The Economic and Technology Cooperation Agreement (ETCA) between Sri Lanka and India remains a contentious issue, but the current Government’s stance is clear: the agreement will only be signed if it proves beneficial to Sri Lanka.
Deputy Minister of Foreign Affairs Arun Hemachandra, speaking to The Sunday Morning, emphasised: “If we can secure favourable terms, we are open to the agreement. If not, we will not sign it. We are committed to safeguarding the nation’s economic sovereignty.”
Hemachandra did not hold back on criticising past administrations for their handling of agreements like ETCA and accused previous governments of entering into deals that prioritised foreign interests over national benefits.
Referring to the earlier draft of ETCA, he asserted that it had not been structured in a way that favoured Sri Lanka. He cited examples such as the proposed introduction of Amul to purchase Milco, which was tied to conditions like buying the National Livestock Development Board (NLDB), as evidence of such one-sided agreements. As another example, Hemachandra explained that the Indo-Lanka Pact of 1987 (which led to the 13th Amendment) was not a favourable one for Sri Lanka.
However, Samagi Jana Balawegaya (SJB) MP Kabir Hashim challenged Hemachandra’s narrative, arguing that the Government’s current stance reflected hypocrisy. “The Janatha Vimukthi Peramuna (JVP), now in power, was among the most vocal critics of ETCA when in Opposition,” he said.
“Today, they claim to revisit it with national interest in mind, but their earlier campaigns actively undermined efforts to secure agreements that could have benefited the country. There seems to be a policy shift within the JVP. Historically, they adhered to socialist ideologies that left no room for Free Trade Agreements (FTAs). Now, it appears they have adjusted their ideological stance, which is a significant step forward for them.”
When questioned on Hemachandra’s comments that past agreements were not favourable to Sri Lanka, Hashim argued: “If Hemachandra claims earlier agreements were unfavourable, he should provide evidence, like specific clauses or reports. Historically, the JVP and others offered no concrete arguments. They simply opposed the agreements outright.
“That said, if they identify flaws in the agreements, they are welcome to amend them. Governments evolve, and it’s natural to improve past policies. However, the JVP’s initial position was to completely reject these agreements without offering any constructive alternatives.”
Hemachandra however claimed that when the National People’s Power (NPP) Government took over, they also inherited the past agreements and regulations and needed to abide by them. “We cannot walk away from operating laws and agreements abruptly. Whatever had been agreed to before, we are compelled to complete the remaining portions too,” he said.
“When there is one stronger nation and one weaker nation, we ought to understand that there is a propensity for the stronger nation to dominate the weaker nation. Therefore, we must proceed with caution,” he said.
Understanding ETCA: What it entails
ETCA was designed to enhance trade, investment, and economic cooperation between Sri Lanka and India, Hashim iterated. He provided a detailed explanation of its scope, emphasising its potential to unlock opportunities for Sri Lankan businesses and professionals.
“Under frameworks like the World Trade Organization (WTO), countries are encouraged to reduce tariffs and promote free movement of goods. For Sri Lanka, this agreement opens doors to larger markets like India.
“Our domestic market alone cannot sustain large-scale production. However, by becoming a sub-manufacturer or component supplier for Indian products, we can integrate into their supply chains.
“For example, much of the global electronics industry relies on parts manufactured across multiple countries. Sri Lanka could adopt a similar model, benefiting from India’s vast market while contributing to its production chains,” Hashim said.
Hemachandra, however, maintained that the Government was yet to enter into meaningful discussions on ETCA. “We are still evaluating it. There is no finalised agreement or appointed committee. Any decision will be made only after careful analysis. We believe that, unlike previous governments, if we proceed with national interest, then there will be no problem.”
Hashim drew on Sri Lanka’s experiences with FTAs to highlight their benefits. He cited the example of the Singapore FTA, which he claimed could have boosted trade and investment for both countries.
“A few years ago, Singapore faced a severe poultry shortage. Sri Lanka, being geographically closer, could have supplied the chicken. However, bureaucratic hurdles stemming from the absence of an FTA meant that Sri Lanka lost the opportunity, and Singapore imported poultry from Brazil, located over 2,500 miles away. This was just one instance of how Sri Lanka missed out.
