A pioneer apparel industrialist said the rupee is highly over valued due to a strange mixture of ill-advised policies which has the whole economy of the country in a mess. "Inflation, at about 30 percent (28.2 percent), and bank interest rates, varying from 23 percent to 36 percent, is at record levels and the rupee has been made to appreciate about Rs. 7 to the US Dollar!" K. C. Vignarajah, said. The former President of the Ceylon National Chamber of Industries, Vignarajah, who is now a consultant for the apparel sector, said that countries where the economies depend on exports, value addition industries and services, fought to have undervalued currencies. He said that the Tiger Economies of the South Asian Region and Japan sought undervalued currencies. Even China after accumulating mountains of reserves, and under tremendous international pressure, only recently undervalued their currency. Ideally the exchange rate should be so geared that it becomes a rectifier of the trade balance in order to make industries and services competitive. The artificially appreciated rupee is the result of a distorted version of a floating exchange rate which augments the dollar supply through borrowings. "This is detrimental to the manufacturing, services and value added export, and import substitution sectors providing the bulk of the country’s employment," he said. "Taking into account the very high inflation and interest rates when compared to our competitors in the region, as well as those of our export markets, the propped up rupee gravely deteriorates the export environment." The Dollar bonds and borrowings again go to prop up the rupee and crash export industries and services. "What will happen when the time comes to repay them? We will continue to depend on those many who have to go abroad and work like slaves, so that a few politicians, political appointees and others can enjoy the high life here and globally," Vignarajah reminds us. The excessive dollars in the form of foreign commercial borrowings, new T-Bills & Bonds, aid, grants and remittances should be diverted in large measure to segments like capital expenditure, foreign loan repayments and to build foreign reserves. This should be achieved without using them to artificially jack up the rupee, which should remain fore mostly a correct measure of exchange value to balance trade. He said the first flush of excessive foreign currency was after the Tsunami. "The situation was not handled properly and led to the worst kind of corruption in the system, and which for the wrong reasons appreciated the value of the Rupee, which in turn reduced the proceeds to exporters and manufactures." Despite already having GSP+ concessions, which is now under serious threat due to Government Human Rights abuses record, the macro economic policies that had been adopted had dire results. "About 200 garment factories closed down in the past two years alone and their workers, mostly women, had been compelled to seek employment as maids in the Middle East." In order to keep workers happy, employers must be given the correct value for their exports. But this not being the case it had been necessary for workers to seek employment abroad, often in competing industries, thus strengthening our competitor countries in worldwide garment industry. He claimed that some women had been recruited to garment factories in countries such as Egypt, Bangladesh and Vietnam. "These suffering women send back their toiled earnings which props up the rupee even further and the vicious cycle of uncompetitive industry goes on. This is also true with the blue and white collar workers who leave our shores for greener pastures." "Even the foreign exchange earned by our migrant workers is fritted away on unnecessary luxury goods." "The country needs to decide whether it wants its families intact, with the people employed in the country, productively and export their products, or export the women and create disharmony in families and bring forth a rotten culture." "The ironic fact is that the government is flamboyantly promoting the brains and skills drain by encouraging our professional and skilled workers to leave the country and even have dedicated ministries for this purpose," he said. The wealth of this country is the human talent in all our multi ethnic communities. "We should have realised this years ago, and provided the basics for a happy contented environment without any discrimination whatsoever." So what does this veteran suggest we do? "SMEs will have to form area clusters and work hard at compatibility, or they will have to merge to form larger entities and create common facilities in the most efficient manner," he suggests. He warned that the conglomerates and larger companies will have to fight the temptation to take over SME factories, or to monopolise the industry through subcontracting without continuance of orders to the SMEs. "It will otherwise lead to grievous social backlash. There has already been some heartburn in the case of SMEs," he said alluding to how many SME apparel factories depend on their bigger counterparts for orders. "We should enhance the abilities of the small and medium industries in the country so that there would be equitable economic development and a liberal democratic polity where workers down to executives could have a better life here," he said. |
Thursday, July 31, 2008
Wednesday, July 30, 2008
AG’s Dept. probes apparel workers’ legal tangle
Export Development and International Trade Minister Prof G. L. Peiris has instructed the Attorney General’s Department to look into a garment factory linked labour dispute that has the potential to turn sour at a time when much is being done to retain an extension of GSP+.
"Prof Peiris instructed me to look into this matter and we are in the process of reviewing this matter," the Attorney General, C. R. de Silva, told the Island Financial Review.
Meanwhile the Board of Investment, based on earlier verbal communications with the AG’s department, is waiting for written conformation from the Attorney General’s Department that 37 apparel workers belonging to GP Garments Pvt. Ltd. will not be indicted under the Prevention of Hostage Taking Act.
It is believed that the 37 garment workers, 33 of whom are women, will be indicted under the above Act for staging a stay-in strike demanding their bonus entitlements in April 2005.
