CEPA with India – Part Three

CEPA with India – Part Three The last two parts of this series dealt with the background to the Comprehensive Economic Partnership Agreement or CEPA with India, its main components and how Sri Lanka would miss another opportunity if the country fails to sign the agreement in due time. This part will look into some positive signs of improving trade relations with India, emerging global developments posing threats to Sri Lanka if the country chooses to ignore them, the misconception of a CEPA hatched in secrecy and the bitter ground realities which Sri Lanka has to face if the ratification of CEPA is further delayed.
Three unrelated news items The last two weeks saw three unrelated news items relating to India hitting the worldwide media. The first was about a passenger craft being fabricated by a Sri Lankan company, Colombo Dockyard, for Indian government and delivering the same to its client (can be accessed at http://www.lbo.lk/fullstory.php?nid=2016046090). According to the news item, the administrator of India‟s Lakshadweep Island had contracted Colombo Dockyard to fabricate a passenger craft that can carry 250 passengers and 100 tonnes of cargo. The craft, named „Lakshadweep Sea‟, had been designed by an Indian company, Larsen and Toubro, and fabricated by Colombo Dockyard by using Japanese technology. At the flagging off ceremony, the Indian High Commissioner in Sri Lanka, Ashok K Kantha, is reported to have hailed the enterprise as an important landmark in the emerging new economic relations between Sri Lanka and India. This was indeed the second of such passenger craft fabricated by Colombo Dockyard for the Indian Government, the first one named „Arabian Sea‟ being delivered in January 2010. Given India‟s technological and engineering superiority, its decision to buy passenger craft from Sri Lanka is unprecedented. It indeed heralds a new era: if Sri Lanka can match Indian aspirations for quality and technical superiority, there are opportunities for the small island nation to supply the big giant to the north with high tech products. So, the differences in the size won‟t matter any more. The second news item reported on the fielding of a road show team by the Sri Lankan company, Laugfs Gas, in India to solicit investments for its Initial Public Offering or IPO from Indian investors, in addition to the two teams sent to Singapore and Malaysia (can be accessed at http://www.news360.lk/business-finance/laugfs-gas-road-shows-in-3-

countries). According to the chairman of the company, W K H Wegapitiya, there have been positive sentiments expressed in all the three countries for the IPO under reference in particular and investment in Sri Lanka, in general. Tapping the vast Indian market for raising capital funds for Sri Lankan companies is once again a new favourable trend that is emerging. This was unthinkable a few months ago. The first two reports related to two rare instances of economic opportunities which Sri Lanka had enjoyed with India. The third related to a budding relationship that is developing between the two giants in Asia, namely, India and China posing a threat to Sri Lanka as well as creating an opportunity if Sri Lanka decides to act fast. It was reported that the Chinese Premier, Wen Jiabao, had announced when he met his Indian counterpart in Hanoi, Vietnam on the side of the ASEAN annual summit, that he plans to visit India shortly (can be accessed at http://news.rediff.com/slide-show/2010/oct/29/slide-show-1-chinese-pm-to-visit-india-later-this-year.htm). In fact, the dates have been fixed for the middle December, 2010 highlighting the urgency of the need. China‟s Central China Television or CCTV too reported on Wen as saying that, “it is always beneficial for the two rising giants in Asia to have a closer economic and political relationship”. The message being delivered by the proposed economic relationship between the two countries to an up-comer like Sri Lanka is clear: the giants will get together and create a super giant; before the super giant becomes a threat and being exploited by others, Sri Lanka should be ready to jump the bandwagon and derive benefits by aligning with India.
CEPA is a boon and not a bane When economic opportunities become available, the profit seeking people will always tap those opportunities. Remember the Kautilyan saying that, “no land will be foreign to an enterprising individual”. If there are governmental restrictions banning them, depending on its end profitability, the whole transaction will go underground. This was how labour was shifted through „illegal human smuggling‟ from India to Sri Lanka in 1950s and 1960s. When there are no such restrictions, the market system will drive people to tap markets beyond the borders of their resident countries. The two instances of the economic relationship mentioned above testify to such a spontaneous market development. If there are facilitating governmental agreements, the cost of conducting such transactions will fall significantly. Hence, formal agreements among nations always promote economic relationships benefiting all. India, which has understood this ground reality well, has signed a number of such agreements with ASEAN, Singapore, South Korea, and Malaysia. It is planning to enter into similar agreements with Japan, Thailand, European Union, Chile and South Africa. Hence, CEPA will be a boon and not a bane for budding Sri Lankan businesses.
Misconceptions about CEPA Some have attacked CEPA on the ground that it has been hatched in secrecy. The critics have charged that there was no proper consultation with business and industry before the drafting of the agreement. Hence, it has been labelled as a document secretly agreed upon between the governments of India and Sri Lanka. It has further been claimed that those who have participated from the Sri Lankan side in the negotiations have grossly sold out the country to Indian interests. That was the reason for many local businessmen to take to streets in protest of CEPA.
How trade agreements are negotiated When trade agreements are negotiated between two countries, there is a set procedure which they normally follow. In the first instance, a study group representing the two countries is appointed to examine the feasibility of a free trade agreement and the areas which the proposed agreement should cover. After the study group reports, the proposed agreement is taken up by the political authorities of the two countries involved. This leads to a wide discussion of the subject at the political authority level. If the agreement is acceptable, then it is

