|
At this juncture of negotiations between India & Sri Lanka for a wide relationship on economic affairs on trade, investment & technology, there are important things that needs to be evaluated seriously. Irrespective of its name, whether it’s CEPA or any other, any binding relationship with the powerful neighbor will affect the long term socio-economic sustainability of our country at large.
15 Years with the Indo-Lanka Free Trade Agreement (ISL-FTA)
In the macroeconomic scale, the ISL-FTA (2000) which dealt only with goods trade has failed in yielding the intended outcome to the Sri Lankan economy as it caused a substantial increase in the deficit in the trade account while creating a significant benefit to India.
Further the prominent non-tariff barriers (NTBs) in India, the violations of the Rules of Origin (ROO) criteria, and impacts of National Treatment & Most Favoured Nation (MFN) criteria collectively diminish our trade potential with India. It should be noted that in the modern global business era, proximity & historical relationships have less impact on the selection of the economic counterpart countries. View a video on ‘Trade in Goods with India’ here.
As the per-capita GDP of Sri Lanka is well ahead of that of India (see the link here) the products that we have specialized on are less marketable in India though it consists of a huge middle level population. India is hardly integrated in to the global supply chains where ‘components’ but not ‘full products’ are made in a single country. Therefore the exploitation of the niche industrial markets, which is one of the advantageous trade avenues in the modern global context, is less reachable with India when compared to EU, US etc.
Trade In Services
The liberalization of the trade in services with India is another area to look at seriously.
Throughout the past Indian job market has not been an attractive place for the Sri Lankan work force (professionals, officers, semi-skilled, unskilled etc.) when compared to the other countries. Below is the summary of the information extracted from 2012 statistics released by Sri Lanka Foreign Employment Bureau.
| 2012 |
Professionals |
Skilled Workers
|
Unskilled Workers |
Other |
Total |
| Saudi Arabia |
671 |
21,891 |
15,337 |
-- |
97,993 |
| UAE |
1,120 |
9,379 |
12,092 |
-- |
38,234 |
| Malaysia |
40 |
1024 |
573 |
-- |
2,691 |
| India |
24 |
26 |
13 |
-- |
97 |
| -- |
-- |
-- |
|
-- |
|
| Total |
4,445 |
67,708 |
|
-- |
282,331 |
| See the full list of SLBFE statistics from here |
On the other hand India is highly competitive in services sector with a large pool of graduates in a wide spectrum of disciplines. Unemployment in India is greater than twice as much of the Sri Lankan population & as a result the direction of influx of labour is obviously unidirectional from India. We would prefer top level Indian professionals to tender their services here but they will hardly select Sri Lanka for their professions neglecting EU or US. View a video on ‘Trade in Services with India’ here.
Investments
With the experience of FTA, it’s clear that the speculations on a greater FDI inflow subsequent to the trade relations (both good & services) will not be a reality. The low tech industries targeting the tax benefits by manipulation of the ROO like copper, vanaspathi or arecanut will dominate the trade from time to time without any significant gain to Sri Lankan economy.
As a Nation Are We Ready for this Type of a Comprehensive Economic Agreement?
a) The provisions provided in the ‘Special & Differential Treatment’ methodology of WTO are there to minimize the asymmetry between the countries. In real terms the smaller country is anyway at a disadvantage as the resultant trade diversion is greater than the trade creation due to the reduction in tariff barriers & due to the economies of scales.
b) When it comes to the services sector, the institutional & legal setup for registration of ‘professional practices’ (not the registration of ‘professional memberships’) in many fields like engineering, architecture, accountancy etc. is not in place in Sri Lanka while India is relatively strong in this aspect.
c)The conflict resolution methodology of the WTO based bilateral agreements is based on international arbitration. It will not take care of the national interest of a country when dealing with a trade conflict between firms/ states. View a video on ‘Arbitration Process in CEPA Agreement’ here.
d) WTO based binding bilateral agreements are unsafe to a country like Sri Lanka when compared with the multilateral liberalization of trade or unilateral liberalization. The nature of the agreement is hardly adjustable with regard to unpredictable implications that might pop up in the future.
Long Term Socio-Economic Impact
In the services sector labour market returns on certain professions will come down due to mass influx of cheaper labour. This will result a lower human capital expenditure in the long run & poor quality services will replace the availability of high quality services. The result would be the outflow of the local experts to the advanced countries who otherwise ready to serve their mother land. This chain reaction will continue & government expenditure on human capital development will be gradually decreased. View a video on ‘Socio-economic Impact from CEPA Agreement’ here :
With reference to goods trade, the domination of the Indian economies of scales will unfairly compete with Sri Lankan industrialists who have no protection against dumping. The social & cultural sustainability together with national identity will also be affected.
The Way Forward
As further liberalization of trade activities with the powerful neighbor seems inevitable in the present context, our approach should be more logical & to be based on facts & figures to minimize its negative impacts. As the first step we must urge the government to expose the agreement to the public domain. The government should expose the areas & intensity of liberalization and should give sufficient time for the community to study its content. Then a detailed analysis must be carried out with the participation of all relevant parties. View a video on ‘An Unbiased Panel Discussion on CEPA Agreement’ here :
Before getting into binding agreements, we should strengthen our existing legal & institutional loop holes such as lean BOI regulations, lack of professional practice registrations, lack of anti-dumping regulations etc. It’s disadvantageous to enter into a summary agreement only with the framework with no schedules, which are to be done later on. We should try to achieve an almost ‘win – win situation’ with India with the inclusion, deletion & modification of conditions, clauses etc. with strong negotiations.
Eng. Suran Fernando (M-6815)
|
