By Thilina Kiringoda –
Talk of a Comprehensive Economic Partnership Agreement with India is heard again louder than a whisper in both professional and business circles. When it surfaced last time, the local professionals in the services sector joined hands with the local businessmen in the manufacturing sector in voicing their concern. It was mentioned during all discussions that an all powerful Cabinet Minister and an all powerful Ministry Secretary were supporting the signing to the hilt. However, the rise of nationalist movements and anti-India sentiments of the majority community, which prevailed during the 30-year war against the terrorism in the Northern and Eastern Provinces, appeared to have prompted the regime in power to postpone signing or discussing the CEPA. That was before the 2015 Presidential Election.
The writer recalls stating, while making a presentation on the same issue as the President of the Organization of Professional Associations of Sri Lanka (OPA) to the members of the Government Medical Officers Association (GMOA) in 2012 that though the government has suspended signing, the opposition would definitely sign it, if they come into power at the next election. The business community representative who addressed the gathering was of the same opinion. What was predicted in 2012 is about to happen. Reciprocal visits by the Heads of Governments of Sri Lanka and India in 2015 appear to have laid the foundation for signing the CEPA.
Current operational free/preferential trade agreements
According to information available in the Internet, Sri Lanka is a party to the following agreements for liberalizing trade with other countries.
a) the South Asian Free Trade Agreement (SAFTA)
b) the Asia-Pacific Trade Agreement (APTA)
c) the Indo-Sri Lanka Free Trade Agreement (ISFTA)
d) the Pakistan-Sri Lanka Free Trade Agreement (PSFTA)
(Source: Institute of Policy Studies, Sri Lanka)
As the titles denote, they are all either free or preferential trade agreements. In the parlance of trade and commerce, the focuses in the agreements are Special and Differential treatment, Rules of origin, Negative lists, Non-tariff measures, Tariff rate quotas and Mutual recognition of standards. All concerns are in respect of product trading.
Many a research study on current bi-lateral and multi lateral trade agreements conclude that lack of awareness among SMEs about duty concessions, inclusion of products, which Sri Lanka does not have the capacity to supply, difficulties faced by Sri Lankan traders and manufacturers to obtain visas and non-availability of institutional support after the agreements have been signed and also the hostile treatment they received in the other countries, have been the reasons for Sri Lankan business community not to rely on these free trade agreements to conduct business. Neither the Department of Commerce of GOSL nor the Sri Lankan chambers of commerce and industry, has disputed these conclusions of researchers.
Services sectors of Sri Lanka and India
Before finding answers, a general definition of services sector is necessary for awareness. It is defined as the portion of the economy that produces intangible goods. According to the U.S. Census Bureau, the service sector primarily consists of truck transportation, messenger services and warehousing; information sector services; securities, commodities and other financial investment services; rental and leasing services; professional, scientific and technical services; administrative and support services; waste management and remediation; health care and social and assistance; and arts, entertainment, and recreation services.
2012 National Accounts of Sri Lanka published by the Department of Census and Statistics of GOSL lists a) Wholesale and Retail Trade; b) Transport and Communication; c) Hotels and Restaurants; d) Government services; and e) Private services, under the Services Sector of Sri Lanka.
The Ministry of Statistics and Programme Implementation (MOSPI) of the Government of India list under its Services Sector the following, a) Trade; b) Hotels and Restaurants; c) Transport (including tourist assistance activities as well as activities of travel agencies and tour operators); d) Storage and Communication; e) Banking and Insurance; f) Real estate and Ownership of Dwellings; g) Business Services (including accounting; software development; data processing services; business and management consultancy; architectural, engineering and other technical consultancy; advertising and other business services); h) Public Administration and Defence; i) Other services (including education, medical and health; religious and other community services; legal services; recreation and entertainment services) and j) Personal services and activities of extra-territorial organizations and bodies.
Given the sizes of the population and the area India, broadening the scope of indicators for measuring the performance of its services sector in the Indian national economy is inevitable. The comparatively narrow scope of the services sector of Sri Lanka may be due to performance of many of its current contributors, though the numbers are more than what it was 10-years ago, is insignificant for painting a broader picture. New businesses such as BPO franchise holders, in spite of showing marked improvements in performance in and contribution to national economy, are yet to be considered under the services sector of Sri Lanka.
In the comparison of the number of contributors to the services sectors of Sri Lanka and India the Indian picture appears brighter in terms of opportunities that might be created by its contributors.