referred to the industry for its views. If there are suggestions from the industry, they are too incorporated into the agreement and negotiated further before the final version is agreed upon. Once everything has been finalised, the leaders of the two countries formally ratify the agreement. Then, a task force is appointed, composed of the officials as well as private sector businessmen, to implement the agreement, iron out difficulties and sort out issues.
CEPA was born after wide consultations When the idea of a comprehensive economic partnership between India and Sri Lanka was first mooted in 2002, a joint study group representing a wide array of experts from both countries was appointed. From the Sri Lankan side, the study group was led by a leading businessman, Ken Balendra, who had functioned as the CEO of the Keells Group. The other members had been drawn from the Central Bank, governmental institutions and the private sector. Similarly, the Indian group was led by Rakesh Mohan, Deputy Governor of the Reserve Bank of India and included the managing director of the Tata Group representing the private sector. Hence, when the study group report was prepared, the private sector inputs and aspirations had been reckoned at the highest level. When the agreement was negotiated, there was even a wider consultation with the business and industry. Dr Saman Kelegama, one of the negotiators of CEPA representing the Colombo based Institute of Policy Studies, in an interview with The Nation, has revealed that the Ceylon Chamber of Commerce or CCC had acted as the conduit between the government of Sri Lanka and the private sector representing all other Chambers, such as the Federation of Chambers of Commerce and Industry, National Chamber of Commerce, National Chamber of Commerce and Industry and Small and Medium Industry Chamber and so on. Kelegama says that all members of all these chambers were constantly kept informed of the developments of the agreement at every stage. In addition, many private companies in various sub sectors coming under CEPA had been constantly consulted by the main official team that drafted the agreement. These sub sectors included maritime services, banking and finance, insurance, IT companies, hotels and resorts and organisations in the health sector. These consultations had gone on for over three years and the views expressed by these organisations had been incorporated into the final draft agreement. Hence, it is a misconception that CEPA has been born in secrecy without due industry consultations.
Delay CEPA and lose opportunities As mentioned in the previous parts, while Sri Lanka has been sitting on its backside on CEPA, India has covered almost the entire world with similar free trade agreements or comprehensive partnership agreements. India has looked east, north, west and even the southeast. Its recent entry to ASEAN Plus will help it to tap a very large market at its own doorstep. This new group known as ASEAN Plus includes, in addition to original ASEAN countries, China, Japan, South Korea, Australia and New Zealand and has a total population of nearly two billion people. It has been announced that both US and Russia will join ASEAN Plus next year. Then, ASEAN Plus will produce slightly over a half of the world‟s GDP and boast of a market made up of more than three and a half billion people. India is definitely set to exploit all the available new market opportunities. Sri Lanka will be a loser if it chooses to remain oblivious to this global development.
The government’s plan: Awaken the sleeping lion Dr P B Jayasundera, the top most policy maker and administrator, in delivering the Central Bank‟s 60th Anniversary Commemoration Lecture in August, 2010, drove home the enshrined goal of the government in the next decade: awaken the sleeping lion and march with it a long marathon to prosperity. After 30 years of a senseless and devastating internal war, when the country has returned to peace, to usher such a goal is indeed laudable.

But it requires a coordinated policy package that looks north, east and everywhere as this column had argued in its previous parts to integrate Sri Lanka‟s economy seamlessly to the emerging global economy. Having very close economic ties with India is one way to start its long march towards prosperity with the newly awakened lion.
Awaken the lion quickly or lose the prey If the Sri Lankan lion continues to be aloof in getting integrated to the emerging global developments, the result will be that the much prized prey to its north will move away. The signs are that India has already found new economic partners who are more prosperous, dynamic and fast growing. These new partners are the future champions of global science and technology and knowledge base, two most requirements of a sustainable economic prosperity. Sri Lanka‟s $ 45 billion economy and 20 million population is nothing for India when compared with an emerging ASEAN Plus economy of $ 30 trillion and a population of three and a half billion which India would automatically get through its partnership with this new economic bloc. So, the choice before Sri Lanka today is clear: act fast and get into the formal CEPA with India without any delay. Otherwise, Sri Lanka will find that its much coveted prey to the north has simply moved away beyond its reach.
(W A Wijewardena can be reached on waw1949@gmail.com)