"To charge them under this Act, where punishment is severe, is too harsh. We sought verbal clarification from the AG’s office. They said that workers will not be charged under the Prevention of Hostage Taking Act but under the general laws," an official of the BOI told the Island Financial Review.
Joint Secretary General of the Free Trade Zones and General Services Employees Union (FTZGSEU), Anton Marcus, said that he had received such an assurance from the BOI.
"However when I checked with the Gampaha High Court, I was told that the workers will be indicted under the Prevention of Hostage Taking Act," Marcus said.
Upon hearing this he had conveyed the news to the BOI.
"There is contradiction between what the AG’s Department told us and the High Court told Mr. Marcus. We are now trying to get a written conformation from the AG," the BOI official said.
The FTZGSEU has links with two labour union affiliated to the European Union and is mulling seeking their support if things go awry.
Earlier in the year, the Industrial Trade Union Confederation (ITC) and the International Textiles, Garments and Leather Workers Federation (ITGLF) of the EU had expressed their willingness to assist their Sri Lankan counterparts in the long drawn battle with the industrialists over labour violations.
But Anton Marcus said they were asked to hold back for the sake of GSP+ because had the alleged labour violations and disputes got too much attention in the EU it could be detrimental for the country’s GSP+ case.
The FTZGSEU alleges that over the years industrialists had been going to extremes of hiring lawyers propagating union busting, who maintain that the law of the country did not recognise the BOI manual on Labour Standards and Industrial Relations and came down hard on unions.
The BOI had adopted this manual when GSP+ scheme first came into effect where lLO conventions had to be implemented (among others) in order to enjoy the benefits of the European trade concessions.
In May this year, a member of the American Federation of Labour and Congress of Industrial Organizations (AFLCIO) was in the island to help labour unions here, particularly in the garment industry, to facilitate better cooperation with employers in a bid to strengthen Sri Lanka’s case for an extension of the GSP+ scheme.
Jeff Vogt, Global Economic Policy Specialist, Legal Department, AFLCIO, met members of government, the Joint Apparel Association Federation of Sri Lanka and officials of labour unions during his visit.
"I found that there are routine violations of international labour laws in some garment factories. Freedom of association is very important according to ILO labour laws and many workers complained that they could not form unions," Vogt told the Island Financial Review.
Even with GSP+ many garment factories find it difficult to survive with high production costs eating into margins and making Sri Lankan garment’s less and less competitive.
"About 200 garment factories have closed down in the past two years alone," a consultant to the industry, K. C. Vignarajah, said.
Earlier this year the industry, together with the BOI, launched a campaign to attract workers to the industry that had lost its attraction due to bad perceptions.
Monday, July 28, 2008
Ampara’s construction and apparel IT needs from the community
A booming construction industry and steadily growing apparel industry are in need of IT personnel that cannot be filled from elsewhere in the country and have launched a programme to groom the youth of the district to fill these vacancies and for vacancies that will be created as development shifts gear.
The Ampara Chamber of Commerce, an affiliate to Business for Peace Alliance, said that many of the IT training centres that had cropped up in the district did not work with the business community.
Many international and national NGOs had set up various vocational training centres in the Ampara district in response to the humanitarian calls after the devastation caused by the tsunami and the rebel conflict.
"The construction industry is booming in Amapara and will expand at a rapid pace in the near future. This industry is in need of computer designers, webpage designers to help with in-house planning and designing of various construction projects," Prakash Peiris, Chief Operating Officer, BPA, said.
"Similarly, proprietors of several garment factories in the district are in need of IT-based designers."
Peiris said these vacancies cannot be filled because people think the East is not safe.
"On the other hand, the youth in the East think Colombo is unsafe because of the bus bombs," Peiris, who travels widely in the country, said with a tone of irony.
"So the vacancies in Ampara must be filled by the youth in Ampara."
A survey carried out by the chamber revealed that most of the IT training centres did not liaise with the business community in Ampara which resulted in a mismatch between the training the youth received and what was required by there prospective employers.
"A sample selected from the key businessmen in the district was used in this survey. There was much concern among them about the lack of communication between the vocational training centres and the business community, which is the cause of this gap," the chamber said.
"The students who graduate from these centres do not fit into the job market."
The Ampara business chamber also said that despite phenomenal support from both government and non-government institutions to develop livelihoods and infrastructure, little was done to equip business with the skills required to keep a breast with modern trends.
"This is one of the reasons why development is slow. Lack of IT and business communication skills are glaring inadequacies."
In response to this Business for Peace Alliance (BPA) and IDM Computer Studies Ltd have teamed up to set up two IT schools in the district.
Funded by Mercy Corps, in collaboration with the Ampara Chamber of Commerce, this programme is under the BPA’s ‘Regional Empowerment and Conflict Transformation through Skills Development of Tsunami Affected Business Community and Youth’ proramme.
"Many of the IT Centres we visited in Ampara are Playstations at best. Parents are happy that their children are going for computer classes. The children are happy that they get to play games. No one complains," Peiris said.
