Digital deal can jump-start stalled ETCA: Wijesinha

• Standalone Digital Economy Agreement offers achievable ‘early harvest’ to revive India talks
• ETCA dragged through 14 rounds; Govt. awaiting review of existing FTAs before new deals
• Urges ASEAN DEFA-style interoperability over harmonising with Indian standards
• Payments, paperless customs, e-commerce, e-signatures, cybersecurity, AI to be front-loaded
• Talent mobility, cross-border data flows to be kept out given domestic sensitivities

Sri Lanka can revive stalled negotiations on the Economic and Technology Cooperation Agreement (ETCA) with India by first concluding a standalone Digital Economy Agreement that builds on the momentum of recent bilateral digital cooperation, Centre for a Smart Future (CSF) Co-Founder and Economist Anushka Wijesinha said.

Wijesinha noted that the ETCA negotiations had dragged through 14 rounds over many years and multiple governments, with momentum slowing significantly on the Sri Lankan side. The present Government is awaiting the completion of a unilateral review of existing free trade agreements (FTAs) before deciding how to proceed with any new ones, while the ETCA and its predecessor, Comprehensive Economic Partnership Agreement (CEPA), carry political baggage as initiatives inherited from previous administrations.

Against this backdrop, he said digital connectivity had been driving a new phase in bilateral relations. Initiatives around digital payments integration led by India’s Unified Payments Interface (UPI), collaboration on digital public infrastructure, especially the digital ID project, and the emergence of trade settlement in Indian and Sri Lankan rupees have characterised this phase, building on India’s 2022 crisis-era assistance and relief following Cyclone Ditwah.

“Carving some of these initiatives out into an immediate, standalone Digital Economy Agreement can capture this momentum,” Wijesinha said.

He argued that converting ad hoc, episodic initiatives into mutually negotiated commitments, with defined obligations and review mechanisms, would place digital cooperation within a firm institutional framework. “An achievable ‘early harvest’ win here would inject fresh enthusiasm into Indo-Lanka economic integration, while demonstrating tangible benefits to domestic stakeholders,” he said.

Wijesinha pointed out that such a modular approach would not be unprecedented. India has already decided to unbundle investment chapters from comprehensive FTAs, expecting partners instead to sign Bilateral Investment Treaties (BITs) based on its Model BIT. This has been conveyed to Sri Lanka, and a new standalone BIT is expected to be signed rather than an investment chapter being included in the ETCA, as the Sri Lankan side had previously assumed.

Applying the same precedent to the digital sphere, he said, would allow both nations to advance high-value integration without getting bogged down by traditional trade bottlenecks.

For design, he suggested the two countries look to ASEAN’s Digital Economy Framework Agreement (DEFA), recently concluded and now awaiting ratification by Member States. The DEFA grew out of each member economy’s post-COVID push towards digitalisation, expanding into a pan-regional ambition from 2023.

While acknowledging that sceptics might dismiss a 10-nation regional treaty as irrelevant to a bilateral relationship, Wijesinha said DEFA’s core value lay in how it navigated differences in scale and readiness among its members. Instead of demanding full regulatory harmonisation, which often triggers concerns over sovereignty and dominance, the framework relied on interoperability, tiering, sequencing, and flexible commitments.

“Rather than requiring Sri Lanka to harmonise its laws and systems to Indian standards, a DEFA-inspired interoperability approach would allow divergent national systems to recognise and transact with each other without enforcing identical rules,” he said, adding that this could be backed by tiered and possibly sequenced commitments, with periodic reviews allowing ambition to grow over time.

DEFA covers nine areas, ranging from payments and digital ID to cybersecurity, data flows, competition policy and talent mobility. However, Wijesinha said an India-Sri Lanka agreement need not cover all of these at once, and should focus on practical, non-controversial areas where collaboration is already underway or imminent. These include payment system interoperability, digital trade and paperless customs, treatment of cross-border e-commerce and digital goods, mutual legal recognition of e-signatures, cybersecurity cooperation, and cooperation on emerging technologies such as artificial intelligence (AI).

Sensitive areas that risk stalling negotiations could be excluded, he said. Talent mobility is politically sensitive in Sri Lanka, and DEFA’s provisions on the preferential movement of digital talent and entrepreneurs are possible in ASEAN partly because labour mobility is less politically charged among its members. In Sri Lanka, liberalising Mode 4 services, which covers professionals temporarily crossing borders to deliver services, attracts considerable domestic sensitivity, as earlier CEPA and ETCA rounds showed.

Cross-border data flows are similarly difficult to model directly on DEFA’s default of free flow, he noted. India’s data protection regime leans towards retaining the ability to impose sector-specific data localisation requirements, while Sri Lanka is only just advancing its own data protection regime.

Wijesinha stressed that negotiating a digital agreement first did not mean abandoning the broader ambition for a comprehensive deal such as the ETCA, but could instead serve as a stimulant to the stalled process. He recalled that when the CEPA was envisioned, the Joint Study Group showed bold ambition by mapping extensive cooperation areas beyond goods trade, just three years after the first bilateral agreement came into force.

While such ambition and foresight appear to have dipped since, he said decoupling the digital agenda and forging a dedicated agreement could rekindle that forward-looking spirit, bring in new stakeholders and reflect contemporary aspirations on both sides.

“India and Sri Lanka must not let legacy trade hurdles hurt optimism for new areas of economic integration,” Wijesinha said.

He made these observations in an article for the Observer Research Foundation (https://www.orfonline.org/expert-speak/can-a-digital-economy-agreement-refresh-india-sri-lanka-economic-integration).