Sri Lankan Entrepreneurs must come forward to guide the Government before detrimental, irrevocable economic agreements are signed

15 years of Indo-Lanka FTA

Sri Lanka signed a Free Trade Agreement (FTA) with India in 1998 that came into operation from January, 2000. This agreement which was signed in a rush has not been able to bring expected benefits to Sri Lankan entrepreneurs even after 15 years of operation.

As clearly shown in the above graph, despite having a FTA, Sri Lankan exports to India have not grown, but Sri Lanka’s exports to other countries have grown by 79% over the last 10 years. In contrast to negligible growth of Sri Lankan exports to India, Indian exports to Sri Lanka have grown by over 280% during the same period.
Even the little exports that Sri Lanka does to India mainly comprise of Petroleum products, Animal feed ingredients, Extruded copper as Cables, Electrical appliances, Lentils and Cowpea; mostly imported to Sri Lanka and re-exported by Indian investors in Sri Lanka to their own companies in India. This cannot be done by Sri Lankan Exporters as you need to have your own company in India to reap these benefits through the provisions in the FTA.

What is CEPA?

A Proposal from India under the Guise of resolving problems of the FTA
In June 2002, when then Sri Lankan Prime Minister visited India, initial discussions of a Comprehensive Economic Partnership Agreement (CEPA) had taken place with the idea to expand the FTA to a more integrated economic interaction. India described CEPA as a solution to the many problems faced by Sri Lankan exporters under the FTA. However, Sri Lankan entrepreneurs and professionals have rejected this Indian view on CEPA from 2005 to date.

What are the differences between FTA & CEPA?

• FTA covers only Goods
• CEPA covers:
1. Goods
2. Services
3. Investments and
4. Movement of People
between the two countries

Therefore, CEPA covers the entire economic activities of the country and also many issues related to national security. Therefore, CEPA cannot be taken simply as a trade agreement and must be reviewed extremely carefully by all stakeholders including the Ministry of Defence.

Background to CEPA Proposals and Objections

In April 2003, a Joint Study Group (JSG) was set up between Sri Lanka and India which had its first meeting in May 2003. However, with the change of Government in 2004, the CEPA discussions stalled.
After the new Government came into power, India came up with their new CEPA ‘love story’ as a proposal to iron out all the problems of the FTA. As usual, the few Indian agents in Sri Lanka started praising India for bringing forward a new and wonderful agreement to help the Sri Lankan economy.

New discussions on CEPA started in March 2005, under the Department of Commerce. Director General of Commerce appointed Three (3) Working Groups to proceed with CEPA discussions:
o Trade in Goods (Headed by DG/Commerce)
o Trade in Services (Headed by Executive Director IPS)
o Investment and Economic Cooperation (Headed by Chairman BOI)

At these discussions Sri Lankan industrialists and professionals vehemently objected to moving ahead on any further economic agreements with India until the problems of the FTA were resolved. Indian officials and few of their supporters in Sri Lanka repeatedly said that CEPA will resolve the problems of the FTA. However, the industrialists and professionals questioned why India was keen on signing CEPA with Sri Lanka when it is such a small market to them. Could the following reasons be why India is adamant on signing CEPA?
• India is an emerging world power
• Obviously India would like to have full control of the SAARC region
• Sri Lanka is strategically a very important location
• What cannot be controlled militarily can be controlled economically

The proposed CEPA agreement paves the way for the above.

Why Industrialists and Professionals Oppose CEPA?

• If CEPA is signed, any Indian company can come and invest in any commercial industry and start supplying to the local market. Only the following sectors have been exclusively reserved for Sri Lankans:

○ Money lending (Banking is opento India)
○ Pawn brokering
○ Retail trade with a capital of less than US$ 1 million (large retail chains are open to India)
○ Coastal fishing (deep sea fishing is open to India)

• Any Indian professional can come and start a business in Sri Lanka and offer his/her service through the business. He/she can employ their spouse and dependents in the business. A letter from any association is sufficient to confirm professional status. So, even Indian barbers can come and set up shop in Sri Lanka. The Government of Sri Lanka will be legally bound to grant employment visa to all of them.

• Indian ownership up to 50% would be allowed for 25 physical cinema establishments. 40% of cinema time would be reserved for films imported from India. This is a deliberate attempt to spread Indian culture in Sri Lanka.

• All investments under CEPA are subjected to State Government approvals. State Governments prevail only in India and not in Sri Lanka. Therefore, Sri Lankan investors will face very tough restrictions in India and be at the mercy of State Governments and their different rules and regulations.

• Sri Lanka has allowed many investment opportunities for foreigners under BOI and Ministry of Industry & Commerce. These are unilateral decisions of Sri Lanka and can be changed if necessary. CEPA is a bilateral agreement that binds Sri Lanka in many ways and cannot be changed without paying penalties to India that may be unaffordable to Sri Lanka.

• Population and Unemployment in the Two Countries

India has 106 times more unemployed people than in Sri Lanka and also speaks over 700 languages across the country. Hence, how can our professionals find work in India? Due to all the above reasons, Sri Lankan Industrialists and Professionals vehemently oppose CEPA.

Sri Lankan Economy

Sri Lanka is no more a very small economy. As per 2014 International Monetary Fund (IMF) data, out of approximately 190 countries, Sri Lanka is at 69th place with a total GDP of USD 70 billion and is estimated to pass USD 110 billion by 2020. At this stage of the economy, SMEs of that country have to play a major role. In the last 10 years the contribution by the Sri Lankan SMEs to

the national GDP has increased significantly and as at the end of 2014, the SME sector accounted for:
• 80% of all Enterprises
• 90% of Industrial Establishments
• 35% of Employment
• 52% contribution to GDP (up from 40% in 2010)

Therefore, Sri Lankan SMEs must come forward to guide the governments that come to power from time to time, and ensure that national policies that are in place to help the growth of the SME sector are not changed based on the interests of a few individuals or on the influence of foreign countries.
If at all, new policies should be introduced to further strengthen the SME sector. Countries such as South Korea developed mostly due to proper SME development programmes adopted by consecutive governments.

