly to that of India.

‘India Loyalists’ however, said that CEPA will help domestic industries. . There is going to be an increase in consumer demand in India and Sri Lanka can tap into this. There is a limit to how much an industry can provide for a small market such as Sri Lanka with 20 million, India population is over a billion, the scope and potential is endless. Sri Lanka industries can also expand to newer manufacturing sectors. The charge that Sri Lanka domestic industries would be affected by the influx of cheaper Indian goods was dismissed as ‘protectionism.’   ‘India Loyalists’ said that there are safeguards in place.

‘India Loyalists’ said that the Indian firms like CEAT and Piramal have taken over sick units in Sri Lanka and turned them around. They said Lanka IOC, was a notable achievement, which has revolutionized the petroleum sector. LIOC has plans for further expansion. Bhareti Airtel has led to a drastic reduction in mobile call rates.   Finally, that Ceylon Biscuits, Carson Cumberbatch, Brandix, John Keells, Hayleys, and the Aitken Spence hotels have done well in India.

Pathfinder Foundation defended CEPA.  Pathfinder said that the charge that due to the asymmetry of the two economies CEPA would inevitably be detrimental to Sri Lanka is not   correct. There were provisions in the agreements as safeguards.  And we have trade negotiators to handle this.  India has trade agreements with countries that are less developed than Sri Lanka. If they can why not Sri Lanka.  CEPA can offer benefits to Sri Lanka of getting into bigger markets.

The persons urging CEPA within Sri Lanka appear to be  ‘non-business’ men,  particularly economists, including certain named economists. These persons do not have businesses to export to India, but are urging business men to support CEPA. Exporters charged that these economists were disinterested in the welfare of local business.  I attended a discussion on CEPA, where the economists held forth, not letting anybody else speak, except a high official of the Department of Commerce, who defended CEPA.  The exporters, who had come to speak of their experiences with India, left in disgust.

CEPA included not only goods, but also professional services, investment and free moment of persons. The reserved list for Sri Lanka was only pawn broking, small and medium industries below one million, and coastal fishing, not deep sea fishing. Opponents of CEPA had much to say about this.

This means that Indians can come and start state trading organizations here and repatriate profits abroad. If they start industries here, they will kill the local ones by undercutting for a few years, and then they will start to increase prices.   Existing Sri Lanka companies will also then have to raise their prices. No foreign exchange will come in, it will only go out, they declared.

If CEPA goes through Sri Lanka will be swamped by Indian labor in all spheres of work, professional, skilled, and semi skilled. Under CEPA India can bring down technical staff  from 10% of total staff cadre up to   50% Through this, India will be able to bring all  their technical staff from India.

That was not all. Any Indian can bring his family into Sri Lanka and they can work anywhere they want. Family alone can take up about 5 jobs. There are some 56 million unemployed in India compared to Sri Lanka’s 470,000. So they will come in droves for lesser salaries, while Sri Lankans, whose standard of living is higher, will not easily, go to India. Under CEPA there is no ‘business visa’ so there is no time limit for the stay either.

Our culture will also be affected, noted critics. According to CEPA there will be 50% Indian ownership of 25 cinemas, each of which could hold multiple cinema halls.  In these cinemas, 40% cinema time would be for Tamil and Hindi films. Film makers when alerted objected.

The professions also objected to CEPA. CEPA was most undesirable, they said. India’s professional standards are different to ours. Engineers said that there are many unemployed engineers in India who will flood Sri Lanka through CEPA.  India’s degree for engineering is only three years, ours is four years.

In health and medicine, India was   asking Sri Lanka to recognize the qualifications of Indian doctors.  30 or so categories of paramedical professionals were also included in the CEPA.    CEPA  could also be  used to bypass 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).   Sri Lanka regulatory bodies are weak, stressed the professionals, and if we open up the service sector without regulation Sri Lanka will be swallowed up by Indian companies and services.