Why services sector in CEPA?
Services sector came into the picture of CEPA after the SAARC member countries had signed “SAARC Agreement on Trade in Services (SATIS)” on 29th April 2010. The Article 2 of SATIS spells out its Objectives, Principles and Guidelines and they are as follows.
1. The objectives of this Agreement are to promote and enhance trade in services among the Contracting States in a mutually beneficial and equitable manner by establishing a framework for liberalizing and promoting trade in services within the region in accordance with Article V of General Agreement on Trade in Services (GATS).
2. Negotiations for schedule of specific commitments shall take place keeping in view the national policy objectives, the level of development and the size of economies of Contracting States both overall and in individual sectors.
3. In light of the priority accorded to services by all Contracting States, the Agreement shall progressively cover liberalization of trade in services with broad-based and deeper coverage of majority of services sectors/sub-sectors with a view to fulfilling the objectives of Article V of GATS.
4. A positive list approach shall be followed. Negotiations for specific commitments for progressive liberalization would be based on “request and-offer” approach.
The mention of GATS (General Agreement on Trade in Services) in SATIS has brought the World Trade Organization (WTO), the global international organization dealing with the rules of trade between nations, into the SATIS for providing the globally accepted principles and guidelines for agreements on trade in services between nations. Article V of GATS refers to Economic Integration and according to its provisions, GATS shall not prevent any of its Members from being a party to or entering into an agreement for liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement:
(a) has substantial sectoral coverage, (in terms of number of sectors, volume of trade affected and modes of supply) and (b) provides for the absence or elimination of substantially all discrimination between or among the parties and in the sectors covered under (a) above through i) elimination of existing discriminatory measures and/or (ii) prohibition of new or more discriminatory measures either at the entry into force of that agreement or on the basis of a reasonable time-frame, except for measures permitted under Articles XI (Payments and Transfers), XII (Restrictions to Safeguard the Balance-of-Payment), XIV (General Exceptions) and XIV bis (Security exceptions).
In simple terms, Sri Lanka has already expressed explicitly the commitment to liberalizing the trade in services among SAARC countries. Owing to this commitment undertaken by the GOSL, the services sector of the country has now been opened for those in the services sectors of other SAARC countries to come in and engage in business of offering services, subject to adherence overarching guidelines of World Trade Organization (WTO). Time has come for Sri Lanka to take stock of own strengths and weaknesses and past performances under SAFTA, ISFTA, APFTA and PSFTA before committing further into bi-lateral agreements with India or any other country because once in it would be extremely difficult to get out unilaterally.
Are the Sri Lankan professionals adequately protected?
This issue was addressed to a certain extent during the deliberations on CEPA by the OPA in 2012. The writer recalls those in the medical and dental professions citing the requirement to register with Sri Lanka Medical Council as the national treatment in regard to protection of professionals in those disciplines. Institute of Chartered Accountants Sri Lanka stated that only its members can conduct and certify financial audits in Sri Lanka. Members of the legal profession took the position that only the lawyers who have taken oaths as Attorneys-at-Law before the Supreme Court of Sri Lanka can practice the legal profession in the country. Requirement to register with the Architects’ Registration Board was mentioned as the statutory national protection for the Architects. The Construction Industry Development Act, which was passed in the parliament in 2014, empowers the Construction Industry Development Authority to maintain a national register of professionals in Engineering, Architecture, Quantity Surveying and Environmental and Public Health Engineering.
International Standard Classification of Occupations (ISCO) of the International Labour Organization lists many categories of professionals in its 2008 edition. Among them are professionals in Science and Engineering, Health, Information and Communication Technology, Business and Finance and Legal disciplines. Almost all national professional bodies for major and sub disciplines classified under ISCO are member associations of the OPA. There may be many other professions without national protection in Sri Lanka and many a national body of such professions are also member associations of the OPA. They have no other forum to get their concerns addressed. Checking again whether the circumstances remain same or changed since the last round of OPA deliberations on CEPA in 2012, has become the most important issue for Sri Lankan professionals. The most important national protection, which Sri Lankan professions and professionals demand for, is the statutory power for national professional bodies to have the qualified persons from any partnering country screened before they are granted Visas to come in and engage in business under comprehensive economic partnership agreements.
