Talking CEPA

Saturday, 12 September 2015 00:00 - - {{hitsCtrl.values.hits}}

With the formation of the National Government, fresh actors are playing new roles. National Freedom Front (NFF) Leader Wimal Weerawansa has become the unlikely economic spokesperson for the Opposition this week, launching criticism of the proposed Comprehensive Economic Partnership (CEPA) with India, insisting it will have negative effects on local industry.

Returning to the argument that has been beaten threadbare over the years by different people, Weerawansa said it undermined local companies. Ahead of a visit to India by Prime Minister Ranil Wickremesinghe where CEPA is likely to be on the discussion table, can there be a competitive and timely way forward for CEPA? Does Sri Lanka’s continued reluctance to deal with the concerns of its own business community mean that the entire economy is paying for this oversight?

Trade relations between the two nations marked a historical milestone with the signing of the Indo-Lanka FTA in 1998. Since then the value of two-way trade had grown from about $ 650 million in 2000 to well over $ 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 only from the 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 $ 24 million in 2000, has increased to $ 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 benefitted immensely from 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. There is also a high level of technology transfer within these investments and economists have already argued it is far higher than in similar Chinese ventures.

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 2012, while India topped the list of tourist arrivals in Sri Lanka in the same year. India continued to be at the top in 2013 as well recording over 138,000 tourist arrivals and has continued its dominance overall till now.

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 mutually-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.