Another chance for CEPA?

The Comprehensive Economic Partnership Agreement (CEPA) seems to be set to hit the headlines again, after the Industry and Commerce Minister on a recent visit to India expressed strong interest in expanding business ties with Sri Lanka’s closest neighbour.

Readers will remember that all past attempts to sign CEPA have resulted in many local businessmen protesting the agreement on fears of it establishing a lopsided playing field and even businesses that are already successful in India expressing need for change in its preferential lists.

Therefore, the statement released by the Industry and Commerce Ministry stating that Minister of Commerce Industry and Textiles of India Anand Sharma will be leading a delegation to Sri Lanka’s largest export extravaganza in March and will have discussions on CEPA along the sidelines of that summit will generate much interest.

Businessmen who are worried about the global economic situation and macroeconomic issues such as the possible sanctions by the US on Iran fuel imports to Sri Lanka may find this to be a good opportunity to take another look at CEPA.

Trade relations between the two nations marked a historical milestone with the signing of Indo-Lanka FTA in 1998. Since then the value of two-way trade had grown from about US$ 650 million in 2000 to well over US$ 3 billion by 2010.

Indian FDI started moving into Sri Lanka in 1982 when Ashok Leyland decided to set up a bus assembling plant in collaboration with the Government of Sri Lanka. However, substantial Indian investments began flowing in from only mid-1990s. They included investments in construction materials such as steel, cement, paint industries and roofing sheets.

The third wave of Indian investment followed the Indo-Lanka FTA with the developments in air traffic and relaxation of visas for Indian nationals. The cumulative Indian investment in Sri Lanka, which stood at around US$ 24 million in 2000 has increased to US$ 600 million by 2011. Today, India ranks within the top five foreign investors in Sri Lanka.

Several Indian companies such as Indian Oil, Bharti Airtel, ICICI Bank, Asian Paints, Ashok Leyland, etc., have immensely benefited by investing in Sri Lanka. Meanwhile, companies such as Taj Hotels and CEAT have become household brands among the Sri Lankan people. Indian investors have also been enjoying the benefits of the constitutional guarantee of investments, duty-free market access under the ISFTA, double taxation and investment protection treaties.

Both Sri Lanka and India have been recording an impressive performance on the tourism front as well. As many as 250,000 Sri Lankans had visited India during 2010, while India topped the list of tourist arrivals in Sri Lanka in the same year. India continued to be at the top in 2011 as well recording over 138,000 tourist arrivals. This registers a spectacular growth of 45% in comparison to the same period in 2010.

It is clear that much potential exists for Indo-Lanka trade, but the challenge is in figuring out how to tap this potential in a mutual beneficial manner. India has already signed CEPAs with other countries, some smaller than Sri Lanka, with positive results. Continued delay by Sri Lanka could result in the entire country losing many lucrative opportunities. Therefore, perhaps it is time to lay the CEPA issue to rest with positive and transparent engagement between both countries.