Controversial Comprehensive Economic Partnership
Controversy regarding whether we should join the Comprehensive Economic Partnership Agreement (CEPA) has been characterised by a lack of information on the details of the agreement. Consequently, much of the arguments on the merits and demerits of joining it may be part of the fear psychosis that characterises Indo-Sri Lanka relations. On the other hand, there may be clauses in the CEPA agreement that are of much disadvantage to the country. All things considered, it would be good to postpone the signing of the agreement till after a full disclosure of its provisions and a widespread discussion of its advantages and disadvantages to the country.
What is most important is that the draft CEPA agreement is available for open discussion. It is unsatisfactory for officials of the foreign affairs and trade ministry to decide without public discussion based on facts rather than prejudices and biases. The arguments so far have been both economic and political and much of it on speculation of the provisions. This is highly unsatisfactory for an agreement that would have far reaching consequences not only for the economy, but the social fabric, political independence and culture of the country. Critics of the agreement, including a minister of the government, have been vociferous about these dangers.
Discussion on CEPA
One of the more informed discussions on CEPA was a recent conference organised by the Institute of Policy Studies and Chambers of Commerce of both countries in Colombo. At this conference several economists and businessmen strongly advocated CEPA as a way forward for Sri Lanka. Their argument was that since the India Lanka Free Trade Agreement (ILFTA) has been beneficial to both countries, that CEPA would confer further advantages. The Indian speakers were particularly enthusiastic about its benefits to Sri Lanka. In fact Indian spokesmen, both at this conference and at press briefings, have argued that it is a win-win situation for both countries.
Arguments for and against CEPA
One of the important arguments put forward in favour of the agreement is that the benefits received by the two countries include the increase in trade turnover. It is true that Indo-Sri Lankan trade turnover has increased significantly. Despite this Sri Lanka has had a large trade deficit with India, as has been the case before 2000 as well. This large deficit has been adduced as an unfavourable factor for the signing of the agreement. The trade deficit with India has been there for many years owing to the structure of the two countries’ economies and export import needs, as well as the fact that exports to India were restricted due to the Indian market being controlled and not fully open.
This argument of the trade deficit increasing is an irrational argument for not signing this agreement. More pertinent is the issue of whether the exports and imports that are free of duties for both countries are mutually beneficial and whether either country imposes non-tariff barriers that negate the free trade between the countries. While the trade deficit is a poor argument against CEPA, a pertinent issue is the complaint of Sri Lankan exporters that their products have been denied entry owing to other barriers imposed by Indian officials.
It is contended that though this agreement was signed allowing both countries to import and export goods not subjected to tax, that India had included many ways of placing obstacles through various non-tariff barriers. Despite many complaints made by Sri Lankan exporters regarding the injustice and ill treatment received by them, this issue remains unresolved. Barriers placed by India in the past have been serious obstacles for Sri Lankan exports.
Although the existing ISLFTA only covers trading of goods, CEPA goes beyond this to slip in trading of services, investments and free movement of people. It is claimed that CEPA has left only four useless areas to Sri Lankans where Indians cannot invest. These are money lending (leasing and banking also being opened to Indians), pawn brokering, retail business with a capital of less than USD 1 million and coastal fishing,
The most dangerous door that is open from CEPA is the freedom provided for free movement of people as professionals. In a situation where unemployment is a problem, allowing Indians to work here will worsen the employment situation by granting working visas for any professionals to either join companies in Sri Lanka or to start their own small scale businesses. Their spouses, family members and dependants too could work here.
Fundamental disadvantages
In a recent article Professor A.V. De S. Indraratna has pointed out certain fundamental disadvantages the country suffers in such an agreement. He contends, “Another argument adduced in favour of ISLFTA is that India has allowed Sri Lanka many more tariff lines on Zero or near Zero duty than Sri Lanka has allowed India. This is true. But, of how many of them have Sri Lanka availed. It is only a tiny fraction. ‘Sri Lanka has not even touched the fringe in terms of the number of goods that can be exported to India through the FTA’, the Director General of Commerce of Sri Lanka himself is reported to have admitted at the Conference. Sri Lanka’s export sector is not diversified to make use of these tariff concessions”.
