Sunday Times 2
CEPA by any other name
Once a free trade agreement is signed between countries limiting its scope to the movements of goods, trade negotiators are cognizant of the critical importance of addressing non-tariff barriers (NTBs) including trade facilitation issues, investment and trade in services to achieve greater economic integration for mutual benefit. This larger objective was inevitably the next challenge to be accomplished under the Comprehensive Economic Partnership Agreement or CEPA negotiations between India and Sri Lanka. However, after several rounds of protracted talks, CEPA had met with such stiff opposition from some powerful business leaders and professional communities in the island, that it was not possible for the previous Government to take the agreement forward these last years.
Finance Minister Ravi Karunanayake welcoming Indian cricketer Harbhajan Singh, a prospective investor, at his office. (December 2015 AFP )
This opposition could be attributed to both myths and realities. Myths have been exaggerated for instance that CEPA would allow influx of labour from India for all sectors. This is far from the truth as the current framework agreement allows negotiators to achieve progressive liberalization in scheduling commitments opening only those sectors able to benefit. However, a pragmatic approach is needed to address historic fears such as the influx of “hordes” from India, memories of the indentured labour brought to the island during colonial times which led to so much social disruption. At independence, it is reported that there were some 800,000 Indian Tamils as against 3 ½ million Sinhalese, which explains some of the difficult decisions that had to be taken on citizenship and voting rights at the time. Modern fears of pandemics and sudden refugee flows now seen on our tv screens challenging freedom of movement which is a fundamental pillar of the European Union, have added to the popular skepticism.
More important though are the obstacles pertaining to negative episodes experienced by Sri Lanka exporters under the ISLFTA due to NTB’s experienced from the Tamil Nadu side, which is the most economical and convenient gateway for Sri Lankan goods. Government ministers are suggesting that separate agreements could be worked out with different Southern states to avoid these NTB’s, however will the Centre concur? Within India’s federal structure, the Centre has the authority and guards closely its privilege over foreign policy matters including agreement-making, despite the fact that rising states are exerting more influence over such matters. Take for example the issue of Kachchitivu which still rumbles in the Tamil Nadu state although the agreement confirming Sri Lanka’s ownership dates back to the 1970′s. It was Foreign Minister Kadirgarmar who first proposed that Sri Lanka should work out a strategy to build its image in the Southern Indian states, to reach out to the political leadership in these states as well as key opinion makers and the business communities. This strategy has not been followed through. Hence, it may be worthwhile to seek bipartisan support in Parliament to ensure continuity and political support, keeping carefully within the mandate of the larger India Friendship group.
Despite having a diplomatic presence for many years in Chennai, Sri Lanka has failed to build an influential lobby for cooperation in Tamil Nadu. Such is the power of fringe activists in the state that periodically even Sri Lanka tourists, academics and religious institutions have been subject to attack with huge negative publicity fall out here .This is why the visit to Sri Lanka by a large business group from Tamil Nadu in January is most welcome and should be well received in Colombo. The Chambers should make every effort to build a platform for regular interactions such as through the annual Economic Summit held in Colombo.
During Prime Minister Ranil Wickremasinghe’ s visit to New Delhi in September 2015, he had set out the new parameters, the CEPA would be replaced by a “permanent agreement of cooperation on economic affairs with emphasis on trade and investment and also in technology” with a “framework document and agreements in place by mid 2016″. More details of this framework agreement (ETCFA) are now being revealed by the Foreign Ministry, possibly too late for any real public consensus building. Which sectors are to be opened up by India and could not the argument of benefits to certain categories of our professionals be leveraged for building support for the new agreement? As it is, the well-known objections that had been raised to CEPA by the Government Medical Officers Association (GMOA) for instance are taking centre stage.
Taking a leaf from the CEPA framework, under the new agreement, initially only two sectors, IT and shipbuilding marine Industry would be opened. It is presumed that this opening has the support of relevant local firms and chambers. Presumably IT firms here would welcome Indian investment and the arrival of qualified English speaking web designers and other IT professionals. But it remains to be seen whether they will add value to the local enterprises or pave the way for the hugely successful Indian giants to buy out their designs and customers. The Sri Lankan shipbuilding industry, thanks to local creativity and quick decision making, had remained competitive against the Indian firms not least of all by employing , for example, (even without the new agreement) Indian workers like welders. These first two openings will therefore have to be carefully watched to see whether the results will add value and profitability to Sri Lankan firms. This is why the present dispute settlement mechanism should be carefully structured so that the process should not prove too expensive for smaller countries. There should be provision for such dispute settlement to be settled at bilateral official level without going for the expensive international option, which should be a last resort. It is what the ISLFTA lacked and why exporters are arguing that the problems affecting goods should be resolved before expanding the scope of negotiations into other areas including any new agreement on trade in services.
The economies of scale that have been helped by current developments in rapid communications are already working to the detriment of local control over operations and profits as visible in the impact of multinationals like Coca Cola or Nestle’s where Sri Lankan operations are now managed from India as joint operations. Although less visible, old Sri Lanka companies have also been bought over by Indian firms even though they are still running with the old company name. Yet remaining competitive is the name of the game for Sri Lanka.
There is also the fact that many Indian professionals and other categories already working in Sri Lanka, for example under current BOI projects. The most visible are the doctors who are much sought after by the public in Colombo hospitals. The GMOA would do well to consider the real reasons for the popularity of their Indian counterparts and the value of the service they provide to the patients. Furthermore, the Sri Lanka BOI is generous with the quotas of foreign workers that could be brought in under approved projects, ranging from restaurants to salons. In addition to all these openings already available to Indian professionals and workers, there are many places where Indian labour are employed in Sri Lanka although it is not clear whether on a legal basis or on visitor visas undetected by law enforcement officers. Just to give an example, a stone’s throw away from the Prime Minister’s residence, a dress making establishment employs a host of Indian tailors while adjoining the Colombo Town Hall there are a number of fast food restaurants serving Indian food made by Indian cooks. There are said to be Indian goldsmiths in the Pettah and even Indian toddy tappers down south; in the east, fields are said to be worked by seasonal labour from India. The question is of course whether they are filling a local need and are indispensable to the profitability of the local enterprise or whether they are taking away some local person’s employment opportunity?
There is also the issue of reciprocity and recognition of the principle of asymmetry of development. There is serious doubt whether these principles are being followed by the Indian side. For example, under approved investment projects, like the Sri Lankan garment factories in India, they are given permission only to employ a few Sri Lankan professionals or managers. Indian BOI regulations are not as generous as in Sri Lanka and only three Sri Lankans are allowed to work for instance in a Bank of Ceylon office in India. Such Sri Lankan enterprises in India have to pay tax of around 30% on profits. Is Sri Lanka unable to compete without the current “sweeteners” for foreign investment and should not future investment approvals place more emphasis on revenue generation to the state as well as ensuring that permits are not granted to bring in workers like cooks, cleaners and drivers available in the local labour market? It should be taken into consideration that Sri Lanka offers much better living conditions and every effort should be made to promote “greening” of urban spaces and placing value on a relatively pollution free environment. New Zealand for example offers a good example with its “cool, green, environmentally sustainable” brand marketing .
(Dr. Sarala Fernando is a retired Foreign Service Ambassador)