Consultations with Sri Lankan professional bodies
The first invitation to the OPA for participation in discussions on SATIS came from the Department of Commerce in June 2012. It included a copy of SATIS and request lists from several SAARC countries including India. Having noted that request list of India contained many professional services recognized by the OPA and having considered its role as the umbrella organization for the national professional bodies that represent those professions, the OPA sent copies to respective member associations requesting their views. After follow up discussions, a delegation from the OPA comprising representatives of those member associations, met the Director General of the Department of Commerce to record their objection to GOSL signing the CEPA with India without addressing the issue of national protection for listed professional services.
Representatives of the industry and trade, who were also in attendance, opposed any move by the GOSL before addressing the issues of ISFTA, which was in force then. The outcome of the discussion was what could generally be expected from the Sri Lankan bureaucracy: “Your concerns would be referred to the Hon. Minister”. Nothing was heard thereafter. It is sad to note that some state agencies, established to serve the people of the country, not trusting them when matters of serious concern are raised expecting a patient hearing. CEPA cannot be classified as a state secret because its foreseeable impacts, some of which have been perceived as nationally negative by the knowledgeable citizens of the country, require public scrutiny and public consultation before adopting it as a state policy.
For some reason the signing of CEPA did not happen in 2012 as planned or as expected by the government of India. The Indian English daily newspaper, The Hindu, reported in its internet edition on 19th July 2013 that Sri Lanka’s Minister for Economic Development had stated in an interview that Sri Lanka would not need the Comprehensive Economic Partnership Agreement (CEPA) with India any longer, as both countries had moved on and the Sri Lankan business community felt it did not need CEPA as they had found good markets. In any case, he had stated that India did not make things easy for Sri Lanka, as, on the one hand, while it seemed like India was opening up its market, there were new barriers [non-tariff], on the other. Dismissing the need for any broad framework for bilateral trade, the Minister had stated that Indian businessmen anyway got special concessions and tax incentives from the Board of Investment (BOI), Sri Lanka.
Status of CEPA with India after 2015 Presidential Election in Sri Lanka
After the recent reciprocal visits by the leaders of the two countries, the Indian media was full of news on possible signing of CEPA between Sri Lanka and India. Now that it has surfaced again, the professional community of Sri Lanka has got another opportunity to have a fresh look at CEPA with India. Not withstanding the previous experience with state institutions, the business and professional communities have to use their collective efforts to find out whether opportunities exist for them in India while looking into strengths and weaknesses of own foreign trade.
Research needs to be done on performance of implementation of comprehensive economic partnership agreements, which India has entered into with other Asian countries. Studying the prospects for Sri Lankan professional and business communities in India under a CEPA, is also an immediate necessity. In regard to this the writer wishes to share the following findings of a web survey done by the writer and observations made by the writer since 2012.
a) Times of India, an Indian English newspaper with a large circulation, reported in its web site on 23rd June 2014, that over 4-million “completely unemployed” in India are graduates;
c) The New Indian Express, referring to Tamil Nadu State Employment Exchange, reported in its web site on 18th July 2014, that nearly 400,000 engineering graduates had registered with the employment exchange and that 150,000 of them were engineering post-graduates;
b) In September 2012, the writer had the opportunity of discussing with some Indian professionals the prospects for Sri Lankan professionals to work in India under SATIS, during a seminar held in Ahmedabad, India. It was revealed that state governments have the power to decide whether to allow or not. The recent decision of Tamil Nadu State Government not to allow Sri Lankan national sports teams and players to participate in sporting events in Tamil Nadu is a clear indication of what would be in store for Sri Lankan professionals under CEPA with India;
c) Several Indian businesses, which were granted BOI status and tax concessions upon assuring the GOSL that they would bring capital to start their business ventures in Sri Lanka, tried raising capital for their investments within Sri Lanka later;
Therefore it can reasonably be argued that if CEPA is implemented, investors from India would not come with lots of money and those who come would try to raise funds locally to start businesses that are labour intensive in production and service delivery so that majority of employees could be Indian. In return the Sri Lankan professionals and businessmen would have to beg the state governments of India to let them in.
Under these foreseeable circumstances, the professional and business communities of Sri Lanka have two important questions: “What opportunities would be there for us in India through CEPA other than what we enjoy without CEPA? What could we expect in return in Sri Lanka through CEPA other than what we get without CEPA?”
*The writer is a Chartered Architect and a Town Planner and a Past President of the Organization of Professional Associations of Sri Lanka.
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