Many who are critical of CEPA tend to paint a picture of a feared monster for India. It is usually portrayed as a country willing and ready swallow Sri Lanka to its advantage
Popular uprising against CEPA A news item that had appeared in papers three months ago regarding Sri Lanka’s plan to sign a Comprehensive Economic Partnership Agreement, popularly known as CEPA, with India converted the whole island spontaneously to a boiling pot. First, it was local entrepreneurs who broke the tradition and took to streets like their opposite number, the militant trade union members. It was reported that, having marched to the Presidential residence, Temple Trees holding anti – CEPA banners, they submitted a petition voicing their objections to CEPA in the strongest terms possible. The leftist political parties which normally suspect both the intention and the direction of free trade too had announced their plans for a long agitation campaign against the proposed move. Then, it was the turn of professionals like lawyers, accountants and physicians to have their objections known in public. This was followed by a series of debates on CEPA in both printed and electronic media between its supporters and opponents. The websites that carried news on CEPA or write ups on same were inundated with comments, some even taking a cynical stand, by bloggers. When the situation appeared to be going out of control, the Sri Lankan government tried to diffuse it by shelving the CEPA plan temporarily and thereby allowing the agitators to enjoy a brief victory.
Another lost decade? The analysts outside the debate say that Sri Lanka has thus lost a valuable opportunity of getting aligned to global development process through trade in goods and services. The country’s declared reluctance to go ahead with CEPA has given a wrong signal that the country was upholding the ‘autarky trade regimes’ now discarded by all and committing itself to a policy reversion. While Sri Lanka had been immersed in a self acquired pride about its protected industries and businesses, the rest of
the world, especially India, had been moving much faster along the route of free trade in goods and services. When Sri Lanka wakes up from its slumber, it will be another decade of missing opportunities like the lost decades of 1980s and 1990s.
Sri Lanka’s history of trade in goods and services If there is one country that has no morality to object to free trade in goods and services in the modern world, that country is Sri Lanka. That is because Sri Lanka, for more than two thousand years, had benefited from free trade with other nations. Having being located on a convenient naval route that linked the East and the West, the ancient Lanka had been a meeting point for traders who came from Europe and the Middle East from the western side and those who came from the Far East from the eastern side. During the reign of Parakramabahu the Great (1153-86 AD) in the Polonnaruwa period, the country was an entrepot trading centre which stocked goods from all over the world and resold the same to visiting traders. One striking example is the reference by Professor Senerat Paranawitana in the History of Ceylon published by the University of Ceylon (Volume Two) to an Egyptian geographer named Idris that the King had bought all the alcohol brought from Arak and resold to other traders at prices fixed by him. Dr S Arasaratnam, drawing on sources in archives in both Portugal and Holland says in his Dutch Power in Ceylon, that Lanka in the 15th to 17th centuries had exported the country’s elephants and arecanuts to India and imported the much needed rice and textiles. Both Mahavansa and Chulavansa have numerous references to various artisans coming from foreign lands and providing their services in architecture, sculpture, tank building and aesthetics such as singing, dancing and composing. Ancient Lanka had built up enormous amounts of wealth and prosperity by these means. Hence, it was a complete free trade in goods and services without entering into formal CEPAs with other countries.
Kautilyan prescription Kautilya recommended to the king to build a variety of trade routes, because trade allows a country to acquire wealth and become prosperous. He argued that it was better to have a large number of trade routes, namely, land routes, sea routes and inland waterway routes, even if they had not been built to high standards. Instead of having foot paths, a country should have cart tracks and roads which can be used by draught animals. This is equivalent to building highways in the modern era. The king should also protect all these trade routes from attacks by highwaymen and abuse by kings’ own officials. An official with the title of the Chief Controller of Shipping had been tasked to look after the welfare of sea traders and seamen, eradicate sea piracy, ensure seaworthiness of vessels and rescue vessels in distress in high seas. The importance which Kautilya gave to sea trade with other countries can be gauged by the requirement that the chief controller has to compensate out of his resources if any vessel was lost due to his negligence. In ethics of Chanakya, he had further emphasised this by pronouncing that ‘no land is foreign for an enterprising person’ meaning that traders should visit other countries with stocks of goods for generating wealth. Hence, in ancient times, free engagement in trade in goods and services with other nations was an accepted norm of economic activities.
Free trade in modern era The western world has undergone several phases of trade liberalisations during the last five centuries or so. First, it was the ‘autarky regimes’ where trade in any form was a taboo. Then came the ‘mercantilist era’ in which it was argued that a country should export but not import. The logic behind this wisdom could be understood by looking at the pattern of trading and payments that prevailed in the 16th and 18th centuries during which mercantilism reigned. At that time, all trade transactions were paid by gold and an exporting country accumulated such gold making it a prosperous nation with immense military power. If it did import goods, the country lost gold thereby reducing its wealth and power too. Hence, powerful countries were supposed to do only exporting goods and not importing them.
