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Stalling CEPA a sensible move

Sunday Times, Sri Lanka

Stalling CEPA a sensible move

By Neville de Silva

27 July 2008

It would have almost happened. President Rajapaksa and Indian Prime Minister Manmohan Singh were slated to sign the Comprehensive Economic Partnership Agreement (CEPA) between the two countries sometime during the SAARC summit at the beginning of next month. Fortunately wiser counsel prevailed, if one might employ a rather weathered phrase. The Sri Lanka Government decided to put off the inking of the agreement much to the chagrin no doubt of India which had obviously seen more rich pickings on top of what the Indo-Lanka Free Trade Agreement had brought them. Hence I suppose the inordinate haste in which the CEPA was to be finalised and signed.

Had some doubts as to the tangible benefits for Sri Lanka in going through with this in the light of our unhappy experiences with the FTA not been raised in time we might well have been presented with a fait accompli that would have seen much one-way traffic in the direction of Sri Lanka instead of the movement of goods and services in both directions, as CEPA theoretically sets out to achieve. Before Sri Lanka embarked on signing another agreement had it made a comprehensive study of the FTA with India? Had this been done and an honest assessment made of the actual benefits to the Sri Lankan economy and not what is set out on paper, would we have decided to take this plunge?

One of the major problems encountered in actually carrying out the terms of the FTA is that it does not take account of the Indian bureaucracy. Those who have lived and worked in India, especially in New Delhi will tell you that Indian officialdom is one of the most bureaucratic and all wrapped up in red tape. If the Indian bureaucracy wishes to stall and procrastinate, it will take a juggernaut to smash through it. Many have been the stories told by Sri Lankan entrepreneurs who believed in the FTA loosening the reams of red tape only to discover that they were tied up even tighter by delaying tactics and by conditions imposed subsequent to the FTA.

Consider, for instance, the Indian condition of designating one particular port through which goods have to enter India. That port or nothing else diktat is like a gun held to the head. One result of that is of goods being held up there while the haggling goes on. India could designate a port far away from the ultimate destination of the imported goods. If the goods have to pass through other states or enter the state of ultimate destination exporters might well have to pay state taxes and transport costs not previously envisaged. At the end of this frustrating exercise the cost of the goods imported from Sri Lanka might well be more than the price of the local products. This is one of the ways in which India has sought to thwart the FTA concluded nearly 10 years ago.

There are other ways which have been successfully practised by the European Union to stop goods from the developing countries entering its markets. These are also non-tariff means like imposing standards on the quality of the incoming goods. By constantly raising the bar or imposing conditions such as requiring a high percentage of local material being used in the manufacture, some importing countries or groups of countries try to restrict imports to the great disadvantage of developing country producers.

One would not say that the FTA is ‘non functus’ as it were. Some trade circles believe that there has been a perceptible increase in Sri Lankan exports to India. But about half of this has been in two or three products such as vanaspati refined oils and copper manufactures etc. With empirical evidence available about the defects in the FTA, some of which would not have been envisaged like the deleterious action of Indian officialdom to stymie any benefits that could accrue to Colombo, one would have thought that the Sri Lanka authorities would have first made a careful, considered assessment of the FTA by detailed discussions with the trade before thinking of expanding the existing agreement.

No doubt our economists including those working for trade chambers and other collective organisations would have studied the effects of the FTA over the years. These views would surely have been aired from time to time and representations would have been made to government to intercede on their behalf with the Indian authorities. If there have been misgivings in some circles about the actual working of the FTA as opposed to what is stated in the agreement, why is it that the Sri Lankan authorities have thought it fit to enter into another agreement that could leave even more gaps that could be exploited.

I read somewhere the experiences of a local biscuit manufacturer who ran into such bureaucratic hurdles that he eventually pulled out suffering losses. That local manufacturer is not the only one who has been frustrated by Indian attitudes that seem to harden especially when Indian producers protest at the influx of goods that eat into their own markets. If such an approach based on self interest rather than the terms and spirit of the FTA is justifiable and legitimised by India then why is a similar stance not adopted by Sri Lanka, especially a small economy like ours that could be smothered by that of our giant neighbour?

No doubt there are plenty of studies that have looked at the various shortcomings in the workings of the FTA and weighed the costs and benefits of the agreement. There is no need to go over that ground since more qualified persons would have based their studies on material and statistics not immediately available to me. What is disconcerting, however, is that little attempt has been made to consult trade chambers, professional bodies and other concerned parties before negotiating the CEPA. If what these concerned groups say is true and there is no reason to doubt them, they have neither been consulted nor have they seen a copy of the agreement which must surely have been finalised if it was intended to be signed in a few days.

Why has the consultation process broken down? Or is it that it was never started and the country was to be saddled with an agreement that concerned parties knew little about? This agreement concerns the private sector as well as the professional bodies. If the FTA dealt with goods, the CEPA included professional services and investments. Would professionals here who feel that CEPA might open the flood gates for an influx of Indian professionals, be wrong to feel that they would not have equal opportunities if they try to establish themselves in India?

There is no great need to rush into this agreement. If we must initial it, it must only be done after very careful consideration and on definite evidence that the Sri Lankan economy is not overrun by a very much larger and more vibrant Indian economy. Good relations with India are no doubt important. But that should not be achieved by tying ourselves hand and foot in a gesture of obeisance.