He said that BPA and Ampara Chambers of Commerce and Industry will monitor IDM’s programme to ensure that the IT capacities required in the construction and apparel sectors of the district are met.
"In the future, once development starts to grow at a more rapid pace we can introduce newer courses so that employable youth will drive the future of their own home towns," Peiris said.
Sunday, July 27, 2008
CEPA not aborted – there is life in it still
Strong opposition to the signing of the proposed Comprehensive Economic Partnership Agreement (CEPA) on the side lines of the SAARC Summit has forced the government to take a step back.
Minister of Export Development and International Trade G. L. Peiris reportedly told media personnel last Thursday that more consultations would be required before the final CEPA document could be finalized.
The Island Financial Review spoke to a senior official of the Department of Commerce to get an insight into CEPA and why the signing of the framework agreement during the SAARC Summit was pushed back and later withdrawn.
See today’s Island Financial Review for more on the bureaucratic perspective.
Saturday, July 26, 2008
CEPA not aborted – there is life in it still More consultations required
The Framework agreement of the Comprehensive Economic Partnership Agreement (CEPA) with India will not be signed during the SAARC Summit as earlier planned.
A senior official of the Department of Commerce told the Island Financial Review that more work had to be done on CEPA and that it had only been a proposal to sign it during the SAARC Summit.
"The framework is completed and is with the Cabinet so there is not enough time to finalise the document which would have been signed by the two heads of state," he said.
The framework is a seventy page brief on CEPA. It defines CEPA and contains the purposes for such an agreement.
However, he said it was a very basic document and it would be difficult to consult with stakeholders without anything in it.
"The schedules are not finalized. It would take a few more months by the time a comprehensive document can be finalized."
The schedules will contain the specific agreements in the areas of trade in goods, services and investments and more consultation with stakeholders are required before a final draft can be produced.
"A much more comprehensive draft will be required to engage stakeholders for their recommendations."
He said the Department of Commerce was aware of what exactly will go into the schedules but the services sector will require much more work and consultations.
Political pressure to desist from signing the framework is another reason why it will not be signed during the SAARC Summit.
"The problem was that information was not disseminated enough. There were some politicians who called us to find out about CEPA and others did not. However the details about the framework had not been given proper circulation."
It was the Department of Commerce who was responsible for the negotiations and stakeholder consultations.
But he suggests that the framework alone, which is with the Cabinet, will not be enough to make them, the politicians, understand the positive and negative aspects of CEPA.
"It is better if the schedules can be completed, because then it will be easier for them to understand what CEPA would contain. And there is no doubt that many who had opposed CEPA would see more of its benefits," he said.
As far as the private sector is concerned he said the consultations had been comprehensive and wide reaching.
"We could not talk to everyone obviously, but to say that the negotiation process was sans consultation is an untruth," he said.
The government’s decision to sign the framework in the backdrop of the SAARC Summit was most probably prompted because it would have been appropriate to have the two heads sign the agreement rather than the two trade ministers at a later date.
"It is always better to make the agreement as comprehensive as possible. So once the schedules are completed the two governments will be able to sign an agreement with significant substance," he said.
He could not specify a time-frame, but said it could take months with Cabinet deliberations and more stakeholder consultations.
An official involved in the negotiation process told the Island Financial Review last week that it was Sri Lanka that had wanted the CEPA agreement signed during the SAARC Summit.
This was because a No Confidence Motion pushed by the Indian opposition party BJP put doubts on the survival of Indian Prime Minister Man Mohan Singhe’s ruling coalition government.
When CEPA was first mooted in 2003 the UNP government had wanted it finalized by 2004. However, a change in governments of both countries prevented CEPA from seeing the light of day, because the new governments and their newly appointed officials wanted more time to study CEPA.
Some industrialists accused the Indian government of forcing Sri Lanka to sign the framework during the SAARC Summit.
"India’s export bill is about US$ 168 billion of which exports to Sri Lanka is only about US$ 2 billion so there is no reason why India would want to force Sri Lanka into CEPA. It is Sri Lanka that will have much more to gain," he said.
The senior official of the Department of Commerce said that no country had pushed for the signing of the framework during the SAARC Summit.
"It just sounded like a good idea," he said.