“The JVP and similar political groups are accountable for spreading false nationalist slogans, stalling progress. Now, it’s encouraging to see that they’ve adopted a more modern and pragmatic approach. FTAs, when negotiated properly, can serve as powerful tools for economic development,” he stated.
Acknowledging the Government’s conviction towards the ETCA agreement, Hemachandra commented on a recent statement made by Indian High Commissioner to Sri Lanka Santosh Jha that neither party had withdrawn from the ETCA. Hemachandra claimed that Sri Lanka wished to pursue the agreement with a fresh perspective.
Complexities of ETCA
Hashim elaborated on the complexities involved in ETCA, particularly the Mutual Recognition Agreement (MRA) and the quality standards embedded within it.
“India is a large and diverse country with state-specific regulations in addition to national ones. For instance, customs regulations and border controls vary from state to state, which creates challenges for uniform application of agreements.
“To address this, we proposed an MRA to ensure that the agreement would apply uniformly across all Indian states. The Indian Government was receptive to this and we were close to finalising it when the Opposition forced us to halt,” Hashim said.
He continued: “Additionally, quality standards for products were another hurdle. Many Sri Lankan exports, especially food items, failed Indian testing standards. We discussed establishing a common testing framework and India was cooperative. Despite these challenges, ETCA remains one of the most crucial agreements for Sri Lanka.”
Commenting on the complexities of the agreement in relation to labour, Hemachandra stated: “We believe we could develop the IT sector and we do not wish to compromise the IT sector to India. In the past we had this fear and that stance has not changed. We will therefore enter the ETCA discussions with our terms and conditions.”
Potential benefits for SL
Hashim emphasised the tangible benefits ETCA could bring to Sri Lanka, including expanded market access, increased foreign investment, and job creation.
“ETCA facilitates economic cooperation and trade. Under frameworks like the WTO, countries are encouraged to reduce tariffs and promote free movement of goods. For Sri Lanka, this agreement opens doors to larger markets like India.
“Our domestic market alone cannot sustain large-scale production. However, by becoming a sub-manufacturer or component supplier for Indian products, we can integrate into their supply chains,” he said.
When questioned on the fear of job losses for Sri Lankans if Indians decided to flood the local job markets, Hashim remarked that it was yet another fearmongering campaign by the JVP. He claimed that assertions like barbers and tailors losing jobs were unfounded and absurd.
A pragmatic approach to ETCA
Hemachandra’s statements highlighted the Government’s pragmatic approach to the issue. “We are not rushing into this,” he said. “There are other priorities and ETCA is not at the top of our list. But we are open to discussions, provided they yield positive outcomes for Sri Lanka.”
He added: “This ETCA agreement is a document that Ranil Wickremesinghe wished to sign, but it has been delayed and now the burden has befallen us. We do not wish to rush in and sign it. We will evaluate and analyse, and if the conditions are favourable, we will sign it.”
Sri Lanka’s relationship with India remains a cornerstone of its foreign policy. Hemachandra acknowledged India’s contributions, particularly during times of economic crisis, and reiterated the importance of maintaining strong bilateral ties. However, he was clear that friendship between the nations should not come at the expense of national interest.
Despite the criticisms, Hashim expressed optimism about the Government’s current approach. “It’s encouraging to see the JVP, now in power, taking a more constructive stance on ETCA,” he said.
New ECTA must go beyond previous agreement
The existing Indo-Sri Lanka Free Trade Agreement (ISFTA), which focuses primarily on merchandise goods, has proven valuable, but it falls short in several key areas crucial for Sri Lanka’s recovery. For instance, it does not address services or investment flows, both of which are vital for long-term economic sustainability.
Former Deputy Governor of the Central Bank of Sri Lanka Dr. W.A. Wijewardena highlighted that the new ETCA must go beyond the limitations of the previous agreement and create opportunities for broader economic and technological collaboration.