Who is the Real Voice of Sri Lankan Entrepreneurs?

There are many Business Chambers in Sri Lanka. The top seven Chambers that represent most of the Sri Lankan entrepreneurs are as follows:
• Ceylon National Chamber of Commerce and Industry (CNCI)
• Chamber of Young Lankan Entrepreneurs (COYLE)
• National Chamber of Commerce (NCC)
• National Chamber of Exporters (NCE)
• Sri Lanka Chamber of Small and Medium Industries (SL-CSMI)
• Chamber of Construction Industry of Sri Lanka (CCI-SL)
• Federation of Chambers of Commerce and Industry Sri Lanka (FCCISL)

In addition to the above there is Ceylon Chamber of Commerce (CCC) which was established 175 years ago. Therefore, CCC has been the main chamber of British and other multinationals operating in Sri Lanka from the colonial times to date. Today there are Sri Lankan companies who are members of CCC, but it is the strong influence of many foreign and multinational companies that seems to be the driving force behind formulating the policies of CCC.
With the recent visit of Indian Prime Minster Hon. Narendra Modi, we have seen Ceylon Chamber of Commerce (CCC) trying to portray themselves as the voice of the business community of Sri Lanka. This is unethical as it is a fact that among the above said Business and Industrial Chambers in the country, CCC is the one which has the highest number of Indian and foreign owned companies in its membership. Further, there are many Indian nationals who are working as Directors and CEOs of various Multinational Companies that are members of Ceylon Chamber of Commerce. Therefore, it is
understandable that CCC would have liked to play a leading role in facilitating the Indian Prime Minister’s objectives of the visit. During his visit, the Indian Prime Minister had proposed that Sri Lanka should boldly sign the ‘CEPA’ agreement, and the present Chairman of CCC, Mr. Suresh Kumar Shah had said ‘The chamber has always supported CEPA; and we still do, because India is going to be a huge economy (LMD, 19th March 2015)’. I wonder whether the Sri Lankan entrepreneurs who are members of CCC have been consulted on this statement of Mr. Shah. It is ironic that CCC, whilst seeing the size of the Indian economy, seems to ignore the Chinese economy which is five times bigger than that of India. Be that as it may, CCC has no right to pretend to be the voice of Sri Lankan Industry and Commerce. In fact, the real voice of the Sri Lankan Entrepreneurs is the collection of the above said other Chambers which all vehemently oppose the proposed CEPA agreement with India.

The Battle for Economic Supremacy in Asia – India vs. China

As per UN and IMF data for the year 2013, USA is the leading economy in the world with USD 16.77 Trillion. China is in second place with USD 10.35 Trillion. Our big neighbour India is at the 10th position with USD 2.04 Trillion. In the year 2000, both China and India had economy sizes of approximately USD 1 Trillion. Although India has aspirations of beating China, it seems that India has lost the battle for Asia’s economic supremacy to China as China’s economy is now 5 times larger than that of India.

China to invest USD 20 Billion in India in the next five years

Although India sees China as a threat for India’s long-term objectives, even without any FTA between the two countries, China is the largest trade partner of India. According to an International Trade News article published in September 2014, China has a trade surplus of USD 35 billion out of a total of USD 66 billion trade between India and China (China’s exports of 50.5 billion vs India’s exports of 15.5 billion). During the visit of Chinese President Xi Jinping to India in September 2014, Indian Prime Minister Modi had appealed to China to help India reduce its trade deficit. On another request of India, China has agreed to USD 20 billion investments in India in the next 5 years.
Despite the above hard facts, India sees it as a major problem when China invests in Sri Lanka in important development projects such as ports and infrastructure. India frowns and growls at Sri Lanka saying Chinese investments in Sri Lanka are a threat to them. In reality it is not the threat that India is worried about but the fact that Sri Lanka becoming a stronger economy will make it difficult for India to take full control of the Lankan economy for India’s political agenda.
India knows very well that it cannot compete effectively with financially powerful China that has a labour force bigger than India under a non-democratic political system. That may be the main reason that India forces Sri Lanka to move away from China and not allow Chinese investments in Sri Lanka.

Correct Path for Sri Lanka’s Economic Success

As previously mentioned, China’s economy is 5 times greater than that of India. Therefore, it is a must that Sri Lanka attracts significant investments from China for the economic development of the country and to continue as an independent country free from Indian intimidation.
Hence, the absolute need of the hour is not to sign CEPA or similar agreements with India to please the wishes of the Indian Prime Minister, but to have the courage to explain facts to India and maintain good and fair relations with both India and China.
Signing bilateral agreements is much more dangerous than opening an economy unilaterally, as bilateral agreements cannot be changed without the consent of the other party, especially when the other party is a mighty powerful one with hidden objectives.
Any Sri Lankan political leader who does not understand India’s ulterior motives and falls for the ‘Indian Love Story’ CEPA will be doing the grave and irreparable mistake of opening the flood gates to drown the future of a 2500 year old country. Therefore, my fervent appeal to all political parties and public sector officials in Sri Lanka is not to risk the country’s long term future for their short term political survival.
All of you are presently in politics or government service as our ancestors had not taken foolish decisions. Sri Lanka shall not be fooled by the ‘Indian Love Stories’ or intimidated by their pressure. Be bold to stand up against Indian plans to amalgamate our motherland to their economic empire, and be wise to leave this country independent for your sons and daughters to live and rule as well.

Samantha Kumarasinghe