Monday, July 21, 2008
More discussions on CEPA necessary – Cabraal
Central Bank Governor Ajith Nivard Cabraal said that it was the government’s priority to ensure that the private sector was comfortable with the Comprehensive Economic Partnership with India. "More discussions should take place if the discussions that have already taken place are not enough," he said. Speaking at the first Annual General Meeting of the Indo Lanka Chamber of Commerce and Industry (ILCCI) last Friday, Cabraal said that it was only natural that some would look at CEPA suspiciously and harbor apprehensions. Last week, several industrialists opposed the government’s decision to sign a framework document on CEPA with the Indian Prime Minister on the sidelines of the SAARC Summit because a document outlaying its contents was not made available to them. "The validity of these concerns must be looked into and things will have to be worked out," Cabraal said. The incumbent President of the ILCCI, Mano Selvanathan, said that some of that some of the industrialists who opposed CEPA overstretched their objections. "Some of their concerns may be legitimate while some of it may be overstretched but they have to be taken seriously," he said. He said he was confident that CEPA included a conflict resolution mechanism where each year the agreement would be reviewed to iron-out any problems. "There will be problems with CEPA but they will not be problems that cannot be revoked. I have not seen the agreement in writing, but I am sure there is a mechanism in place to rectify problems." While India is in negotiations with the US, EU and ASEAN over free trade agreements he said that Sri Lanka should look at signing an agreement in a more positive light. "Americans complain that cheap goods from China flood their markets but the savings that have been generated as a resulted amounted to US$ 1 trillion," he said. Out of the chamber’s 95 members, members from Indian companies number around 30 and Selvanathan said that the ILCCI would make an effort to increase the membership from the Indian side as it seemed to be a one-sided affair with Sri Lanka dominating the membership.
CEPA is by no means irrevocable Onus is on the govt. to make public CEPA document – Dr. Kelegama
The framework of the Comprehensive Economic Partnership Agreement (CEPA) with India which may be signed on the sidelines of the SAARC Summit is only a document which contains what CEPA is all about and its purposes.
"The schedules however, will be included much later after negotiations and here again the agreement is by no means irrevocable," Dr Saman Kelegama, Executive Director, Institute of Policy Studies (IPS), told the Island Financial Review.
IPS had been part of the negotiation process and had monitored the progress of the negotiations.
"It is only after deliberations with the stakeholders that certain items were brought up for negotiation," Dr Kelegama said.
"The professional services sector had been left out of the negotiations after professional bodies did not want the sectors opened until regulations and statutes are passed in parliament," he said.
The Comprehensive Economic Partnership Agreement is by no means irrevocable.
Tere are checks and balances in place to ensure that both countries will be in a win-win situation.
"Technical deliberations will be held every six months to sort out problems and a ministerial level meeting will be held every year to monitor CEPA and if an agreement needs to be revoked, there are provisions in place for that too," Dr. Kelegama said.
Only the following services sectors were put on the negotiation table based on stakeholder reccomendations.
Sri Lanka has so far made the following commitments.
In Computer Related Services, Sri Lanka will allow Indians who are expert trainers and technical staff 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.
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.
"Negotiations are still on and it must be understood that the movement of Indian labour to Sri Lanka will be restricted to the above services depending on the size of the investment," Dr. Kelegama said.
He said, for example, that under the FTA, when ICICI Bank entered Sri Lanka only a certain category of staff were allowed into the country for every US$ 25 million invested.
He said that CEPA will have similar restrictions in place.
He also said that liberailisation of the services sector will improve service standards and competition would force prices down making the services more affordable.
Dr. Kelegama said that certain items were left out of Sri Lanka’s negative lists to safeguard the SME sector and agriculture.
"Items such as onions and potatoes are imported from India and these items come through the general tariff lines."
Dr. Kelegama said the onus was on the government to make public the negotiation rounds and the CEPA document.
Negotiations on the schedules will continue so it is not to late for stakeholders who had expressed concerns about CEPA to approach the Department of Commerce.
Apart from the Ceylon Chamber of Commerce and the Federation of Chambers of Commerce and Industry, the Ceylon National Chamber of Industries and the Organisation of Professional Associations had been included in the consultative process.
Saturday, July 19, 2008
Friday, July 18, 2008
CEPA Trojan Horse or trade promoter?
The lack of transparency, the unavailability of documentation for public perusal and mere words of assurance from politicians, have led to serious misgivings about the government’s decision to sign a framework agreement on the Comprehensive Economic Partnership (CEPA) with India on the sidelines of the upcoming SAARC Summit.
A press conference was convened last Thursday and several industrialists, who said they were backed by the Ceylon National Chamber of Industries, said that they were in the dark about CEPA.
The Organisation of Professional Associations joined the industrialists to protest the opening of the services sector in CEPA.
Their problem is that policy makers are acting without consulting the industrialists, but this, the Department of Commerce, the Ministry of Export Development and International Trade, the Ceylon Chamber of Commerce (CCC) and Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) will deny.
They have maintained that due consultations with all stakeholders had been held and that Sri Lanka’s commitments in CEPA were made giving due consideration to the views of the stakeholders.
However, the industrialists said the government’s decision was hasty and was a result of pressure from Delhi.
"The cause for this concern is the lack of access to the draft or white paper on CEPA," they said.
They compared CEPA to a marriage between a small, helpless damsel to a huge powerful ogre, without the prospect of divorce.
"And since these are two countries we are talking about, even in death do us not part," a statement from the industrialists said.
