What is CEPA?

To understand what CEPA is, one should look at the present Free Trade agreement between Sri Lanka and India.

Indo-Lanka Free Trade Agreement

On 28th December 1998, during Sri Lankan President Chandrika Bandaranaike’s Indian visit, India convinced her to sign a Free Trade Agreement known as “Indo-Lanka Free Trade Agreement” (ILFTA), despite objections from Sri Lankan officials, as it had not been fully studied by the officials of Department of Commerce in Sri Lanka. However due to this unwise political decision by the former President, ILFTA came into operation from the year 2000, and it has been hugely in favour of India.

Impact of Indo-Lanka Free Trade Agreement

  • This FTA covered “Free Trade in Goods” except for some products that were in the negative lists of each country.
  • After signing the FTA, India imposed many “Non Tariff Barriers” preventing Sri Lankan products from entering the Indian market.
  • In the meantime Indian exports to Sri Lanka immensely benefitted following the FTA. Graph-1 below shows how the trade gap between Sri Lanka and India has widened in India’s favour from 2003 to 2014.

Graph 01

Graph-1: Shows how the trade gap between Sri Lanka and India has widened in India’s favour from 2003 to 2014.

The above exports from Sri Lanka to India were inclusive of Vanaspathi and Copper which were mainly handled by some organized Indian businessmen and these had no real economic benefit to Sri Lanka. However the Indian team and a couple of Sri Lankans supporting them have used these figures to mislead the Sri Lankan Government and the public. Graph-2 shows how Sri Lankan exports to the world have grown whilst exports to India have been struggling despite the FTA. One should analyze these statistics carefully to understand the real situation.

Graph 02

Graph-2: Shows how Sri Lankan exports to the world have grown whilst exports to India have been struggling despite the FTA.

CEPA – To resolve or create more problems for Sri Lanka?

When Sri Lankan exporters brought up their problems and unfair treatment, the Indian side proposed to sign a further agreement known as “Comprehensive Economic Partnership Agreement” (CEPA) and strongly suggest that CEPA will solve all problems in the FTA.

One could argue this is similar to methods the US Economic Hit Men adopted to strangle small countries further and further, until the small countries were under their total control. A closer look at the CEPA proposals will clearly reveal the potential dangers to Sri Lanka.

CEPA will liberalize following areas creating major problems for Sri Lanka.

  1. Trade in Goods
  2. Investments
  3. Trade in Services
  4. Free movement of people
  • In a nutshell CEPA will allow Indians to setup even a small business in Sri Lanka and bring employees from India to work in such businesses. Even the families of such employees can be brought.
  • For an example a Lawyer, Doctor or even a Barber can start a small business and work as a single employee or bring in other employees.
  • Sri Lankans too will be able do the same in India. Nevertheless in reality it will be Indians who will flood into Sri Lanka than the other way around.
  • There are many Indian managed Multinationals and Indian owned businesses in Sri Lanka and they could provide jobs to Indians who come to Sri Lanka. However in India since there are about 50 million unemployed people there will be no opportunities for Sri Lankans to find jobs.

Population, Growth rate, Languages, Labor force & Unemployment of the Two Countries.

The following table shows a comparison between the two countries that gives a clearer picture to anyone.

Sri Lankan economy has grown significantly from 2005 onwards without CEPA agreement thus proving CEPA supporters completely wrong.

Graph 01

Graph-1 : Shows GDP growth rate of Sri Lanka and India.

Graph 02

Graph-2 : Shows the growth of Sri Lankan economy in last 10 years.

Who in Sri Lanka wanted CEPA?

  • Did the Industrialists want it?
  • Did the Professionals ask for it?
  • Did the Service Sector want it?

        NO, not at all

  •      Then Prime Minister, Ranil Wickrasinghe in 2002 Agreed with India to expand FTA to a CEPA
  • Few officials with less experience (comparative to Indian officials) negotiated and have agreed to Indian Proposals
  • Director General of Commerce is the overall leader of the Sri Lankan negotiation team for CEPA. Since 2005 four had been three Directors of Commerce who have headed the Sri Lankan team.
  • However the Executive Director of Institute of Policy Studies, who is heavily promoting CEPA, has been there right from the beginning.
  • There is another Professor who is a head of a NGO who is pushing to get the CEPA agreement signed.

Since 2005 the negotiations are going on but the actual CEPA proposals have been kept a top guarded secret all this time. Although the Indians and one or two of their Sri Lankan supporters claim that the CEPA will have an immense benefit for Sri Lanka, the complete agreement has not been shown to any of the Sri Lankan Industrialists, Service Providers or Professionals.

What Sri Lanka should have done was to entirely reject the Indian proposal for CEPA and insisted India to remove the “Non Tariff Barriers” and to properly implement IL-FTA. However the Indian pressure and their influence on some Sri Lankan officials made it possible for the CEPA proponents to complete a frame work agreement of CEPA that was submitted to the President for signature during the SAARC summit in 2008. Nonetheless having listened to the Sri Lankan Industrialists and Professionals His Excellency the President refused to sign the CEPA agreement at that moment. Moreover, the President met leading Industrialists and Professionals after they carried out a large protest against CEPA in May 2010 and assured them that he will not sign any agreement that is not favourable to Sri Lanka.

Position in 2015.

After His Excellency The Presudent Maithreepala Sirisena took office in January in 2015, India came up the strongly with the idea of promoting CEPA. luckily President Maithreepala Sirisena too has given an assurance to Sri Lankan industrialis and proffesionals that he will not sign such agreement affecting the local entrepreneurs. However India will not give up their efforts to get the CEPA signed. Therefore Sri Lankans should not relax until the idea of CEPA with India as completely taken out from the negotiating table.

India asks for help from China to reduce huge trade deficit.

As per UN and IMF data for the year 2013, USA is the leading economy in the world with a GDP of USD 16.77 Trillion. China is in the second place with USD 10.35 Trillion. Our big neighbour India is at the 10th position with USD 2.04 Trillion. Although India has aspirations of beating China, it seems that India has lost the race of Asia’s supremacy to China, as at present China’s economy is over 5 times that of India.

Although India sees China as a threat for India’s long-term objectives, even without any FTA between the two countries, China is the largest trade partner of India. According to an International Trade News article published in September 2014 during the visit of the Chinese President Xi Jinping to India, China has a trade surplus of USD 35 billion out of a total of USD 66 billion trade between India and China (China’s exports of 50.5 billion vs India’s exports of 15.5 billion). During the discussions, Indian Prime Minister Modi has appealed to China to help India to reduce its trade deficit.  On another request of India, China had agreed USD 20 billion investments in India in the next 5 years. These facts negates the Indian argument that Chinese investments in Sri Lanka is a security threat to India.

Therefore the Sri Lankan Government should work towards increasing exports to China and invite investments from China rather than surrendering to Indian pressure to accept unfavourable CEPA agreement that will only benefit India.