Sri Lanka must capitalise on Indian FTA, CEPA work to lift export restrictions

Thursday, 7 May 2015 00:00 -     - {{hitsCtrl.values.hits}}

Hayleys Group Senior Economist Deshal de Mel – Pic by Upul Abayasekara By Charumini de Silva Sri Lanka must work towards a goal of having “no restrictions at all” on major export products when negotiating trade agreements, according to Hayleys Group Senior Economist Deshal de Mel. Speaking at a forum organised by the National Chamber of Commerce of Sri Lanka (NCCSL) on the subject of the Comprehensive Economic Partnership Agreement (CEPA) and its implications for the Sri Lanka’s Economy, de Mel acknowledged that the Indo-Lanka agreement signed in 2000 has been “far from perfect”. Nevertheless, he emphasised the fact that the agreement had created significant opportunities for new Sri Lankan products to enter the vast Indian market. Excluding copper and aluminium, Sri Lanka’s exports to India have grown by 255% between 2005 and 2014 where exports globally grew by 83% during the same period with 56% of growth coming from apparel and tea, commodities which do not receive full benefits under the FTA with India. “It is important to note that more than 80% of Sri Lanka’s imports from India occur outside the FTA – goods that are in the negative list. These imports petroleum, cement, vehicles would have grown regardless of the FTA. However, Sri Lanka’s exports to India have largely benefited from the FTA with around 60% of Sri Lanka’s exports to India going through the FTA,” de Mel noted. Given such strong improvements in export performance, he asserted that it was imperative that methods of further developing the country’s exports through the Indian FTA and CEPA could be considered. De Mel added that for Indo-Lanka CEPA negotiations to be successful there would have to be a conscious effort to recognise the asymmetry between the two nations while noting that at present, there were no requirements for reciprocity in the agreement, leaving Sri Lanka with complete flexibility when making commitments. Sri Lanka... Under the agreement, each country can exchange requests for liberalisation of different sectors across four modes: Cross Border Services, Consumption Abroad, Investment and the Movement of Natural Persons. “The most controversial part of the agreement is the services sector and Mode 4 – the movement of natural persons. However, the negotiators have complete flexibility to not make commitments in this mode whatsoever. But if there are areas where we have shortages or skills gaps, we can make commitments to attract service providers in these areas. Thus, suggestions that services liberalisation opens the floodgates allowing barbers and others to set up businesses in Sri Lanka is simply false,” de Mel asserted. Consequently, he pointed out that commitments could be structured in a manner which would be in line with the economic interests of each country, taking into account risks and opportunities. “The liberalising country has complete flexibility on what regulations it chooses to liberalise, the extent of such liberalisation and it may choose to not liberalise at all,” he explained. In that context, de Mel reiterated that the need of the hour would be to work on understanding the important of agreements like the FTA and CEPA as a method of creating a framework under which further discussions could subsequently take place. Clarifying his point further, de Mel stated that: “If we want to attract investment into telecommunications, we can make a commitment in mode 3 for telecom — whereas, if we need to protect the domestic retail sector, we need not make any commitments in retail.” The majority of Sri Lanka’s economy (60% of GDP) is in the services sector and trade in services is an increasingly important feature of the global economy. Consequently, he noted that the establishment of a formal agreement on trade in services through a rules-based institutional framework could thus be formulated. In that context, he further suggested that for a trading relationship between a large and a small economy, a rule based system is preferable for the smaller economy rather than a free-for-all where the larger economy could take the upper hand.