The CCC and FCCISL had long advocated the need to have a comprehensive economic partnership agreement with India and the Industrialists accused these two organisations of being skewed in their judgment.
The industrialists said that without publishing the framework agreement, that without there being something on paper, the industrialists have no way of knowing what CEPA contains.
And this is where the policy makers have failed. By not being transparent it has stirred up a hornet’s nest. Dissemination of knowledge is lacking, it seems.
"Who do these politicians really represent? Show us what is being done, or at least tell President Rajapakse," Managing Director of Multichemi Group, Samantha Kumarasinghe said, adding that several Cabinet ministers were unaware of CEPA and what it contained.
He pointed out that despite policy makers saying that the FTA had brought benefits to Sri Lanka it had not done so.
"Total exports to India in 2007 amounted to US$ 495 million, of which the export of vanaspathi and copper accounted for 41 percent. The bulk of these exports were carried out by Indian companies in Sri Lanka," he pointed out.
Imports form India amounted to US$ 1,400 million in 2007.
"How can they (the politicians) say that we have benefited from the FTA? CEPA will be bigger than the FTA so we need to be cautious. If we are not careful the damage done to the country will be even greater than what the LTTE caused," he said.
The Multichemi Group is the manufacturer of the successful cosmetic line Nature’s Secret already established here and in Bangladesh.
Kumarasinghe came down hard on India for having created so many non-tariff barriers which prevented Natures’ Secret from taking a firm foothold in India, despite the FTA.
"Industries are finding it difficult to survive in the current economic environment. How will they compete with Indian industrialists who have access to cheaper materials?"
Dr Bandula Perera, Managing Director of Samson Rajarata Tiles (Pvt) Limited and who also served with the Board of Investments, said that growth in GDP should be driven by improving export revenues.
He too questioned the ‘benefits’ of the FTA and said that many of the Indian companies subsequently closed down when India restricted vanaspathi exports, directly violating the FTA.
He said that the Indian companies that were set up on our soil had not even facilitated technology transfers because they brought 18th century industrial processes.
"The Indians are intimidating and unmovable," he said about the non-tariff barriers which prevented Sri Lankan companies making full use of the FTA.
Past Chairman of the Ceylon National Chamber of Industries Ranjith Hettiarachchy said that India’s economy was booming and that India was pushing CEPA through to find employment opportunities for its growing population of professionals.
"We are not expressing anti-Indian sentiments but anonymity in the process adopted by the Ministry of Export Development and International Trade to educate the people on CEPA is a cause for concern," he said.
Vice President of the Organisation of Professional Associations Tudor Munasinghe said that Prof G. L. Peiris had told them that the services sector will not be open for negotiations.
"We have no way of knowing whether this is the case," he said.
The Ceylon Chamber of Commerce (CCC) and Federation of Chambers of Commerce and Industry (FCCISL) had always maintained that CEPA would benefit Sri Lanka and been part of the government’s consultative process.
However, Chairman Ceylon Biscuits Limited, Mineka P. Wickremasinghe, said that they did not consult the industry.
He accused the CCC of having the interests of powerful multinational companies within the chamber at heart and that the FCCISL did not represent the industries sector and refuted statements made by its president that several Sri Lankan industries are doing well in India.
He said they would like to challenge the chambers to make the contents of CEPA public.
Ariyaseela Wickramanayake, Chairman, Mawbima Lanka Padanama, said that political officials could not be trusted and called for the contents of CEPA to be made public. He was also critical of the CCC and said it was controlled by multinational companies who would benefit from CEPA.
"We are not opposing CEPA for the sake of opposing it but because our politicians can never be trusted," he said.
He criticized the current policy of granting tax holidays to foreign investors while local manufacturers were heavily taxed.
"We live in a country where a single mobile telecommunication service provider makes a profit of Rs. 8 billion while charging high call rates when they could easily charge 40 cents a minute," he said.
The Island Financial Review last Monday (14) carried a synopsis of a seminar on CEPA conducted by the Institute of Policy Studies. Probably the need of the hour would be a wider dissemination of the institutes involvement and analysis of CEPA, because much of what was said indicated that the government was careful.
Clearly, it’s a case of fearing the unknown. How will the authorities respond? After all they have what is being asked for—information.
However the solution does not lie in political rhetoric. Show them the document and get it over with, provided there is consensus all around.
Monday, July 14, 2008
ILCEPA: Opportunities and Challenges A seminar synopsis
The governments of India and Sri Lanka will be signing the India Sri Lanka Comprehensive Economic Partnership Agreement (ILCEPA) this month on the sidelines of the SAARC Summit.
The Institute of Policy Studies (IPS), India Sri Lanka Joint Business Council, and the Indo-Lanka Chamber of Commerce and Industry organised a seminar for the private sector to enlighten them on the progress made by the joint technical committees who had met on 13 occasions for extensive deliberations.
Nothing to fear?