He goes on to say, “it is true that India is a vast market and is growing rapidly too, and Sri Lanka must make use of it. But there are two main prerequisites to this: (1) there must be special and differential treatment (as allowed by the WTO) so as to place a small country like Sri Lanka on a level playing field (mere reciprocal tariff concessions not enough) with a giant like India; (2) Sri Lanka must be sufficiently diversified in its exports without a prevalence of infant industries of SME type, as is the case now. It may also be argued that Sri Lanka could benefit from the ISLFTA, since India being a much larger country than Sri Lanka, its relative prices would influence Sri Lanka’s relative prices. But this would not happen, as in a free market. India protects its markets from the rest of the world specially in consumer goods, and therefore, the allocation of resources would be distorted as it is a departure from multilateral free trade.”
A balanced approach
There have been strong opposition to the Comprehensive Economic Partnership Agreement (CEPA) with India. The arguments against CEPA have been both economic and political. What is most unfortunate is that emotions have surpassed logical argument for and against the agreement. Even worse is the fact that the detailed provisions of the proposed agreement, despites its immense importance for the country, has not been made available even to Parliament.
The first step is, therefore, to make the proposed document available to the public for discussion. It would no doubt be a pity if the benefits that Sri Lanka could get from the opening of a huge and expanding Indian market are not accessed on favourable terms. The geopolitical implications and issues of unequal exchange that often is inevitable when two countries of very different economic and political dimensions are involved must also be considered.
A balanced view based on authoritative information is very much the need of the hour. This would give an opportunity for the CEPA agreement to be transparent and sober discussion of it could provide an opportunity to amend it so that any disadvantageous clauses could be changed. Due to the widespread criticism from the opposition, academics, business community and even some government ministers the signing of the agreement has been postponed. In this controversial context Sri Lanka should study the agreement carefully and negotiate a more balanced deal with India.
Controversy regarding whether we should join the Comprehensive Economic Partnership Agreement (CEPA) has been characterised by a lack of information on the details of the agreement. Consequently, much of the arguments on the merits and demerits of joining it may be part of the fear psychosis that characterises Indo-Sri Lanka relations. On the other hand, there may be clauses in the CEPA agreement that are of much disadvantage to the country. All things considered, it would be good to postpone the signing of the agreement till after a full disclosure of its provisions and a widespread discussion of its advantages and disadvantages to the country.
What is most important is that the draft CEPA agreement is available for open discussion. It is unsatisfactory for officials of the foreign affairs and trade ministry to decide without public discussion based on facts rather than prejudices and biases. The arguments so far have been both economic and political and much of it on speculation of the provisions. This is highly unsatisfactory for an agreement that would have far reaching consequences not only for the economy, but the social fabric, political independence and culture of the country. Critics of the agreement, including a minister of the government, have been vociferous about these dangers.
Discussion on CEPA
One of the more informed discussions on CEPA was a recent conference organised by the Institute of Policy Studies and Chambers of Commerce of both countries in Colombo. At this conference several economists and businessmen strongly advocated CEPA as a way forward for Sri Lanka. Their argument was that since the India Lanka Free Trade Agreement (ILFTA) has been beneficial to both countries, that CEPA would confer further advantages. The Indian speakers were particularly enthusiastic about its benefits to Sri Lanka. In fact Indian spokesmen, both at this conference and at press briefings, have argued that it is a win-win situation for both countries.
Arguments for and against CEPA
One of the important arguments put forward in favour of the agreement is that the benefits received by the two countries include the increase in trade turnover. It is true that Indo-Sri Lankan trade turnover has increased significantly. Despite this Sri Lanka has had a large trade deficit with India, as has been the case before 2000 as well. This large deficit has been adduced as an unfavourable factor for the signing of the agreement. The trade deficit with India has been there for many years owing to the structure of the two countries’ economies and export import needs, as well as the fact that exports to India were restricted due to the Indian market being controlled and not fully open.