“Sri Lanka’s economic situation today requires a focus on technology transfer and access to foreign markets. The proposed ETCA should not only cover goods but also services and investments, sectors that are critical for Sri Lanka’s growth, especially in the wake of the current financial crisis,” Wijewardena explained.
“One of the most significant benefits of the ETCA for Sri Lanka is the potential to attract Indian investment in key sectors, particularly technology and manufacturing. Indian firms investing in Sri Lanka could open new markets for Sri Lankan products and services through India’s vast and growing supply chain. By integrating into this supply chain, Sri Lankan firms would have access to India’s domestic market as well as global markets where Indian companies already have a strong foothold,” Dr. Wijewardena claimed.
“To overcome the external debt crisis, Sri Lanka must increase its foreign exchange earnings, which requires both goods and services exports. India’s participation in Sri Lanka’s economy could provide a much-needed boost by linking local businesses to a broader regional and global market.”
In addition to business and trade, he said that ETCA presented opportunities for Sri Lanka to improve its educational infrastructure: “India’s technological prowess, particularly in higher education, can serve as a catalyst for transforming Sri Lanka into an educational hub in the region. Indian Institutes of Technology (IITs), renowned for their excellence, rank among the top 100 universities globally. In contrast, Sri Lankan universities are ranked far lower, which limits the country’s ability to compete in the global knowledge economy.
“Sri Lanka can leverage this expertise by establishing collaborations with Indian institutions, raising the standard of local universities, and positioning itself as an attractive destination for international students. This approach not only benefits Sri Lankan students but also attracts students from neighbouring countries like Pakistan, which may struggle to access quality education in India.”
Dr. Wijewardena also suggested that Sri Lanka could serve as a regional education hub if it formed partnerships with top Indian universities, which would also generate revenue through international students and contribute to the country’s economic recovery.
One of the primary concerns surrounding the ETCA is the potential flooding of the Sri Lankan market with Indian goods, which could harm local industries. However, Dr. Wijewardena dismissed this fear, stating that such concerns were unfounded.
“For India to invest and operate in Sri Lanka, the country must offer competitive conditions, which are currently lacking. Sri Lanka’s challenge is not attracting foreign investment but ensuring that it provides its own citizens with better opportunities for growth within the country,” he said.
Sri Lanka’s current challenge is not the inflow of foreign goods but rather the outflow of its own citizens seeking better opportunities abroad. The Government’s focus, therefore, should be on creating an environment where both local and foreign businesses can thrive, he asserted.
When questioned on the strategic importance to India, Dr. Wijewardena dismissed Sri Lanka’s propensity to benefit India. “India’s main interest is ensuring that Sri Lanka remains a stable and cooperative neighbour. This is about maintaining security in the region and preventing Chinese influence from spreading further. By strengthening ties with Sri Lanka, India ensures that it has a reliable partner just south of its borders.”
As Sri Lanka navigates its way out of an economic crisis, the proposed ETCA holds promise for a more prosperous and sustainable future. By fostering stronger economic ties with India, particularly in the areas of technology, investment, education, and trade, Sri Lanka can address its immediate economic challenges while positioning itself for long-term growth. The agreement would enable Sri Lanka to access foreign markets, improve local industries, and attract much-needed foreign investment, all while benefiting from India’s technological expertise, he emphasised.
Moreover, ETCA could help transform Sri Lanka into a regional hub for education and technology, fostering human capital development and reducing the brain drain that has plagued the nation. Both countries would need to negotiate carefully to ensure that the agreement reflected the needs and interests of both nations, paving the way for greater cooperation and mutual benefit, Wijewardena added.
As Sri Lanka navigates its economic diplomacy with India, the debate over ETCA underscores the complexities of balancing national interests with regional cooperation. While the Government’s cautious approach reflects a commitment to protecting the country’s sovereignty, the benefits outlined by proponents like Hashim cannot be ignored.
Ultimately, the success of ETCA will depend on the ability of both nations to negotiate a fair and mutually beneficial agreement, one that strengthens ties while fostering sustainable development.