"India has always taken into account the asymmetry between the two countries when the level of commitment for such binding is done. I think this would allay any fears in Sri Lanka of a big country domination of the small one over trade and investment flows," Executive Director, IPS, Dr Saman Kelegama said.
History
When both countries had closed economies in the 1960s and 1970s, trade between the two countries had virtually stagnated at a low level,
"Although many economic cooperation programmes existed at that time to stimulate trade and investment, they were of limited use," he said.
However trade and investment flows between the two countries intensified with the implementation of open economic policies in India in 1991.
"By the mid-1990s, India became the largest source of imports to Sri Lanka and the growing trade relations needed to be consolidated by some measures. In this context, the signing of the Indo-Lanka Bilateral Free Trade Agreement (ILBFTA) in 1998 was a landmark event and it was the first formal bilateral FTA of Sri Lanka," Dr Kelegama said.
"When Sri Lanka decided on the bilateral FTA with India, Sri Lanka did not consider India as a threat as some neighbouring countries do, but India was considered as an opportunity."
According to Dr Kelegama the bilateral FTA not only triggered more trade between the two countries but also stimulated services and investment flows between them.
"To facilitate these new flows more barriers had to come down and new regulatory frameworks had to be put in place to govern pitfalls. Thus, a Comprehensive Economic Partnership Agreement (CEPA) between the two countries was discussed in 2002.
In 2003, a Joint Study Group (JSG) was appointed to do an in-depty study on IL-CEPA. The study, after several visits by both sides to each other’s countries was completed in October 2003 and handed over to the respective Prime Ministers of the two countries.
"The plan envisaged was to get the CEPA moving by April 2004. However, both countries in the first quarter of 2004 were in an election mode and had little time to pay attention to the IL-CEPA. Moreover, both countries witnessed a change of government in early 2004 - in Sri Lanka in April 2004 and in India in May 2004. The new governments in both countries needed time to have a fresh lock at what was done and eventually it was in February 2005 that Technical Level Negotiations (TLN) started," Dr Kelegama said.
"After 13 rounds of discussion - the last one which took place during the last 2 days, finally both countries have come to a position of finalization of the IL-CEPA framework. Now the agreement remains to be signed by the two Heads of States."
On the Sri Lankan side, there had been general support for the ILBFTA. The private sector, except a small minority had been in support of deeper integration with India.
"They have always argued the case for a IL-CEPA with the necessary safeguards."
"IL-CEPA means deepening the existing bilateral FTA between the countries and broadening it by the inclusion of liberalization of services and investment. The deepening of the bilateral FTA will be achieved by gradually reducing the negative list, now that both countries have duty free access to each other’s markets."
"Broadening will take place by binding the inflow of services and investments to beyond the current levels," Dr Kelegama said.
ILCEPA important - Chambers
President of the Federation of Chambers of Commerce and Industry, Nawaz Rajabdeen, said that ILCEPA would be a step forward in enhancing economic partnership between the two countries.
"ILCEPA will give us a new opportunity to iron out the problems in the FTA and will no doubt attract more FDIs India, already the fourth largest investor with US $ 5 million. ILCEPA would also generate more rural employment and industries in the provinces," he said.
Chairman of the Ceylon Chamber of Commerce, Mahen Dayananda, said that despite concerns, the FTA between the two countries had increased trade significantly.
Exports to India which amounted to Rs. 4 billion in 2000 increased to Rs. 55 billion in 2007. Imports from India in 2000 amounted to Rs. 45 billion. It was Rs. 308 billion in 2007.
"This convinced many in the private sector that deeper integration could bring Sri Lanka more benefits. With a population of over a billion people we are aware of the extent of the markets that need to be serviced," he said.
The Ceylon Chamber of Commerce had been monitoring the ILCEPA negotiations and had been one of the points through which the private sector was consulted for their concerns, recommendations and views.
"The reaction from the services sector had been mixed, but the majority is in agreement with ILCEPA," Dayananda said.
Trade in Services
The inclusion of the services sector into the India-Sri Lanka Comprehensive Economic Partnership Agreement (ILCEPA) stirred a hornet’s nest with many professional services worrying that it would open up the flood gates.
However, the Institute of Policy Studies (IPS) had been monitoring the 13 rounds of technical deliberations of both countries said that India had not indicated that it expected a reciprocal agreement.
India had been sensitive to Sri Lanka’s economic size and the lack of regulations for most professional bodies.
A Research Officer of IPS, Deshal De Mel, presented the offer lists of India and Sri Lanka to liberalise its services sectors at a seminar on ILCEPA: Opportunities and Challenges last week.
He said that 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 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.
De Mel’s presentation showed that each country had not fully liberalised their services, especially Sri Lanka, and where they did, certain restrictive clauses seem to be put in place.
The following table is drawn from De Mel’s presentation and only highlights the commitments made by the two countries with regard to labour mobility in the service sectors they would open up for each other.
The data is from the 13th and final technical deliberations concluded last Thursday.
De Mel said that the following commitments would probably be the final agreement in the unlikely event that last minute changes would be made.
