Sri Lankan President Mahinda Rajapaksa’s recent visit to India during June 8-11, 2010 culminated in a joint declaration between the two countries. The declaration aimed at building peace and reconciliation in war-afflicted northern Sri Lanka. India agreed to give a grant for rehabilitation and resettlement of internally displaced persons. India also offered to support a major initiative to undertake reconstruction of various infrastructure projects, including the Madu-Talaimannar railway line, the Palay Airport and Kankesanthurai Harbour. The two countries also agreed to resume the ferry services between Colombo and Tuticorin and between Talaimannar and Rameswaram. To foster closer economic ties, the two countries agreed to enhance cooperation in agriculture and livestock development, energy, education and telecommunications.
Perhaps what has gone unnoticed is that President Rajapaksa’s visit marked a special occasion — the completion of 10 years of the Indo-Sri Lanka Free Trade Agreement (FTA). The two countries are currently carrying the burden of an unsigned Comprehensive Economic Partnership Agreement (CEPA) that has gone through several rounds of consultations since 2003 but has failed to break ground as there is a fear amongst various stakeholders that the CEPA could undermine the interests of parts of the economy. The joint declaration recognised the need for a more comprehensive framework of economic cooperation but simply directed the officials of the two countries concerned to hold further consultations.
Rajapaksa’s visit was an excellent opportunity for India to address some of the outstanding issues under the Indo-Sri Lanka FTA. A Joint Study Group set up by the two countries has identified several key issues that needed to be addressed. First, the tariff rate quota on tea and garments, and the restriction on ports of entry for these products were unduly restrictive for Sri Lankan exports into India. Second, undue delays caused due to doubts raised by the Indian customs regarding the authenticity of certificate of origin issued by Sri Lankan authorities. Third, discriminatory sales taxes charged by some Indian states adversely affected some preferential exports from Sri Lanka. Fourth, insufficient preferential tariffs on items of export interest to Sri Lanka, e.g. textiles and fifth, large sensitive lists which effectively blocked out preferential trade in items of export interests of both countries.
Even though India has taken some corrective measures, the delayed action seems to have caused irreparable damage. India removed port restrictions on tea in June 2007 and on garments in April 2008. India also allowed duty-free import of garments without any restriction on sourcing of fabric from India up to a limit of three million pieces. Discriminatory taxes being imposed on Sri Lankan products by some state governments were also abandoned. These amendments came much too late — as there was a deep resentment against the fact that India failed to take into account the export interests of Sri Lanka.
The Sri Lankan President’s visit was an ideal opportunity for India to declare measures that could have signalled its interest in enhancing the pace and scope of economic cooperation between the two countries. A further pruning of the sensitive lists, devising procedures for acceptance of rules of origin certification without delays and signing mutual recognition agreements are some measures that India could have announced.
The bumpy path that the two countries have followed under goods liberalisation has had an adverse impact on the conclusion of the CEPA. There are fears in several quarters that Sri Lanka may get an unfair deal under the new agreement. India needs to reiterate that an agreement in services would provide both the countries a great deal of flexibility in making commitments for liberalisation. Thus, Sri Lanka can lay down the extent of market access in various modes and sectors in which it would like to offer market access to India. This is unlike the goods agreement where all products are liberalised except those specified in the negative list. By taking corrective action on some of the pending issues under the goods agreement, India could have paved the way for the signing of the CEPA.
The author is a professor at ICRIER. The views expressed are personal
