Sri Lanka not keen on CEPA with India

Sri Lanka has apparently informed Indian authorities it was not keen on having a Comprehensive Economic Partnership Agreement (CEPA) with India, as it feared granting more Indian access to its markets would destroy that country’s domestic industry. However, it has made its own set of fresh demands to consider under the Free Trade Agreement (FTA), which is under operation since March 2000.

During the recent visit of Commerce Minister Anand Sharma to Colombo, the Sri Lankan government refused to resume talks on Comprehensive Economic Partnership Agreement (CEPA) even though the mandate to upgrade the FTA to CEPA was formally agreed in June 2010 during the visit of their President Mahinda Rajapaksa. While the FTA is only on goods, the CEPA will entail trade in goods, services and investment. Subsequently, fresh round of negotiations to establish the CEPA between the countries started in November 2010. But since then, there had not been any fruitful outcome.

According to commerce ministry officials, “mislead campaign by some section of business in Sri Lanka” has come in the way for conclusion of CEPA. India has categorically said its principal objective was not to seek preferential market access to Sri Lanka, but to develop an arrangement creating a win-win situation for both sides. India has also reiterated any upgraded framework would be based on differentiated obligations, and not reciprocity. Apparently, the Trade and Economic Relations Committee headed by Prime Minister Manmohan Singh has given the mandate of closing the talks within the next three months.

“Some sections of the Sri Lankan industry is indeed a little apprehensive of signing a CEPA with India as it will entail services and investment trade. And their main fear is India would swamp their services industry. Besides, they want to build more political consensus on having the CEPA,” a senior commerce department official told Business Standard.

Under the proposed CEPA deal, India has offered additional concessions on garment quota of 8 million pieces that was granted. Besides, the 3 million pieces granted at zero duty earlier under the FTA, India has now agreed to allow another 3 million pieces more at zero duty and additional 2 million at 75 per cent margin of preference. India has already removed port entry restrictions and conditions of sourcing fabrics from it.

Officials also said that a “fear psychosis” has emerged within some quarters in Sri Lanka of over dependance on Indian market that indirectly gives India the power to have its say on their political matters. On the other hand, Sri Lanka has made a list demands from India in terms of barter deals and tariff free quota free (TFQF) access for its textiles, which has not been agreed by India.

Ironically, Sri Lanka was the first such country that had signed a FTA with India.The India-Sri Lanka Free Trade Agreement was signed on December 1998, which has been in operation since March 2000.

Negotiations for CEPA were started in February 2005 and concluded in July 2008, after 13 difficult rounds. However, the Agreement could not be signed then on account of some reservations expressed by Sri Lankan government.

Sri Lanka is currently the largest trading partner of India in South Asia.

The bilateral trade for 2011 stood at $5.16 billion compared to $3.63 billion in 2010, with exports at $4.44 billion and imports at $0.71 billion. Presently, India enjoys a trade surplus of $3.72 billion with Sri Lanka. Both sides have set a target of achieving bilateral trade worth $10 billion by 2015.

India is the largest foreign investor in Sri Lanka contributing $110 million out of total $ 516 million received by Sri Lanka. Some of the main Indian companies that have invested there are IOC, TATA, CEAT, Nicolas Piramal, Ashok Leyland, SBI, ICICI Bank, AXIS Bank, LIC and Jet Airways among others.