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 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 professional who will be allowed into Sri Lanka under ILCEPA.
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 as 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.
Dr H. N. Thenuwara, Assistant Governor Central Bank said that the approach taken to liberalise trade in services was not very useful.
"The commitments are reversible so they cannot be built on. You could not get anything more than this," he said referring to the apprehensions from the Sri Lankan side which had compelled the government to make the limited commitments.
Dr Thenuwara who had been proxy to the consultative process said that even if Sri Lanka chose to adopt a protectionist stance, technology would still make Sri Lanka’s service sector open and unless technological developments are fairly large the protectionism would fail.
The success of ILCEPA would depend on the entrepreneur and professional and Sri Lanka will have to improve its visibility in India because without demand no trade can take place, he reminded.
Trade in Goods
After the last round of technical deliberations between the two countries, India had agreed to remove 114 items off its negative list while Sri Lanka had agreed to remove 36 items off the its negative list in a stake –holder driven process, according to the Director General of the Department of Commerce, Saman Udagedara.
Udagedara addressed the delegates at the ILCEPA: Opportunities and Challenges although he was not prepared to make a presentation as he was involved in the technical deliberation which concluded on the day prior to the seminar.
The Indians had earlier relaxed the TRQ on ready made garments from Sri Lanka up to 8 million pieces of which 3 million is allowed in to India duty free with no entry restrictions as long as the fabric was of Indian make.
"During the final round of deliberations India said they would increase the duty free component to 6 million while the balance will receive a 75 percent margin of preference," Udagedara said.
According to Udagedera, India has also decided to relax the Rules of Origin on several Sri Lankan exports in a bid to assist the country develop its supply side capacities.
Over 436 products have been classified into this new category, an increase from 5 percent to 70 to 75 percent of total exports to India.
"Although ILCEPA will be signed by the two governments this month, the technical committee agreed that there will be a continuous review of the negative lists after each year," Udagedara said.
He stressed that it would be necessary for the two countries to bring about a convergence in their regulatory frameworks.
Different systems, especially in customs and clearance could pose problems for both countries and said that ILCEPA will have to develop a legal framework for customs integration and cooperation.
"A new article must be developed on areas of protection, dispute settlement and antidumping, which will also build cooperation at national entry points and develop technical cooperation between the two countries," Udagedara said.
He also stressed that MoUs and mutual recognition agreements would go along way to facilitate the smooth functioning of ILCEPA.
This is a key issue especially in the services sector, where professional bodies of the two countries will have to recognise the standards, qualifications and regulations governing each professional in their respective countries.
He said that a MoU was in the process of being developed whereby Sri Lanka could benefit from exchange training programmes in traditional methods of medicine in which India has a well established model.
Subashini Abeysinghe, Economist, Ceylon Chamber of Commerce, said that Sri Lankans seemed to be content with hiding behind protectionist barriers to protect their hold on a small domestic market and failed to see India as an opportunity with its economy in expansion mode where access to larger markets could benefit Sri Lankan businesses.
"At the very start of the consultative process private sector took a defensive approach to ILCEPA and not an offensive approach by demanding for more protection," she said.
"Even now many still have apprehensions but they have not really looked at the facts and figures."
She said that the current FTA had 4,000 products for which India granted concessions to Sri Lanka but only a fraction of products amounting in to the hundreds were exported.
"New industries are not nurtured, especially in the agricultural sector, to make use of the export concessions and we continue to struggle with poor infrastructure, high energy costs and a shortage of labour which undermines our competitiveness."
Director of Marketing, Sri Lanka Export Development Board, Ranjini Tudugala, said that that in the existing FTA, India had only utilised 40 percent of the concessions Sri Lanka had granted to its exports while Sri Lanka had utilised 80 percent of the concessions granted to it by India.
Trade in Investments
Investments in Sri Lanka’s commitments to ILCEPA will see Indian companies receiving the same status as a national company in the pre-establishment period during the process of making an investment.
However, Sri Lanka can decide on a case by case basis whether or not investments from India to particular sector will be allowed, Nihal Samarappuli, Executive Director Research, BOI, said.
The scope of application will include a broad range of investments including movable and immovable property, shares, stocks and debentures, contracts for turnkey, construction and International Property Rights.
All stages of the investments, pre-establishment and post-establishment, will be covered under ILCEPA.
Taxation, granting incentives and grants and government procurement have been excluded so as to allow the policy space the government would need.
While Sri Lanka makes a commitment that no foreign investment would be acquired unfairly, a safety clause is to be added that the government could acquire such investments for a public purpose with an obligation to compensate the investors.
Samarappuli said that an Investor-to-State Dispute Settlement Mechanism is in place.
Under this mechanism Indian investors would be able to seek recourse at a neutral forum and is open to international tribunals. However, investors in the pre-establishment stage will not be able to access international tribunals.
