SL must make FTA work and improve

Rohantha N.A. Athukorala

At the Indo-Lanka Comprehensive Economic Partnership Agreement (CEPA) seminar in Sri Lanka, the Commerce Secretary of India Gopal K. Pillai said the agreement will not have Indians swamping Sri Lanka and it is an attractive opportunity that Sri Lanka must exploit but I wonder if he was aware of the ‘reality’ behind the trade numbers between the two countries where we see that India has much to honour from the current Indo-Lanka FTA and the private sector revolting against CEPA is totally justifiable.

Exports crashing

Pillai quite rightly identified the discomfort that some Sri Lankans feels on the CEPA and reassured that this concern is valid given that when India was to sign a similar CEPA agreement with Singapore, some Indians felt the same.

But the difference that India needs to understand is the experience that Sri Lankans have had with India on trade, has not been that positive.

The export data from Sri Lanka to India in the last 3 years clearly explains the discomfort among Sri Lankan’s as exports to India in 2007 is up by just five percent above 2006 and it is below the 2005 revenue by 7.8% to 514 million dollars. The quota utilization of the strategic products of Sri Lanka- Tea and Garments is below 6% for the second year running.

Sri Lanka exporters have been up against non tariff barriers by Indian authorities like tariff rate quantities (TRQs), delays in custom clearance of cargo, port restrictions, necessity for several tests to be carried out in India even though certificates are accompanied by the relevant authorities which justifies the revolt by the Chambers heads and top local business last week in Colombo.

After all bilateral agreements which are essentially designed to promote fair competition and equitable benefits which Sri Lanka has not experienced from the Indian end and how can any logically thinking Sri Lankan entrepreneur support CEPA.

The revolt by the local companies is totally justifiable given the issues that company’s like Ceylon Biscuits have experienced by trying to do business with India.

The thoughts that crossed my mind when I was getting ready to address the Indo- Lanka CEPA forum in the area of “Progress and Prospects’ was, what are the learning’s from the current agreement with India on the Indo-Lanka FTA and what lessons can we pick so that Sri Lanka will not walk into a another catch 22 situations due to just political pressure.

Sri Lanka has seen a number of companies that have been started due to the Indo Lanka FTA in Sri Lanka, to be precise from 34 at one time to 105 by the end of 2006, however most of them have been forced to close down due to issues of entering the Indian market. This has actually off set the benefits of international trade and in this instance the concept of free trade.

Many Sri Lankans have lost their jobs in the companies that operated in sectors like bakery industry, energy saving bulbs and plastic products as explained by the Chamber’s last week.

Is CEPA an opportunity

Lets face it, South Asia boast of a 900 billion dollar GDP but inter regional trade is at a low ebb of 5.3% and opening up of the service sector will sure drive trade between the countries given that both countries are dominated by the service sector. CEPA, if and when operationalized we will see trade barriers being removed in a selective manner.

The first being, cross boarder services like Energy, International Telephony and BPO then in mode 2, it will extend to Tourism and education and at mode 3, it will include Foreign bank operations and finally for the sensitive areas like the temporary movement of expertise like foreign doctors.

In essence it is an agreement that will reduces the discrimination against foreign suppliers by providing market access. A key highlight of the agreement that needs our attention is that commitments can be altered after 3 years subject to compensation which provides insulation to a country in the event there is an over supply issue.

However, the key issue of the private sector is that we have not seen the Indian authorities taking Sri Lanka seriously when we have had issues in the current Indo - Sri Lanka FTA.

The Pepper issue, Vanaspathy debacle, copper exports apart from individual business issues like the Tic Tac business of Ceylon Biscuits are some of the ‘specifics’ that India needs to know before telling Sri Lanka the benefits of CEPA.

I strongly believe that Sri Lanka must have the guts to enforce domestic legislation given that India uses a multi prong initiatives some times to get trade deals through with Sri Lanka.

Can Sri Lanka survive?

A key question that is being asked by local company’s is can we fight the giant company’s of India? I strongly believe that Sri Lanka has the business capability not to just survive, but thrive provided the policy makers also become aggressive with the required legislation and promotional support.

The best case in point is our 8000 billion rupee Export Industry that faces global competition in open markets like the US and EU and has given a lesson to the top organizations in the world of how to do business.

What Sri Lanka requires is a change of attitude by the Sri Lankan business community to face the challenges, aggressively. We need to see the Jayasooriya’s, Murali’s and now Ajantha Mendis’s of business to emerge in our Indo Lanka trade arena.

The policy makers on the other hand must give the confidence that protectionist measures will be exercised, in event things get rough to the Sri Lankan business.

However, this is a tough one to sell to the private sector given the fall outs of the Indo Lanka FTA that the private sector has been desperately seeking some times.

Drive the Knowledge Economy

Latest research reveals that if we are to compete with Indian companies under the CEPA agreement, we have to strengthen Sri Lanka’s Knowledge Economy which is a key pivot to making economy competitive.

The logic being, if we strengthen the Knowledge Economy, we create an enabling environment for a Sri Lankan company can link its self to the University system . This will initiate innovations being chinned out by academics to meet the changing consumer requirements of tomorrow.

Sri Lanka must also introduce the concept of new product development houses, ably equipped with the required technology so that the innovations conceptualized by the university system can be transformed to commercial products and services. The best case in point is Dialog.

The tri party link between University of Moratuwa, Dialog and the product developers (inhouse) have this company the No 1 company in Sri Lanka with the brand value at a staggering 12.5 billion rupees as at end 2007.

However, with the current investment on technology at a low ebb of 0.14%, which is actually negligible when comparing it to countries like Korea that are on high gear at a 4% GDP Sri Lanka is heading for disaster by signing CEPA which will result for sure for Indian’s to swamp Sri Lanka.

Reforms are required

The remedy is for policy makers to invest on the infrastructure and academic reforms required as per the 2007 World Bank report to develop the knowledge economy and make it the engine of growth.

If this is done just like Dialog, the rest of the business world can very confidently have the teeth to meet the Indian challenge under CEPA.

If not, we are not providing the enabling environment for the ‘Murali’s’ and ‘Jayasuriya’s’ of the business world to emerge in this war of ideas, which is the heart of the service sector.

Hence the proposition of Indians swamping Sri Lanka can happen.

A point to note is that the knowledge economy is not about been high tech, but it’s about how a country is strong on creating disseminating knowledge to the users to enhance growth and development in a country.

To be continued