Yahapalana government of 2015 announced that they will not sign CEPA but will enter in to an Economic/Technical Co-operation Framework Agreement (ETCFA) with India. This ECTA was drafted in great secrecy. The agreement was not made public and an attempt was made to sign it quickly. But this too was stopped. This time by the professionals, led by architects, engineers and doctors.

The agreement was poorly drafted, observed critics. It had ‘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’. Opponents of ECTA questioned whether it had been properly negotiated.  Also the competence of those drafting it. .

ECTA   they said was CEPA all over again in a more virulent form. Something akin to match fixing was   going on, they declared. Even the people who were supposed to represent Sri Lanka were actually representing the other side. ECTA is not about trade, it is about politics, they concluded. ECTA is intended to please India.

ECTA involved goods, professional services, investment and free movement of persons. Analysts were not surprised. ‘What India really wants is to get at Sri Lanka‘s goods and services,’ they said. In ECTA as in CEPA, India had opened up only few jobs to outsiders but Sri Lanka had opened up all sectors except a few unimportant ones. All services and trades were open to India except pawn broking, money lending, small time retails trade, personal services and coastal fishing. GATS guidelines specified that after a country had agreed to open up specific sectors, they cannot thereafter apply any new licensing and qualification requirements to those professions.  That is prohibited. it is reliably learned that the Indian side have requested that the laws relating to  registering professional not be changed after signing ECT framework agreements, which is a preliminary to the proper ECTA.

But the  main concern in ECTA  was about the ‘movement of  persons ‘  from India into Sri Lanka  for trade and services,  using Modes 3 and 4 of the General Agreement on Trade in Services (WTO 1995). Governments are generally reluctant to  include modes 3 and 4  in trade agreements, because GATS commitments are one-way and cannot be  withdrawn once entered into.

Mode  3  gives the foreign supplier the right to be present in the  country and Mode 4 says the  foreign supplier can be represented by a natural person. This is supposed to be only temporary, for the duration of the contract. But GAT does not define ‘temporary’. WTO members are free to interpret the term as they wish, and to set varying definitions for different categories of service providers.  Sri Lanka professionals observed that persons could  come in on  Mode 3  also, through companies.

Using Mode 3 and 4,  Indians can come in and set up their own companies in Sri Lanka. They could for instance, set up their own tourist companies and Indian tourists will come to those. Also these companies can siphon off the clients from the local brands. Substandard Indian business will thrive in Sri Lanka  and this in turn will result in a massive elimination of local SMRs and exporting companies and a great increase in Indian companies, commodities and employees in  Sri Lanka .

But what worried  the professionals most was India flooding Sri Lanka with professionals and workers through  these two Modes.. The fear was mostly that this could lead to sub standard persons from India entering the Sri Lankan workforce. High unemployment pressure in India and lower salary expectation of Indian workers would make them seek job opportunities in Sri Lanka. Movement of persons will be one sided, India to Sri Lanka.

Unlike Sri Lanka , India  has carefully defined and limited the scope of movement of natural persons under Modes 3 and 4. Also  India has controls for all its professions.   In architecture, there was Architects Act of 1972 and the Council of Architects. India   had a very sophisticated system of professional registration as well   and no foreigner can practice there. Therefore   Sri Lanka professionals cannot enter India.  And if they try, India can do to them, what they are doing to the Sri Lanka exporters.

Sri Lanka unlike India,  has  no legally empowered bodies which  require professionals to be registered with them. Only exceptions are Sri Lanka Medical Council and Institute of Chartered Accountants. Sri Lanka does not have a regulatory system in place for monitoring  its own professionals let alone any that arrive from India.  Indian professionals will be able to flood Sri Lanka  without any restrictions as there are no accrediting requirements at  the Sri Lanka end, said professionals..

Island-wide protests were initiated by diverse professional associations, political entities and businesses, to stop ECTA. A  Professionals National Front, a consortium of a dozen professionals’ associations,  was formed to combat ECTA. It included among others, the Government Medical Officers’ Association (GMOA), the Electrical Engineers’ Association, the Customs Officers’ Union and the National University Teachers’ Association.

