The Indo-Lanka FTA and trade with China

By K. Godage

The President’s recent visit to China could not have come at a more opportune time for him and us – here we are in the throes of a huge energy crisis and the people facing unprecedented difficulties as a result and China is being accused of dumping solar panels in the European market. I am certain that President Mahinda Rajapaksa would have discussed the matter of providing solar energy panels to Sri Lanka at a subsidised price to make them available to consumers here at subsidised rates, taking a huge load off our shoulders.

Yes this visit would indeed open an important new chapter in our relations with that country which has remained a steadfast friend of Sri Lanka – having stood by and with us in perhaps worst years of our recent history. This country needs to be grateful to her for what she has done in the past and what she is doing just now.

Trade with India

China is advancing to be an economic superpower and it is, without any doubt, in our interest to plug in to her economy and reap whatever advantages we can. Meanwhile we also need to the best of relations with India, and here our economic relationship needs to be better structured and formalised.

In this regard, the Indian High Commission and the Institute of Policy Studies needs to be thanked (particularly Dr. Saman Kelegama) for having brought out a Handbook on India-Sri Lanka Free Trade. The Handbook brings together a lot of information and analysis on policies and processes which would be useful for the business community, as well as policymakers and researchers.

This agreement became operational in 2000 and has indeed become an engine of growth for trade between our countries and growth has reached proportions that would not have been achieved had we not had the agreement. Sri Lanka’s exports to India have multiplied 16 times since the agreement became operational and India’s exports to Sri Lanka have also increased seven times.

Despite the evident successes that have been achieved, there are many misconceptions and suspicions perhaps because of India’s intervention in our internal problem from 1978 and the continuing Tamil Nadu hostility; but we need to lay aside our fears; both sides need to look to the future.

The difference in the sizes of our two countries has also led to the fear that we would be swamped and swallowed up. We however need to take advantage of India’s phenomenal growth. With the Indian economy galloping with unprecedented growth rates and with an ever-increasing middle class now said to be over 300 million, we need to plug in to reap the benefits ourselves. Yes, we do need to plug into their enormous economy which other countries in the neighbourhood and ASEAN have plugged into, not to mention the increase in trade relations and investment with China, Japan (which has huge number of JV projects in India) the Republic of Korea and also Australia.

Malaysian and Latin America

Malaysia, for instance, has a Comprehensive Economic Cooperation Agreement (CEPA) with India, incidentally it took six years to negotiate; today Malaysia is India’s third largest trading partner from among the ASEAN countries and India is Malaysia’s largest export destination.

Trade between the two countries has increased five-fold since the agreement was entered into. Malaysia also has huge investments in India; the figure mentioned is US$ 350 million at present.

We need to take a page out of not only Malaysia’s book but also learn from how other countries, not only in Asia but also Latin America, have established closer economic ties with India; yes Latin America is indeed far away and we are just 15 miles away at the closest point, we do need to work at developing closer economic relations.

Indian interference

Our inhibitions stem from past Indian interference in our internal affairs and the open hostility of Tamil Nadu which is promoting the establishment of a separate state in Sri Lanka, not for the good of our Tamil citizens but for their own treacherous reasons, for they still dream of establishing their Republic of Tamil Nadu and annexing the north and east of our country and with the Trincomalee harbour.

Delhi, should not only continue to relate to its small neighbours on the basis of the Gujral doctrine, but she should do much more and stop interfering in our internal affairs and rein in the Brahmin woman and the Naiker politicians of Tamil Nadu, who should put their house in order and reach out to the Dalits and other low castes who are suffering caste-based discrimination in the worst possible form.

Indian magazines and newspapers have reported that in certain instances low cast Tamils have been treated worse than slaves; quite a few of whom have been hacked to death for asserting their rights. Let them empower them and put their own house in order before the idiotic scum, such as DMK Parliamentarian Gnagnapadithan, make fictitious accusations against us.

India-Sri Lanka FTA

Moving on to the subject of the India-Sri Lanka FTA, let me recall some of the substance of a most relevant speech made by none other than Economist Dr. Indrajit Coomaraswamy on the occasion when the Handbook was launched. I have no doubt that the substance would be of interest to our readers.