While in the pre-establishment stage Indian are given national treatment in a bid to encourage investments, the option of seeking recourse in international tribunals is not possible as the investments would not have reached Sri Lanka as yet.
Senior State Council Janaka De Silva warned that ILCEPA should ensure that companies who received BOI status bring in the investments and not raise capital through banks in Sri Lanka.
"Investment comes in with the money. There is a concern that investors sign agreements but no money comes into the country," he said.
De Silva said however, that Sri Lanka’s commitments to liberalising trade in investments showed that it was balanced by being pro-liberalisation and keeping space for government policies.
Chief Executive Officer CEAT Sri Lanka said that Sri Lankan investors should cease the opportunities to enter India’s huge markets and encouraged Sri Lankan entrepreneurs to study the Indian market, the customer and select the right sector before venturing in.
Deshal De Mel said that ILCEPA is broadly agreed upon by the two countries and that a framework for broader economic cooperation could develop this further which could then lead to a better integration in trade in goods, services and investments.
"The agreement is drafted but does not spell out specific projects but attempts to create an overarching framework for economic cooperation to take place in a more effective and cohesive manner than what the FTA had been able to do," he said.
He said that the short term benefits would weigh in Sri Lannka’s favour but improved supply capacity and economic dynamism brought about by an economic
cooperation programme will bring greater benefits.
He suggested that the joint technical committee consider developing supply side capacities to boost trade especially in the education, energy and tourism sectors.
India could establish an institute of information technology here while Universities of the two countries engage in curriculum exchanges, student and faculty transfers.
Energy grid interconnections and investing in alternative energy, such as dendro power, could benefit the two countries.
In tourism, De Mel said that there is an opportunity to explore and promote collaborative tourism ventures.
Easing immigration requirements could lead to packaged tours between Sri Lankan and Indian tourism hotspots and promote Buddhist tourism between the two countries as well as from other countries.
Exchanging tour guides so that frequent visitors from each country could have a guide from their own country could also boost the industries of both countries.
The ILCEPA is just the starting point for looking at economic cooperation in a holistic manner but it is not clear about the bodies that will implement this, De Mel noted.
"The first step would be to consolidate the steps taken by the FTA and not lose sight that of the importance of an economic partnership agreement as a tool for generating dynamism, to stimulate the other branches of the agreement. This would be the most fundamental and important part of ILCEPA," he said.
Saj Mendis, Economic Director, Ministry of Foreign Affairs, said that ILCEPA would be a catalyst for South Asian integration and said that similar bilateral agreements with the other member countries must be explored.
He said that while Sri Lanka should work hard to increase the inflow of FDIs, the corporate sector should explore the possibilities of investing out of the country.
Rohantha Athukorale, Economic Director, Peace Secretariat, said that it would be necessary to have an inter-regional target and a road map in place to achieve the target.
He said that trade in the ASEAN block amounted to 35 percent of GDP. In the EU it amounted to 55 percent while in the NAFTA block it amounted to 60 percent. But here in the SAARC bloc it only amounted to 5.3 percent.
"Policy makers can make it happen but it will the private sector that will drive ILCEPA forward," he said.
"There was a certain amount of distrust and discomfort in the FTA and Sri Lanka’s utilisation of the quotas granted by India was below 10 percent."
Athukorale suggested that if integration in the services sector was to work, people , especially the executives and top management where for example, Indian management attitudes had strained relationships with local staff in the past, need to undergo training so as to sensitise them to the other country’s culture as personalisation is an important aspect of the services sector.
He said such a policy would build regional ties at a social level and mitigate political opposition to bilateral and regional economic integration.
Lanka should phase out opening of services sector
The Commerce Secretary of India told Sri Lanka that it should open its services sector in a phased-out manner with proper regulations in place.
Commerce Secretary Gopal K Pillai made this observation at a seminar held yesterday on India-Sri Lanka Comprehensive Partnership Agreement (ILCEPA): Opportunities and Challenges.
"Sri Lanka has to study the potentials, opportunities and challenges ILCEPA would bring and need to study what changes to its legislature would be required to be amended in order to benefit from ILCEPA," he said.
"I have struggled for many years in India, going through line by line and negotiating many Acts of several ministries and local governments. Sri Lanka must take this challenge in a large way," he urged.
"Sri Lanka has to look at ILCEPA from the point of view that India is a huge market (With over a billion people) to be exploited," Pillai said.
Minister of Export Development and External Trade Prof G. L. Peiris said that the regulatory framework was not adequate as far as the services sector was concerned.
"It’s a timely opportunity that legislative norms are put into place and this is an urgent priority of the government," he said.
Prof Peiris said that proper policy initiatives will also be put into effect so that the rural economy enjoyed the fruits of ILCEPA.
He said that the state should take an active rule and not assume that dividends would treacle down across to rural, gender and livelihoods in an equitable manner.
"The government will ensure that rural communities become full participants and that the benefits of liberalising trade will not be an elitist phenomenon."
