India, Sri Lanka to open up service markets this year

Sri Lanka is asking India to open up tourism, retail, finance, insurance, maritime and aviation services under the Comprehensive Economic Partnership Agreement (CEPA). India, in turn wants Sri Lanka to open up finance, insurance, audiovisual services, ICT, transport, tourism, maritime services, energy, education construction services and professional services for Indian parties.
CEPA is an expansion of the already operational goods Free Trade Agreement between India and Sri Lanka. Under the agreement the two countries want to liberalise services, investments and other areas of mutual cooperation. The two countries are hoping to start enforcing the agreement this year.

“The indications are that both sides are committed to activate the CEPA by June 2007,” said Dr Saman Kelegama, Executive Director, Institute of Policy Studies, addressing businesses at a Ceylon Chamber of Commerce seminar last week.

What Sri Lanka wants
Service areas that Sri Lanka wants India to open up are areas that Sri Lankan companies can hold their own against Indian competition. “Sri Lanka sees aviation services as an area where we will have a comparative advantage. For instance, getting fifth freedom rights from India under aviation services, would allow the use of an Indian airport to access an airport in another country. Sri Lankan tour guides and travel agents would also like to go and work in India,” said Kelegama.

In the retail sector Sri Lankan supermarket chains are looking at tapping into the huge Indian consumer market. Under maritime services, Sri Lanka is asking India to allow Sri Lankan seafarers the right to work in India by working out a system of recognising each others credentials.

Sri Lankan banks are also interested in the Indian market and are considering joining forces to enter India. “Sri Lankan banks have asked to form a joint venture bank to operate in India. India has agreed to allow 15 branches for this joint venture bank,” said Dr H N Thenuwara, Assistant Governor, Central Bank of Sri Lanka.

“India has also agreed to allow any number of personnel in insurance and banking to be employed in Sri Lankan entities in India. In return, Sri Lanka is considering increasing the current quota from 3 persons to 6 persons per bank,” said Thenuwara.
India also wants permission for another Indian bank to operate in Sri Lanka. The Central Bank is now looking into the request. Already 4 Indian banks are in business in Sri Lanka.

Sri Lankan banks meanwhile are yet to finalise their strategies to take on the Indian market. “We have still not decided what banks will form the joint venture to enter India. Sri Lankan banks may even decide to go in alone. The decision for a joint venture is to increase the capital base for corporate lending and to allow pooling of expertise,” said the Secretary General of the Sri Lanka Banks’ Association, Upali de Silva.

What India wants
India has its own list of service areas that it wants Sri Lanka to open up to. India wants access for both companies and individuals in the areas of finance, insurance, audiovisual services, ICT, transport, tourism, maritime services, energy, education construction services and professional services.

Sri Lanka is hoping to fill existing labour market shortages through Indian inputs. But Sri Lanka is also insisting that Indian nationals can only work in Sri Lanka as employees of Indian companies in Sri Lanka. “Opening up professional services is a very sensitive area in Sri Lanka. So our position is that Indian professionals cannot come and practice in Sri Lanka without a substantial investment. For instance, Indian doctors can work in Sri Lanka but through an Indian hospital investment in Sri Lanka,” said Kelegama.

But India wants freedom for Indian nationals to work in Sri Lanka as individuals, even without a corporate investment. Sri Lanka says this can only be allowed in areas of acute human resource shortages. “We are prepared to consider this only in areas where there are huge shortages, like nurses and English teacher trainers. Our position is, that even this kind of exchange should be at government-to-government level,” said Kelegama.

Liberalising professional services have run into other problems as well. “Professional services should have a structure for mutual recognition of qualifications with another country counterpart. But other than a few professions most don’t have a regulatory framework. So this is making it difficult to go ahead with liberalising services,” said Kelegama.

For instance, tourism is one of the biggest money spinners for the country, but the tourist trade does not have an institution to rate and recognise qualifications available in the tourism industry. Despite these sticking points the two countries are moving towards services and investment liberalisation and Sri Lankan professional bodies have been asked to prepare the background to form mutual recognition agreements with Indian counterparts.