He makes the point that if one takes a 25-year perspective, the trajectory of Indo-Lankan economic and commercial relations will be a crucial determinant of Sri Lanka’s future development prospects and says that it is important, therefore, for Sri Lanka to determine whether it sees India as an “opportunity” or a “threat”. He states that if the latter mindset dominates, in his view a great opportunity will be lost.

He also makes the point which I have referred to earlier, namely that for this FTA to be an ‘opportunity,’ the great asymmetry between the two economies should be tempered by India adhering to the principles of “non-reciprocity” and “special and differential treatment”.

Dr. Coomaraswamy also made the following points: Sri Lanka cannot meet its growth targets without a significant improvement in its export performance. Diversification of export markets will have to be an important part of any export growth strategy, given the sluggishness of traditional markets, particularly Europe. In this respect, he stated that location in Asia and proximity to India becomes very important.

The rise of Japan and China benefited countries in East and South East Asia. Access to supply chains was the means by which this was achieved. This is a good template for Indo-Lankan relations. Economic geography is likely to become even more important in an increasingly multi-polar world with rising regionalism.

Dr. Coomaraswamy also referred to India’s “resetting of its relations” with its neighbours and with India now having global ambitions. It will become an increasingly important global player and that it would not want to be distracted with irritations in its neighbourhood.

He stated that it is in India’s enlightened self-interest to promote stability and prosperity in neighbouring countries. This he said has already manifested itself in measures such as the duty free, quota free access given to SAARC LDCs and the unilateral SAARC Currency SWAP Arrangement put in place by the Reserve Bank of India.

He also said that India also played a crucial role in gaining approval for Sri Lanka’s IMF Stand-By Arrangement when the local economy was in considerable difficulty (in 2009), in the face of Western opposition. (India has much more to do on the political side which I shall refer to anon).

Asymmetric relationship

On the question of as to whether a small country such as ours benefits from an economic partnership agreement with a much larger one, his answer was ‘yes’ – if the agreement is based on the principles of non-reciprocity and special and differential treatment.

He referred to the differential time period in phasing in liberalisation, the safeguards against surges in imports. He also said that a robust and fair dispute resolution system protects the smaller country.

In conclusion he stated that in a highly asymmetric relationship, a rules-based system offers protection for the smaller partner and that the asymmetry between India and Sri Lanka will grow in the future, as India becomes an increasingly important global player. It is therefore necessary to have a rules-based system based on non-reciprocity and special and differential treatment to frame the relationship.

In conclusion he referred to the fact that India has negotiated trade agreements with Japan, Korea, Singapore, Malaysia, ASEAN and the EU and that it is in Sri Lanka’s interest to exploit this opportunity and the FTA to the maximum. We would be able to do this only if certain changes are effected; non tariff barriers are a serious issue that impede trade and the attitude of the Indian bureaucracy has also not been helpful, next there needs to be a change in Delhi’s approach, the ethnic issue in Sri Lanka should not be allowed to become a political football (in the days ahead with the Indian elections approaching the situation should get worse) – give the Government here space and show understanding.

The Government in Delhi must understand that the Government here cannot afford to lose the confidence of the majority of our people, who suffer from a feeling of insecurity not only because of the hostility of Tamil Nadu but also because of the 30-year war and interference of Delhi in our internal affairs, to please Tamil Nadu for its own political advantage. This is not helpful.

The Tamil people of our country are also our people, it is only language that separates us; we have not treated them fairly in the past but an honest effort is being made today to settle the problem to the satisfaction of all concerned. Yes, give the Government more time; it needs it after ending a 30-year war. Yes, more needs to be done on the political front by both sides of the divide to make a real success of the Free Trade Agreement and to move towards the conclusion of a Comprehensive Economic Partnership Agreement.

To conclude let me refer to our relations with China. Now that China has agreed to enter into a Free Trade Agreement with us, India should take note of it and give us concessions which India may today be reluctant to offer for it is indeed in India’s interest to forge the closest of economic and political relations with our country.