Businesses say Sri Lanka cannot implement CEPA with India

Sunday Times (Colombo) | 28 September 2008

Businesses say Sri Lanka cannot implement CEPA with India

By Dilshani Samaraweera

Professionals and businesses say Sri Lanka’s monitoring and regulatory capabilities are not adequate to implement a CEPA agreement with India. Sri Lanka already has a Free Trade Agreement(FTA) with India on goods. The Comprehensive Economic Partnership Agreement (CEPA) is aimed at expanding the FTA, to include services and investments.

Economists say expanding free trade with India will benefit Sri Lanka and delaying the CEPA will reduce the early mover advantages in accessing the booming Indian market.

But businesses say economic theory and reality are two different things.

Reality bites

“Signing an agreement is one thing. Implementing it is an entirely different thing. The fact is, we have huge weaknesses on our end when negotiating and implementing something like this,” said Lal de Mel, commenting during a public seminar on the CEPA, organised by the Organisation of Professional Associations (OPA) last week. Mr de Mel is currently the Co-Chair of the Trade and Tariff Cluster of the National Council for Economic Development (NCED). He is also the Chairman of Chandraratne Decorators and is a director in a number of other companies like the NDB Bank and Eagle Insurance.

Mr de Mel noted that although Sri Lanka has an FTA with India, port restrictions on some exports from Sri Lanka meant that Sri Lankan businesses could not, in reality, access Indian markets freely.

“If we export to the port that is open to us, the testing is done somewhere else, and it takes three weeks for the results to come. By then the demurrage charges would make sure you can’t export again,” said Mr de Mel.

Also, despite eight years of implementing the FTA, Sri Lanka still does not have proper mechanisms to measure usage of the FTA. “We don’t have a proper mechanism to measure imports and exports under the FTA and to measure whether we have benefited,” said Mr de Mel.

“We should certainly go ahead with the CEPA. But we must not ignore these weaknesses. They need to be addressed,” said Mr de Mel.

Corruption in FTA

Poor implementation of the FTA in Sri Lanka, is seen as a major problem. Inadequate regulatory and monitoring measures, say local businesses, allowed corruption into the Indo-Lanka FTA implementation and allowed unscrupulous investors to violate local laws and benefit from the FTA.

“There are no proper controls in this country to ensure we get the type of investments we need, and there are no proper monitoring mechanisms when investments come in,” said the Managing Director of Rajarata Tiles, Dr Bandula Perera,

He points out that both vanaspati and copper investments — the main drivers of export growth under the FTA - blatantly violated Sri Lankan laws that apply to other local businesses.

“The copper factories that were set up here ruined the environment and had 18th century technology. They had unskilled labourers brought in under visas for engineers. Out of the 14 factories none had any safety standards. In one factory there was an explosion and a man lost both his eyes. They even violated Customs regulations,” said Dr Perera.

The situation was similar with the vanaspati investments.

“They just set up here because India had high duties on these products and the FTA allowed them to bypass these duties. I don’t think our country gained anything out this whole thing and it also upset India,” said Dr Perera.

These investments, that have violated national labour, environmental and industrial safety laws, were legally set up under the Board of Investment (BOI) and were also able to evade Customs regulations.

Given these realities, where national regulatory bodies are ineffective, local businesses feel that a larger CEPA agreement, covering not just goods but also services and investments, will lead to more harm than good.

Therefore, businesses are calling for stronger monitoring and implementation systems for a CEPA.

“We have to ensure that genuine inventors come into the country. For this we need proper monitoring and controls,” said Dr Perera.

Who will benefit

Meanwhile, professional bodies are still not convinced about benefits from a CEPA. The architects for instance, believe that a bilateral agreement between a small country and a large country, is bad news for architects in the small country.

“The International Union of Architects in 2002, found that architects in smaller countries actually got poorer as a result of bilateral agreements,” said the general secretary of the OPA, Architect - L T Kiringoda Professional practitioners are also questioning the transparency and inclusiveness of the CEPA process.

Benefits will come
Although Sri Lankan exporters continue to experience difficulties in using the Indo-Lanka FTA, there has been progress in some areas. For instance, the Commerce Department says that India has now lifted all its port restrictions, except for the exports of marble from Sri Lanka.

This means Sri Lankan exporters - except exporters of marble - can export to any Indian port.

Meanwhile, economists maintain that a CEPA will bring good results - after an adjustment period. “India is growing at a rapid rate. If we are integrated with India, there would be trickle down growth effects. We have to address whatever shortcomings that exist in the prevailing agreement and keep moving forward,” said the Executive Director of the Institute of Policy Studies, Dr Saman Kelegama.

Sri Lanka also has the ability to opt-out of both the FTA and the CEPA, if needed. “There is room to abrogate the FTA. 60 days notice is all that is needed. The CEPA will have the same facility built in,” said Dr Kelegama.

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source: Sunday Times