A group of eminent Sri Lankan businesses went public this week objecting to the signing of the Indo-Lanka Comprehensive Economic Partnership Agreement (CEPA). The local businesses are questioning the need for a CEPA agreement and are objecting to the lack of transparency in the process.

The discussion also revealed poor implementation of the existing free trade agreement (FTA) in goods, by both governments, and in particular the Sri Lankan governments lack of clout in dealing with the much larger India.

“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?,” said the Managing Director of the Multichemi Group, Samantha Kumarasinghe.

“On the other hand, we, as local industries, have, asked the government verbally and in writing, to address the weaknesses in the already existing FTA that prevents our businesses from entering India, despite the existence of the FTA,” said Mr Kumarasinghe who is also a member of the Ceylon National Chamber of Industry.

Given the existing power imbalance between the countries, local businesses are deeply concerned about the secrecy surrounding the CEPA document that is to be signed during the SAARC summit in Colombo this month.

Secret CEPA
The CEPA, is meant to be an expansion to the existing FTA with India on goods, to include services and investments and other areas of mutual cooperation between India and Sri Lanka. Sri Lankan businesses have asked the Department of Commerce - the main trade negotiating body in the country - for a copy of the CEPA document that is to be signed during the SAARC summit - but were not given the document.

“The CEPA is presented to the people as if it is this small extension to the existing FTA. This is not the case. This is a binding agreement that has impacts on all areas of the local economy and people,” said Mr Kumarasinghe.

“We have asked to see this ‘frame work’ agreement that is to be signed, but the Commerce Department did not give it to us,” said Mr Kumarasinghe.

Who will benefit?
Although the Sri Lankan government maintains that the Indo-Lanka FTA has been beneficial to the much smaller Sri Lankan economy, local businesses say this is not the case.

“Although there has been a growth in exports from Sri Lanka into India under the FTA, around 50% of the exports are vanaspati and copper exports. These are from Indian companies that set up here. Not Sri Lankan companies exporting into India,” said Mr Kumarasinghe.

Local businesses also say the FTA has not contributed to investment or employment generation in Sri Lanka. In fact, Indian investments set up in Sri Lanka to make use of the FTA, are noted for poor technology and deplorable working conditions.

“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 explosion. They did not even have basic facilities for workers. I found, at one vanaspati factory, workers urinating against a wall because they didn’t have a toilet,” said the Managing Director of Samson Rajarata Tiles, Dr Bandula Perera. Dr Perera, who was previously in the Board of Investment of Sri Lanka, noted that out of 12 copper factories set up in Sri Lanka, 10 have closed down by now.

“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?,” said Dr Perera.

Power imbalance
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 continues 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.

“I faced a lot of difficulties in exporting to India because of the attitude of officials in India and their bureaucracy,” said Chairman of Ceylon Biscuits, Mineka Wickramasingha.

“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,” said Mr Kumarasinghe.

“For 10 years now, I have been doing business in Bangladesh. But we don’t have an FTA with Bangladesh. With India we have an FTA and they don’t allow us to export to India. So why are we doing something worse by signing a CEPA with India?,” said Mr Kumarasinghe.

India is also 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.

“Sri Lanka exported pepper to India, but when their traders protested India just canalised it. Is this how free trade is supposed to be?,” said Dr Perera. “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 exports,” said Mr Wickramasingha.

“A partnership should have reciprocity. But can Sri Lankan businesses operate in India without hindrance? No we can’t. So why are we signing this?,” said Dr Perera.

Services liberalisation
Given the obvious power imbalance between the two countries and because the CEPA is looking to liberalise services, professional service providers are also not happy with rushing into a CEPA. Professional service providers are asking for a guarantee that Sri Lankan professionals would be allowed to practice unhindered in India.

“We represent professional services like engineering, architecture, medicine, legal services and accountancy. We would like some caste iron guarantee that our professionals will be allowed to practice unhindered in India, if we allow them to practice in Sri Lanka,” said the Vice President of the Organisation of Professional Associations (OPA), Tudor Munasinghe.

The OPA says India presents many opportunities for Sri Lankan professionals but is worried that the agreement would not be honoured, as in the case of the existing FTA. “India has a booming economy. So if our professionals are given a level playing field, they can compete in India. But this is the problem. We need a level playing field, because India produces professionals in much larger numbers anyway,” said Mr Munasinghe.

The OPA has also not seen the CEPA agreement. “We have been kept informed by the Commerce Department and even Minister G L Peiris made a presentation to us about the CEPA. But so far we have also not seen this CEPA document that the government is going to sign,” said Mr Munasinghe.

Don’t rush into CEPA
The businesses also said the sudden decision to sign the CEPA in the sidelines of the SAARC in July, could be due to pressure from India.

“India has huge excess labour and they need to provide employment. So the CEPA could be an avenue for this. India also signed an agreement with Singapore, but Singapore refused to accept Indian professionals,” said Ranjith Hettiarachchi from the Samson Group.

“No one is saying cancel the FTA. What we are asking for, is that the problems in the FTA be addressed before going into anything bigger,” said Mr Kumarasinghe.