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Has the ETCA died a natural death?

11 Nov 2021

  • Trade Min., diplomatic sources say no ETCA negotiations since 2018
  • Committee appointed to review free trade agreements
  • National Trade Policy in 3 months
By Shenal Fernando According to the Ministry of Trade and diplomatic sources, there has been no progress in negotiations between India and Sri Lanka with regard to the controversial Economic and Technology Co-operation Agreement (ETCA) since the last round of bilateral talks in October 2018 despite the absence of an official termination of bilateral talks. Speaking to The Morning Business yesterday (10), Ministry of Trade Secretary Bhadranie Jayawardhana stated that no new negotiations have been carried out with India in relation to the ETCA and that a committee of 12 professionals – from the Attorney General’s Department, the Trade Ministry, and the Finance Ministry – was appointed by the Cabinet to review all the trade agreements which Sri Lanka has already signed or are to be signed, including the ETCA, and that as of right now, the Ministry of Trade is yet to receive the recommendations of the said committee. This revelation was reiterated by diplomatic sources who claimed that no bilateral talks have taken place between the two nations with regard to the ETCA since 2018. Preliminary discussions on the ETCA were held in 2015 during the Fourth Commerce Secretary-level talks between the Indian and Sri Lankan sides in New Delhi where the agreement was proposed, following which 11 rounds of bilateral negotiations were conducted, with the first round held in August 2016 and the last and 11th round in October 2018. Throughout this period of negotiation, the ETCA faced heavy opposition from professional bodies, particularly in the IT and healthcare sectors, on the grounds that Sri Lanka’s skilled labour force would be relegated to a second choice with preference given to Indian workers. Furthermore, the Joint Opposition at the time, which is currently the Government, vehemently opposed the ETCA, claiming that it would lead to “foreignisation” of the Sri Lankan economy. However, several economists have pointed out its benefits, which include its potential to address Sri Lanka’s skills shortage. A commonly reiterated demand of the parties who opposed the agreement was that the implementation of the ETCA should be held off until Sri Lanka passes the National Trade Policy (NTP). The current Government has taken steps to implement a NTP and according to Jayawardhana, it will be implemented within three months. Commenting on the progress so far in its implementation, she stated: “A main committee and three sub-committees – internal trade, external trade, and trade in services – have been appointed by the Government to formulate a National Trade Policy for Sri Lanka.” Explaining further, she claimed that the data collected by such sub-committees are analysed by a team from the University of Sri Jayewardenepura and their findings/recommendations presented to the said committees are utilised in the development of the NTP. The negotiations in relation to the ETCA, which have been on hold since October 2018, were  delayed due to a number of unexpected developments in Sri Lanka, such as the constitutional crisis in October 2018, the Easter Sunday attacks, and also due to the elections in November 2019 and August 2020. External factors such as the 2019 General Elections in India, which was held over seven phases from 11 April to 23 May, also contributed to the delays. The 12th round of negotiations which were scheduled to be held in September 2019 was postponed pending cabinet approval, as a new regulation was introduced by the then Ministry of Development Strategies and International Trade (MoDSIT), which stated that Cabinet approval is required to conduct negotiations for any trade agreement. Cabinet approval was also necessitated by the long gap of over one year since the last round of negotiations held in October 2018. Following the Sri Lankan Presidential Election in November 2019, well-placed sources told The Morning Business that the ETCA negotiations were unlikely to be restarted until the General Election in August 2020, due to possible changes in the management of the relevant authorities after the election. As predicted, no discussions pertaining to the agreement were held between the two parties during the interim period from the local Presidential Election to the General Election. The importance of the ETCA lies in the fact that Sri Lanka and India are linked closely in terms of economic and commercial partnerships. In 2020, India was Sri Lanka’s second largest trading partner, recording over $ 3.6 billion in merchandise trade. Sri Lanka is already party to a bilateral free trade agreement with India (Sri Lanka Free Trade Agreement – ISFTA) which was entered into in 1998 and became operative from 2000. However, this free trade agreement covers only trade in goods and has been plagued by several shortcomings to the dissatisfaction of both parties. From India’s perspective, the ISFTA is highly underutilised in the import of goods from India to Sri Lanka with only around 5% of imports over the past few years utilising the ISFTA. This is largely due to the existence of non-tariff barriers to Indian imports which haven’t been addressed under the ISFTA. Moreover, Indian imports are subjected to other levies and duties in addition to customs duties such as the cess levy and the Ports and Airports Development Levy (PAL), which have the effect of overriding the duty-free benefit granted under the ISFTA. From Sri Lanka’s perspective, over 60% of goods exported to India utilised the ISFTA. However, growths of exports to India have been stagnant for a while due to the existence of non-tariff barriers to Sri Lankan exports, which include cumbersome regulatory requirements.


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