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Services to be liberalised

The Island, Sri Lanka

Services to be liberalised

By Devan Daniel

9 June 2010

If entering into trade agreements is opening up the floodgates to bigger countries, then some in Sri Lanka do not want the flood-gates opened to India, but the government has already done so, for seven other countries besides India. CEPA is carved in stone, some claim, but it is far from reality

While some Sri Lankan professionals are opposing the opening up of the services sector under the comprehensive economic partnership agreement with India, President Mahinda Rajapaksa and the other heads of state of the SAARC countries signed the South Asia Framework on Trade in Services (SAFTIS) last April in Bhutan, seeking to liberalise services in the region.

"This agreement to liberalise the services sector within the South Asian region is expected to come into effect two years from now. Usually after a framework agreement is signed, it takes about two years to come into effect. It is during this time that negotiations on specifics takes place between trade officials," an official told the Island Financial Review wishing to remain anonymous.

The South Asia Free Trade Agreement (SAFTA) was signed by SAARC heads of state in 2004 and it came into effect in 2006. The free trade agreement between Sri Lanka and India was signed in 1998 and came into effect in 2000.

With regard to SAFTIS trade officials are expected to begin negotiations on what specific services would be opened up by each country and timeframes in which liberalisation is to take place.

Under SAFTA, which deals with trade in goods, least developed countries in South Asia (Afghanistan, Bangladesh, Bhutan, Maldives and Nepal) have to bring their tariffs down to 0 to 5 percent levels by 2016, Sri Lanka by 2014 and India and Pakistan by 2013. Success is slow given the level of non-tariff barriers and each country’s unwillingness to open up sensitive tariff lines.

"With regional agreements it is difficult to reach a consensus, not impossible though. This is why bilateral agreements are so easy to formulate, it gives us room to manoeuvre a better deal. This is why CEPA is so important, it would help us get an early start in India’s growing market," the official said.

Officials in the government say the FTA with India, implemented in 2000 was successful for the most part, but there were problems, and the CEPA was conceived as the solution.

However, bitter experiences, with the FTA created a strong opposition lobby against the CEPA. Those concerned about the agreement said it was carved in stone and irrevocable and that the floodgates would be opened to India.

However, trade officials said these claims were unfounded. Under the CEPA, commitments could be altered after three years subject to compensation for loss of investments of investors and suppliers.

India offered to liberalise more than 40 service sectors and sub-sectors at varying degrees specified and agreed upon by the joint technical committee. On the other hand, Sri Lanka had offered up only 9 of its service sectors and sub-sectors. Here again, at varying degrees specified and agreed upon by the two countries.

Each country had not fully liberalised their services, especially Sri Lanka, and where they did, certain restrictive clauses are in place.

India’s Commitments

Architecture, Medical and Dental, Veterinary, Research and Development in Natural Science, and Social Science, Real Estate Services, Rental and Leasing Services, Management Consultancy, Technical Testing and Analysis, Services related to Energy Distribution, Maintenance and Repair of Equipment, Building Cleaning Services, Packaging Services, Convention services, Telecommunication, Construction, Wholesale Trade, Environmental Services, Higher Education and Tourism.

The above services are open to Sri Lankans on a business visit employed by a Sri Lankan company to set up a commercial presence in India. While no remuneration can be earned their stay is limited to 180 days.

The above services sectors are open to Sri Lankan employees of Sri Lankan Companies transferred to companies in India owned or controlled by Sri Lanka for a maximum of five years.

While Engineering and Computer Related Services are open to the above two categories, India is committed to allow employees of Sri Lankan companies or independent professionals in these services to work with Indian clients on contractual basis for a maximum of a year.

Sri Lanka’s Commitments

In Computer Related Services Sri Lanka will allow Indians who are expert trainers and technical staff with not more than 10 percent of the total staff for every US$ 100,000.

Naval Architects, skilled welders and fitters, project/ship managers, repair engineers, automation engineers and technicians are the other professionals who will be allowed into Sri Lanka under CEPA.

While the two countries have opened the above sectors for labour mobility of the service sectors opened up by India, Sri Lanka can establish companies in those service sectors in India except in the field of Rental and Leasing services.

Accounting and Research and Development in Agriculture are open to Sri Lanka but only to establish companies where mobility of labour is restricted.

Sri Lanka has committed to opening up the following service sectors for India to establish companies in Convention services, Healthcare (outside the Western Province), Tourism and Travel Agencies, Audiovisual services (50 percent Indian ownership in 25 cinema establishments) with restrictions in labour mobility.