This Association held a meeting at SLAAS to oppose ECTA. The auditorium was packed to capacity with standing room only at is first meeting. Five speakers, one after the other all rejected  ECTA.  The speakers said  ECTA was detrimental to Sri Lanka.  They drew attention to  the utterly weak regulatory framework in  Sri Lanka . And said that   necessary safeguards must be provided for all  professions before ECTA is signed.

India plans to use ECTA, in the first instance to get into Sri Lanka’s  Information Technology (IT)   and naval engineering sectors (dockyards). There is little discussion so far on shipyards and   naval engineering  but clearly, India is interested in getting a  foothold in  this  sector.

Sri Lanka ‘s IT sector is flourishing.  It is the strongest area of Sri Lanka ‘s knowledge industry sector. Global Information Technology report for 2015,  ranks Sri Lanka  No 65 in Network Readiness Index.. The Network Readiness Index indicates how well an economy is poised to gain the benefits of ICT.  Sri Lanka is within the top ten countries from Asia and is the only south Asian country in the list. Sri Lanka is  three places below China.

India’s position in Network Readiness has been declining  India was ranked at  89 in 2015. IT standards in India are not  as high as in Sri Lanka and   if India comes here the domestic IT  industry will  get weakened.    Through ECTA Indian IT persons will be able to arrive here even without being employed by a company and once in, will  rank  equal to the Sri Lanka IT  personnel. Sri Lanka’s standing in the world in IT will be affected. Since India has a high rate of unemployment,  Indian IT workers will  be prepared to work here for lesser wages   and this will lower  salaries  too.

IT professionals have   mobilized against ECTA. The Society of Information Technology professionals  of Sri Lanka (SITP) warned government against signing ECTA. They say the pact will be very harmful to Sri Lanka. They said at a press conference that they would everything possible to prevent government from going ahead with this.  A large number of Sri Lanka processionals will be unemployed if this is signed.

The Computer Society of Sri Lanka   (CSSL)urged the government to ensure     safeguards to protect the IT professionals of Sri Lanka. The speakers said that it is not true that there is dearth of IT professionals in Sri Lanka.  We have enough to meet the demand now and  for the next several years. Why was IT selected as a service that India could provide?  If ECTA comes then IT wages will be reduced, as cheaper labor will come from India, it will also tarnish Sri Lanka image as a centre of excellence and Sri Lanka will lose its state as a niche software developer centre for investors.

If  Indian IT persons  are allowed to come, their qualifications must be checked and  limited period visas issued. Also they must get CSSL membership.  Working visas must be linked to a  letter from a  Sri Lanka company  and  visa must be linked to that company . The  company must be incorporated in Sri Lanka.  They must first try to recruit locally.   There must be a minimum level of Sri Lanka employees in the company. ‘That must be set down’.  The foreign nationals must pay tax to  Inland Revenue here,  also Sri Lanka must prevent  IT freelancers coming  in.  ( continued)

6 Responses to “YAHAPALANA AND INDIA   Part 3”

  1. Dilrook Says:

    Factual series of articles by Kamalika. Thank you.

    Armed with this knowledge, patriotic voters will not vote for the pro-India camp and Miguel/Daniel (depending on the time of day – “Dawal Miguel, Re Daniel”). They need a bold third political force unbowed and unafraid to stand up to Indian invasion. This party must contest the next presidential and general elections. Those suffering an identity disorder must choose either Miguel or Daniel. Voters cannot be fooled with such open duplicity in this day and age.

    Those who disagree with me must get ready now itself to blame Sinhala voters following 2019. Sinhala voters don’t mind Ranil than have ambiguous Miguel/Daniel. Minority voters have made up their mind. It is enough incentive for one assumed identity for the challenger. Hope he/she will take this bold stand and win than continue doublespeak and lose, again.

  2. Dilrook Says:

    Contrary to popular view, India deals must be looked at from the Sinhala point of view ahead of a Sri Lankan view. Parts of the deal is not harmful to Sinhalese though harmful to Sri Lanka as a whole. Since we cannot stop it, there is no point worrying about them. However, we must resist and defeat all anti-Sinhala moves. There are plenty of them.

