Negotiations on the proposed Economic and Technology Cooperation Agreement (ETCA) between Sri Lanka and India, which were making headlines several years ago both locally and internationally, have now resurfaced following a lengthy suspension.
With the Sri Lankan Government’s keen interest in resuming the negotiations and finalising the pending Free Trade Agreements (FTA), ETCA has secured a special place, given its prominence and importance.
Speaking to The Sunday Morning, Sri Lanka’s Chief Negotiator of Free Trade Agreements K.J. Weerasinghe provided insights into the ongoing negotiations with India for the ETCA.
These talks, spanning 11 rounds, were put on hold in 2018 but resumed following a directive from President Gotabaya Rajapaksa after the new Government came into power.
“We have sent a formal diplomatic communication that we would like to resume negotiations as early as possible. I think in the joint communication that was issued following the President’s visit to New Delhi, one of the paragraphs also stated that the negotiations should commence early,” Dr. Weerasinghe said.
As they eagerly await India’s response, the Chief Negotiator anticipated the next round of talks to take place in September, considering the scheduled negotiations with Thailand in August for another FTA.
However, according to him, both sides are eager to proceed, understanding that current commitments with other countries can influence the timing of the discussions.
“We are expecting discussions to take place sometime in September because we are also going to have our next round of talks with Thailand on 21, 22, and 23 August so it’s very unlikely that we can meet India before the Thai talks since we will be too busy,” he explained.
The ETCA aims to be far-reaching and comprehensive, covering various aspects of economic cooperation between the two countries.
Dr. Weerasinghe outlined the scope of the agreement: “The earlier agreement is limited to goods only, which we have in the previous trade agreement with India. Now, the current agreement will be broad in scope because it will have goods, services, investment, economic cooperation, remedies, and dispute settlement mechanisms.”
He emphasised on the importance of the new agreement as it would encompass not only trade in goods but also services and investment, allowing for deeper economic collaboration.
Moreover, it will introduce provisions for remedies in cases of anti-dumping, countervailing, and subsidies, ensuring a more robust and equitable trading relationship.
Dr. Weerasinghe expressed optimism about the negotiations: “At least by another three, four rounds, we should be able to conclude the agreement by the latest mid next year, if not early. At least my expectation is that we should be able to conclude in the first quarter next year.”
What makes ETCA special?
The commercial relations between Sri Lanka and India marked a historical milestone when we entered the India-Sri Lanka Free Trade Agreement (ISFTA) on 28 December 1998 – the first bilateral free trade agreement of Sri Lanka.
The ISFTA entered into force with effect from 1 March 2000. The ISFTA is now in full implementation as both sides have completed their phasing out commitments under the respective Tariff Liberalisation Programme (TLP).
According to the Asian Development Bank (ADB), while the aggregate figures resulting from the ISFTA are impressive, the full potential of the FTA has not been reaped by Sri Lanka.
Listing the reasons, it added that intra-industry trade between the two countries did not grow significantly to stimulate overall trade between the two countries. Sri Lankan manufacturers have not been successful in linking up with Indian supply chains and this supports the earlier findings of de Mel and Jayaratne (2012) that vertical integration of Sri Lankan industries with Indian industries is at a very low level.
Secondly, there were a number of impediments for market access in the Indian market. Tea, ready-made garments, and textiles, which make up 50% of Sri Lanka’s total exports, were placed under quotas in the ISFTA. Also, quota utilisation has been minimal due to stringent requirements and port restrictions.
Regarding the benefits of ETCA compared to the current trade agreement with India, the negotiator highlighted that the expanded scope of the new agreement would be a game-changer for Sri Lanka.
He said: “The current agreement is only for goods so this agreement will cover services, investment, and economic cooperation. Now in the cooperation chapter, we have identified very specific areas for economic cooperation; very broad areas such as tourism, maritime transport, particularly the energy sector.”
Dr. Weerasinghe emphasised the importance placed on the energy sector in the agreement, given its critical role in sustainable economic growth. The agreement aims to facilitate collaboration in renewable energy projects, such as wind power, to promote a greener and more environmentally-friendly approach to energy production.
According to him, as the negotiations are set to continue, the focus on renewable energy is particularly noteworthy. By promoting investments in wind power and other renewable sources, Sri Lanka aims to enhance its energy security and contribute to the global transition to greener practices.
The vision statement issued by both countries after the President’s recent visit to India provides a clear outline of the envisioned economic cooperation between the two nations. It covers various areas, including tourism, maritime transport, air connectivity, and the expansion of trade and services.
Weerasinghe expressed confidence in the progress of the ETCA negotiations with India. He highlighted the significance of the comprehensive agreement.
When contacted, the Department of Commerce said that the FTAs were no longer under its purview and redirected to the Chief Negotiator.
High Commission of India in Sri Lanka
Meanwhile, a Spokesperson from the High Commission of India in Sri Lanka speaking to The Sunday Morning stated that India was Sri Lanka’s largest trade partner and the endeavour was to broad base and scale up this partnership in a comprehensive fashion through ETCA.
“Eleven rounds of discussions have been held. Both sides have now decided to start these negotiations again at the earliest. Details such as dates and modalities will be finalised jointly through diplomatic channels,” the Spokesperson added.
ETCA, a heavily-opposed agreement
Over the last few years, 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, in 2016, the Joint Opposition vehemently opposed Sri Lanka’s move to enter into the ETCA with India, stating 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.
Proper economic fundamentals
Speaking to The Sunday Morning, Open University of Sri Lanka Professor of Economics Sirimevan Colombage, drawing upon the astute observations of world-renowned Economist Prof. Jagdish Bhagwati, emphasised the significance of a nation’s economic underpinnings for the efficacy of any trade agreement.
“Broadly speaking, no agreement will work unless you have the right economic fundamentals in the home country,” asserted Prof. Colombage, echoing the sentiment put forth by Prof. Bhagwati. He underscored the profound importance of a nation’s economic stability and strength as a prerequisite for the fruitful implementation of trade agreements.
Prof. Bhagwati’s insightful analogy, which likens multiple trade agreements to a “bowl of spaghetti,” resonates with Colombage’s perspective. The comparison captures the intricate nature of existing trade agreements, suggesting a complex interweaving of various agreements akin to the entangled strands of pasta in a bowl.
Trade agreements, often hailed as mechanisms to stimulate economic growth and international collaboration, can become convoluted and challenging to navigate when they mirror the intricate arrangement of a bowl of spaghetti.
While trade agreements aspire to streamline global commerce, their success fundamentally hinges on the economic soundness of the participating nations.
Resumption expected
Meanwhile, speaking to The Sunday Morning, Ceylon Chamber of Commerce Chairman Duminda Hulangamuwa stated that the resumption of the ETCA negotiations had been expected for some time.
“I think the main expectation is to iron out some of the issues with the existing FTA such as quotas for tea and apparel and to have a mutual recognition arrangement for standards and testing so that our goods are accepted at the port.”
He added that the current FTA was only on trade, but the ETCA would cover services, investment, and many other chapters similar to the Singapore FTA.
When asked whether the chamber was satisfied with the current agreement Sri Lanka has with India, he stated: “Members have made submissions with regard to issues with the existing quotas in the ISFTA, Indian Customs officials not being aware of the ISFTA preferential duty and tax applicable for exports from Sri Lanka, and regular changes in regulations affecting packaging and artwork specifications.”