This argument of the trade deficit increasing is an irrational argument for not signing this agreement. More pertinent is the issue of whether the exports and imports that are free of duties for both countries are mutually beneficial and whether either country imposes non-tariff barriers that negate the free trade between the countries. While the trade deficit is a poor argument against CEPA, a pertinent issue is the complaint of Sri Lankan exporters that their products have been denied entry owing to other barriers imposed by Indian officials.
It is contended that though this agreement was signed allowing both countries to import and export goods not subjected to tax, that India had included many ways of placing obstacles through various non-tariff barriers. Despite many complaints made by Sri Lankan exporters regarding the injustice and ill treatment received by them, this issue remains unresolved. Barriers placed by India in the past have been serious obstacles for Sri Lankan exports.
Although the existing ISLFTA only covers trading of goods, CEPA goes beyond this to slip in trading of services, investments and free movement of people. It is claimed that CEPA has left only four useless areas to Sri Lankans where Indians cannot invest. These are money lending (leasing and banking also being opened to Indians), pawn brokering, retail business with a capital of less than USD 1 million and coastal fishing,
The most dangerous door that is open from CEPA is the freedom provided for free movement of people as professionals. In a situation where unemployment is a problem, allowing Indians to work here will worsen the employment situation by granting working visas for any professionals to either join companies in Sri Lanka or to start their own small scale businesses. Their spouses, family members and dependants too could work here.
Fundamental disadvantages
In a recent article Professor A.V. De S. Indraratna has pointed out certain fundamental disadvantages the country suffers in such an agreement. He contends, “Another argument adduced in favour of ISLFTA is that India has allowed Sri Lanka many more tariff lines on Zero or near Zero duty than Sri Lanka has allowed India. This is true. But, of how many of them have Sri Lanka availed. It is only a tiny fraction. ‘Sri Lanka has not even touched the fringe in terms of the number of goods that can be exported to India through the FTA’, the Director General of Commerce of Sri Lanka himself is reported to have admitted at the Conference. Sri Lanka’s export sector is not diversified to make use of these tariff concessions”.
He goes on to say, “it is true that India is a vast market and is growing rapidly too, and Sri Lanka must make use of it. But there are two main prerequisites to this: (1) there must be special and differential treatment (as allowed by the WTO) so as to place a small country like Sri Lanka on a level playing field (mere reciprocal tariff concessions not enough) with a giant like India; (2) Sri Lanka must be sufficiently diversified in its exports without a prevalence of infant industries of SME type, as is the case now. It may also be argued that Sri Lanka could benefit from the ISLFTA, since India being a much larger country than Sri Lanka, its relative prices would influence Sri Lanka’s relative prices. But this would not happen, as in a free market. India protects its markets from the rest of the world specially in consumer goods, and therefore, the allocation of resources would be distorted as it is a departure from multilateral free trade.”
A balanced approach
There have been strong opposition to the Comprehensive Economic Partnership Agreement (CEPA) with India. The arguments against CEPA have been both economic and political. What is most unfortunate is that emotions have surpassed logical argument for and against the agreement. Even worse is the fact that the detailed provisions of the proposed agreement, despites its immense importance for the country, has not been made available even to Parliament.
The first step is, therefore, to make the proposed document available to the public for discussion. It would no doubt be a pity if the benefits that Sri Lanka could get from the opening of a huge and expanding Indian market are not accessed on favourable terms. The geopolitical implications and issues of unequal exchange that often is inevitable when two countries of very different economic and political dimensions are involved must also be considered.
A balanced view based on authoritative information is very much the need of the hour. This would give an opportunity for the CEPA agreement to be transparent and sober discussion of it could provide an opportunity to amend it so that any disadvantageous clauses could be changed. Due to the widespread criticism from the opposition, academics, business community and even some government ministers the signing of the agreement has been postponed. In this controversial context Sri Lanka should study the agreement carefully and negotiate a more balanced deal with India.