It was left to Adam Smith in late 18th century to dispute mercantilism and make the case for free trade among nations. This was carried forward by David Ricardo and subsequent economists who argued that countries can raise their wealth and prosperity through gains from trade. This truth had dawned on western philosophers only toward late 19th century. But it had been understood and practised by their eastern counterparts for more than two millennia.
Indo – Lanka free trade agreement: The forerunner to CEPA Though trade is an economic activity, free trade agreements have always originated from the political side of nations. This is because it is the political machineries that have imposed restrictions on free trade and if those restrictions are to be unwound, that too should be done by the same political machineries. Accordingly, in early 1990s, the political leadership in South Asia, organised as the South Asian Association of Regional Cooperation or SAARC, decided that the region should go for free trade among its member countries by having a South Asian Free Trade Agreement or SAFTA. However, due to political animosities among some member countries, the progress on this was very slow. When it was evident that SAFTA was not going to be a reality in the short to medium term, the idea of having a separate free trade agreement between Sri Lanka and India was mooted by some sections in both countries in mid 1990s. The negotiations that followed this initiative culminated in India and Sri Lanka signing a free trade agreement in 1998 which became effective in 2000.
ILFTA: The outcome Though ILFTA ran into implementation difficulties due to the non – co-operation by the low level bureaucracies in both countries, it in fact led to a vast improvement in trade between the two countries. While the volume of trade improved significantly, the trade gap between the two countries narrowed in favour of Sri Lanka. In 1999, Sri Lanka’s total imports from and exports to India amounted to $560 million. This shot up four times to $2401 million in 2005 and even in the gloomy foreign trade scenario that prevailed after 2008, the total trade amounted to $2142 million in 2009. The improvement in the trade gap between Sri Lanka and India was much prominent during this period. In 1999, when Sri Lanka exported one unit to India, it had to import 10.5 units from India. By 2005, this ratio fell to one export to 3.2 imports. Even with the low trade scenario in 2009, the ratio stood at one export to 5.6 imports. In 1999, Sri Lanka’s trade with India was practically negligible. But in 2009, India was Sri Lanka’s number one importer and number six exporter.
CEPA: The Next Generation Economic Co-operation with India Two years after ILFTA, in 2002, the leaders of both India and Sri Lanka decided that it is time for both countries to look into economic prospects beyond free trade in goods. Accordingly, a joint study group consisting of experts from both countries was formed to study and report on the possibility of having a wider economic co-operation in the form of a comprehensive economic partnership between the two countries. This study group made its recommendation in October 2003 that India and Sri Lanka should go for a formal Comprehensive Economic Partnership Agreement or CEPA, emphasising the urgency of concluding the negotiations involved within four to six months of the submission of the report. In terms of this, the study group expected the CEPA to be operative by April, 2004. However, the subsequent events that took place in Sri Lanka including a change in the government two times, first from the existing ruling party to a new party and then within the new ruling party from one leader to another, it took more than five years for both countries to come up with a reasonable agreement on the format and the contents of
such a comprehensive economic partnership between the two countries. It is this draft which has now gone into hot weather in Sri Lanka.
The main ingredients of CEPA CEPA, in addition to the trade in goods covered in ILFTA, has three other areas of economic co-operation between the two countries. They include trade in services, promotion of private investment flows and a third category specifically beneficial to Sri Lanka, namely, transfer of technology and facilities from India to Sri Lanka in the areas of transportation, infrastructure, education, tourism and information and communication technology. In this last category of co-operation, it has been proposed to provide Indian support for modernising Sri Lanka’s railway system and establishing a higher learning institution in the model of Indian Institutes of Technology. Given India’s growing world leadership in these areas, it is not uncommon for the Joint Study Group to come up with this recommendation.
Is India a feared monster? Many who are critical of CEPA tend to paint a picture of a feared monster for India. It is usually portrayed as a country willing and ready swallow Sri Lanka to its advantage. The largeness of the Indian economy, Indian hegemony in the past, perceived underhand operations by its agents and its ability to subdue Sri Lanka both economically and militarily at any time it wishes would have contributed to form this view in their minds. Yet India is one of the next generation world leaders known as BRIC countries, that is, Brazil, Russia, India and China. Another country which has joined the BRIC Group of late is South Africa and Sri Lanka, even if it comes up as a wonder of Asia, will not be able to be equal or surpass India in this respect. It is therefore beneficial for Sri Lanka to learn to cooperate with this perceived monster. In the next part, we will examine CEPA in more detail and if Sri Lanka does not go for it, where it will stand in the global development arena. (W A Wijewardena can be reached on waw1949@gmail.com)
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