Lanka Business Online | 23 Jul 2010
Sri Lanka told time running out for new trade deal with India
July 23, 2010 (LBO) — Sri Lanka could lose more opportunities to access India’s huge market owing to delays in striking a new economic partnership deal with her neighbour, the Indian envoy in Colombo has warned.
An existing free trade deal between the two countries has led to a sharp increase in trade that could further expand with a planned new comprehensive economic partnership arrangement (CEPA), Indian high commissioner in Colombo Ashok Kantha said.
India is willing to accept asymmetries in the economic partnership and will not insist on reciprocal market access, he told the 171st annual general meeting of the Ceylon Chamber of Commerce.
"You will always find India as your closest friend and neighbour who will always be in your corner," Kantha said.
The existing free trade deal gives Sri Lankan and Indian exporters preferential access to each other’s markets, with more access being given to Sri Lankan exports.
But the proposed CEPA that includes trade in services and investment has been blocked by protectionist business sections in the island on fears it could be flooded with Indian products.
Kantha said there were some misperceptions about the proposed CEPA deal based largely on ignorance.
"Let me clarify that when India seeks an upgraded framework for economic engagement with Sri Lanka, getting access to Sri Lanka’s market for goods and services is not a major preoccupation for us," Kantha said.
"Like with the free trade agreement, we in India are always cognisant of our responsibility to address the asymmetries in the size of the two economies. Any framework will be based on differentiated obligations.
"We will not insist on reciprocity, we will not insist that the access we give to goods and services from Sri Lanka must be matched by access for our goods and services to Sri Lanka’s market."
Kantha also said India will not put pressure on Sri Lanka to sign a new deal.
"Even though many of these misperceptions might be unfounded, we want to make one point clear - in the move to a comprehensive economic partnership arrangement it is entirely up to Sri Lanka’s government to decide at what pace you want to move - it’s your decision. There’ll be no pressure from India.
"At the same time, we live in a dynamic world and do not have the luxury of waiting endlessly because waiting at times results in lost opportunities," Kantha said.
Indo-Lanka trade had recovered fast from global recession with the trade figures for 2010 as good as in 2008 which was the "high water mark in our bilateral trade," Kantha said.
"The FTA has led to bilateral trade increasing by six times in the last 10 years. Sri Lankan exports grew at a faster pace which is not accidental as India made greater concessions in opening its market much faster than Sri Lanka."
But Kantha said that there was a need to forge ahead with the economic partnership and remove impediments in the existing FTA.
"Today there’s a pressing need to provide a new stimulus so we can expand our economic ties, expand linkages to new areas, even as we address existing problems."
Sri Lanka’s role as a hub for the region was also growing helped by its location with expanding air and maritime shipping links.
"We have seen how Sri Lanka used India to emerge as an aviation hub with SriLankan Airlines confident once again they can run over 100 flights a week between India and Sri Lanka.
"And about 70 percent of the container cargo through Colombo port is transhipment from India."
Kantha said that in recent years there have been some signs of growing protectionism in certain quarters and India has stepped up the pace of bilateral regional arrangements.
"Today nearly 50 percent of global trade is being done within regional trade arrangements.
"When we seek an upgraded framework of economic engagement with Sri Lanka it is part of our policy framework," Kantha said. "We’re doing it with a whole lot of other countries which are important for economic development."
The free trade deal between India and Sri Lanka was the first for India with a foreign partner.
Since then India has struck or is negotiating other trade deals regionally and with countries like Singapore, South Korea, South Africa, the European Union and the Gulf Co-operation Council.
India has been willing to accept a fairly large trade deficit because it believes it is sustainable because of other capital flows taking place in its economy.
India’s private sector was also heavily investing abroad to the tune of around 15-20 billion dollars a year.
Countries like Sri Lanka could take advantage of these developments.
"There is growing realisation that there must be closer regional economic integration within south Asia," Kantha said.
"There is also growing realisation within the region that India’s economic growth presents opportunities for its neighbours rather than being a challenge and a threat.
"In the south Asian context, India and Sri Lanka are natural partners. The two countries have two of the most open economies. We are also leaders in FTAs."