    Modi’s visit is 99% bad for the nation and the majority but the biggest losers of certain agreements (1%) are Tamil Eelamists. The impact is far more than 1%.

    Interestingly, some core Indian security concerns are not inherently anti-Sinhala though they are anti-Sri Lanka. It is foolish for Sinhalese to fight for others as others never fight for the Sinhalese. I will explain this in an article soon.

  3. Lorenzo Says:

    SL is better off having a FTA with North Korea than Endia!!

  4. Wetta Says:

    With Indian IT industry involving in Sri Lankan IT affairs, they can easily infiltrate into IT network security area in SL including surveillance, military, internet and VPN services. This will be similar to Indian attempts to control SL’s oil distribution through IOC. If this happens, in few years time, at a pre-planned signal received from the Indian RAW, whole SL can be crippled to a standstill; telecommunications included. This is a scary scenario that is certainly unable to be comprehended by shallow thinking, fairy-tale believing, inefficient and impotent rulers in SL.

    Comprehensively and continuously educating what are the Indian products currently sold in SL would be very beneficial for the common man on the road to decide how they should respond to the Indian products. There is no need to have any bitter or negative publicity or any propaganda to “not to buy” Indian products. The SL buyer will decide what to do, as long as comparative, alternative non-Indian product is available for what they are looking to buy.

    Preventing, however the fast spreading Indian man-power in rat-speed in the island is hard to do without actively making their own sense of security to wobble; whatever it means to you.

  5. Ananda-USA Says:

    Ex-LTTE leader KP reveals how former Tamil Nadu Chief Minister MGR supported to buy weapons and ships

    Mon, May 22, 2017, 09:37 am SL Time, ColomboPage News Desk, Sri Lanka.

    May 22, Colombo: Former international wing leader and chief arms procurer of the Liberation Tigers of Tamil Eelam (LTTE) Kumaran Pathmanathan alias KP says a former Tamil Nadu Chief Minister provided the money to buy the weapons and ships.

    Speaking to WION in an exclusive interview, KP, who was wanted in India in connection with Rajiv Gandhi’s assassination, said the LTTE had 13 ships in 2003 and most of the money came from the former Tamil Nadu Chief Minister MG Ramachandran, known as MGR, provided the money to buy the ships and weapons.

    He said it was not difficult to acquire the ships at the time. “Anyone can open a shipping company. Anyone can operate ships, so it is a normal operation,” he said adding that there were many markets all over the world to buy weapons.

    When asked about the arm shipment operation, he said the ships came via India. “Sometimes we would send a container to India and former Chief Minister would clear the container and hand over to us,” KP revealed. The containers were then taken by boat to Valvettithurai.

    He said the Sri Lankan Navy was not sophisticated at that time and getting pass by the Navy was not a problem.

    Speaking about the suicide bombs and cyanide capsules, KP said the LTTE leader Velupillai Prabhakaran got the ideas from the Irish Republican Army (IRA) and the Palestine Liberation organization (PLO) and improved them further.

    When asked about preparing suicide bombers and the child soldiers for missions, the former gun-runner said the Tamil people respected the LTTE leader and the LTTE exploited this “emotional feeling”. “It was brainwashing,” he added.

    He said the some leaders of the terrorist organization including himself and Anton Balasingham objected to using child soldiers and suicide bombers but nobody in the organization listened.

    Pathmanathan was an international arms smuggler who procured massive loads of weapons worth billions of dollars for the terrorist organization that ravaged a deadly war for 30 years. He was involved in arms smuggling operations across Asia, Canada, US and Europe.

    Sri Lankan authorities arrested KP in Malaysia in August 2009 and brought to Sri Lanka. He was under protective custody of the Rajapaksa government.

    He has reformed now and become an orphanage father taking care of three orphanages in Kilinochchi.

  6. Christie Says:

    KP was another front man for the Indian Empire. The Indian intelligence service The Third Eye, most secretive and ruthless in the world.

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