Growing economic links

Print edition : November 21, 2003

THE Indo-Sri Lankan bilateral ties, for long viewed through the lens of the island's separatist conflict, took a qualitative turn in October, with the two countries agreeing to work towards a Comprehensive Economic Partnership Agreement (CEPA) within the next five months.

The emergence of the economic agenda to a more prominent position than what it was during the 1980s is a result of the years of diplomacy between the two countries and the consistent position held by India on Sri Lanka's primary concern - the resolution of its ethnic conflict. In its own way, the moves by the two countries to look at a range of issues beyond conflict resolution reflect a widening of the bilateral canvas. It is also an endorsement of the continuity in policies by the two major political parties - the ruling United National Party (UNP), headed by Prime Minister Ranil Wickremasinghe, and the Opposition Sri Lanka Freedom Party (SLFP), headed by President Chandrika Kumaratunga. In addition to this broad political understanding, greater economic ties with India, particularly with the southern States, have been a long-cherished desire of Wickremasinghe.

During a two-day visit to India between October 19 and 20, Wickremasinghe and Prime Minister Atal Bihari Vajpayee took the bilateral engagement to a higher orbit and discussed issues relating to the economy, trade, fisheries and civil aviation. One general outcome of these ties would be greater people-to-people contact between the two countries and a greater coming together of the two economies.

The successful outcome of the Indo-Sri Lanka Free Trade Agreement (FTA) - signed during the SLFP Government and operationalised in December 2001 - provided a suitable starting point as it had enabled bilateral trade to cross the $1 billion mark. In June 2002, when Wickremasinghe visited New Delhi, a decision to go beyond the FTA was taken and an India-Sri Lanka Joint Study Group was formed to recommend the establishment of the CEPA.

In its recommendations, submitted during the prime ministerial meeting, the JSG has touched upon broad-ranging economic cooperation that would further widen, deepen and expand the existing bilateral ties. The JSG, co-chaired by Indian economist Rakesh Mohan and Sri Lankan industrialist Ken Balendra, after five meetings since it was constituted in April 2003, concluded that "accomplishment of the CEPA would take the two countries to a qualitatively new engagement by intensifying and deepening bilateral economic interaction".

The Sri Lankan media endorsed the moves towards greater economic linkages, with the Sunday Leader terming it a "solid foundation with India". The newspaper, which carried details of the JSG, also made the point that "in Wickremasinghe's vision, Sri Lanka is to India what Hong Kong is to China".

Closer economic ties, the JSG said, "would also contribute to greater receptivity to bilateral, sub-regional and regional cooperation in the region by demonstrating visibly its benefits to South Asia as a whole". Based on "complete agreement" the group outlined four components for the CEPA: widening the FTA, an agreement on trade in services, mutual investment promotion and measures to enhance economic ties in areas "hitherto inadequately explored".

By widening the FTA, the desire is to include more goods, and improve market access "through trade facilitation and removal of non-tariff barriers". On trade in services, the JSG said that the negotiations "should cover all service sectors and modes of supply under the GATS framework and the resulting agreement should cover a wide spectrum of services". To promote investment in each other's countries, the group has suggested the removal of administrative and regulatory constraints to maximise mutual benefits of economic integration. Specifically, the Board of Investment of Sri Lanka needs to set up a special cell to encourage and facilitate Indian investment in Sri Lanka. In India, Sri Lankan investors who want to make foreign direct investment or portfolio investment should be treated on a par with other international investors.

For foreign direct investment (FDI), the group has recommended that consideration should be given to providing pre-establishment of national treatment in sectors where 100 per cent FDI is permitted on the automatic route in both countries, but with appropriate safeguards built in.

In areas "hitherto inadequately explored", such as transportation, infrastructure, education, tourism and information and communications technology, the CEPA is to include measures for enhanced economic cooperation. For instance, financial and technical cooperation to modernise Sri Lanka's railways, and the establishment of an educational institution on the lines of the Indian Institute of Technology have been mooted.

The group has also recommended the setting up of a new infrastructure credit line of $100 million, "as and when required" as an initial step for infrastructure projects. A $100-million India Sri Lanka Economic Cooperation Fund has also been suggested in order to facilitate financial cooperation in such areas. Liberalisation of the visa regime has been mooted to include "more categories of visitors for long-term, multi-entry visas and simplification of procedures for other visas will help in the movement of people related to all areas of trade, investment and economic cooperation."

In order to facilitate trade and investment, the group has recommended liberalising the Bilateral Air Services Agreement to increase air transportation capacity to serve the current and anticipated demand, and concluding an agreement to facilitate early operation of ferry services, among others. It also wants the two countries to move towards joint promotion of tourism, make joint bids for international sporting events, promote film and television programmes with themes and locations from each other's countries and obtain regional exhibition rights to cultural products.

While recommendations, which are wide in scope, seek to put the bilateral relations on a higher orbit, the manner and direction of the follow-up to the prime ministerial meeting will largely determine the outcome of this wider bilateral engagement.

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