Agreement of ETCA and a Comprehensive Economic Analysis

Introduction

Sri Lanka and India has a great history of social, geographical and economical aspects. When looking at the economic aspect of the history of trade between Sri Lanka and India goes to the pre-colonial era. In general, countries engage in trade due to access to different goods, a potential for economies of scale increases competition, generates economic growth, adds global value, factor endowments and etc.

(adsbygoogle = window.adsbygoogle || []).push({});

When countries engage in trading with other countries they have to face a lot of tariff and non-tariff barriers. Entering to trade agreements reduce those barriers and making an environment which more stable and transparent for trading and investments between countries. Sri Lanka has entered two bilateral agreements called Indo Sri Lanka free trade agreement(ISFTA) and Pakistan Sri Lanka free trade agreement(PSFTA).  As the multilateral agreements, South Asian free trade agreement(SAFTA), Asia Pacific trade agreement(APTA), SAARC agreement on trading services, the generalized system of preferences(GSP) and SAARC preferential trade Agreement(SAPTA) Sri Lanka has entered.

India is Sri Lanka’s third largest export destination while the India is the major origination of imports of Sri Lanka. As well as Sri Lanka is the second largest trading partner of India in the SAARC region(‘International Trade Statistics of Sri Lanka - 2015’, 2015). Therefore, they have entered ISFTA in 1998 and it is operated from the year 2000. From 2003 they have discussed comprehensive economic partnership agreement(CEPA) time to time. In the CEPA they discussed regarding four fillers including trade in goods, trade in services, Investment and economic cooperation. After appointed of the new government in 2015 they started to discussed again an agreement called Indo Sri Lanka Economic and Technology Cooperation Agreement(ETCA). The special fact is no one of two government publish the agreement of ETCA. But some organizations have drafted the content of the agreement and Sri Lankan government failed to reject that drafted agreement.

Sri Lanka Economic and Technology Cooperation Agreement(ETCA)

The ETCA agreement has three main objectives

a)      To strengthen and advance the economic, trade, investment and technology corporation between two parties

b)      To promote further liberalization of trade in goods, liberalizing trade in services between the two parties and gradually establish faire, transparent and facilitative trading, investment and investment protecting mechanisms.

c)      To expand areas of economic cooperation and establish corporation mechanism.

(Government Medical Officer’s Association, 2016)

According to the scanned version of ETCA agreement (Figure 1)released by government medical officer’s association(GMOA) most debatable fact is it is included mode 4 of services. That means the agreement proposed movement of natural persons between countries to provide services. Before signing that kind of agreement Sri Lankan government should assess what happens with previous agreements and whether we acquired benefits and assess the issues raised trading under those agreements.

Trading experiences with India                     

Sri Lankan government is having ISFTA agreement with India which is operating from the year 2000.According to Table 1 and Figure 2 imports from India are increased more rapidly than export to the India. Therefore, the trade balance has continuously increased. Around 80% export to India is covered by this agreement while around 20% of imports to Sri Lanka covered by this agreement. According to the Figure 3 some years reported positive trade balance under ISFTA the total negative balance has increased during past 15 years. The objective of trade agreements not to have positive trade balance but to promote the trade.as a whole, this increasing negative trade balance shows the failure of ISFTA to promote exports of Sri Lanka. even though Indian imports not covered by ISFTA Indian government pays 15% of tax concession on their imports object of promoting exports of India (Wickramasinghe & Perera, 2017). That is one reason for increased imports from India.

Even though the purpose of the trade agreement is promoting trade India is behaving dishonest manner. They impose non-tariff barriers on imports from Sri Lankan goods. They imposed a quota on major exports (Garments, Tea, Pepper, desiccated Coconut, Margarine, Textile) from Sri Lanka. Introduce minimum floor price for Sri Lankan products (Marble and Granite slab US$ 80). Another hand they have limited the number of ports that can import some Sri Lankan products (Pepper, Tea). Sri Lanka can export tea only through cochin port and Kolkata port. Due to Kolkata is Indians major tea growing area exporting through Kolkata is not much benefit to Sri Lanka. Not only that India is a federal state, therefore, imports are subjects to both central government tax and regional government tax. In Thamilnadu they charge 10.5% tax on domestic goods while charging 21% of tax on Sri Lankan goods. Likewise, India is trading dishonestly and getting more benefits from ISFTA than Sri Lanka.  

Comprehensive Economic Analysis of ETCA

Countries enforcing trade agreements purpose of getting benefits from that and increasing their exports to the world. even though Sri Lanka already have a bilateral trade agreement with India and it seems to be unfavorable for Sri Lanka the government going to sign another agreement which covers more aspects of trade including service. According to Table 2 USA (27.42%), UK (10.07%), India (6.3%) became the major export destination of Sri Lanka. India is in 3rd place with 6.3% of total imports in 2015.therefore why are not going to sign an agreement with USA or UK which has positive trade balances and going to sign with India which already has large negative trade balance. Therefore, the ETCA agreement will Couse to increase negative trade balance with India.

ETCA agreement proposed trading seven kinds of services to India and India offer sixteen kinds of services to Sri Lanka. (Padeniya, 2016) The most debatable fact is free movement of natural persons (Mode 4) included in this agreement. India has 4.9% unemployment rate with 48.26 Mn. unemployed persons and Sri Lanka has 4.7% unemployment rate and 422446 unemployed persons. India unemployment is more than double of Sri Lankan population.  Due to the lower cost of Indian labors, Indians will be flooded to here than Sri Lankans who go to work in India. Therefore, Sri Lankan may lose their job opportunities and the unemployment rate will be increased.

Sri Lanka has enormous negative trade balance with India. In 2015, it was USD 3630.27 Mn. According to table 3 Sri Lankan Rupee has depreciated against Indian rupee during last 15 years and it shows depreciating trend further. Due to imports are bigger more than 6 times of exports to India its negatively impact on trade balance and push to increase the price level of Sri Lanka.

According to the cabinet paper, MNPEA/205/108 presented by the ministry of national policies and economic affairs on 2015.09.02 started a pre-hospital care ambulance service in the western and southern province under 7.6 Mn. grant of the Indian government. It helps to transport a patient to close government hospital instantly with pretreatments. Indian nonprofit organization cooperated with Sri Lankan government supply this health service. The bad side of this service is Indian people can work under this program (Mode 4).and they are able to maintain a data base of western and southern people. Obtaining this kind of data by a foreign company may be harmful even to the national security of Sri Lanka.

Even though Sri Lanka has entered few trade agreements with the world they don’t have a particular national policy for international trade. Also, there is no particular person who gets the credibility of this agreements. Government and ministers are changed within few years but the impacts of trade agreements are a long time. Therefore no one takes the credibility of negative impacts of this kind of agreements.

According to Figure 1 Sri Lanka supposed to supply 7 types of services and India supposed to Supply 16 types of services to Sri Lanka including what Sri Lanka supposed. Due to both countries has the same resources why they are going to exchange them.as well as Sri Lanka don’t have an excess of doctors to supply services to India. 

Under the ETCA agreement, most debatable sectors are IT sector and health sector. IT sector is one of largest industry which has spread including Accounting, Health, Engineering, Security and many other sectors. The skilled Indian workers have the market in USA, UK, and Europe which are high paying countries. Rest of law skilled law cost people may come to Sri Lanka and will get jobs. That will Couse to reduce the wage rate and highly skilled professionals may leave the country.

One of the major export to India is boat building (10% in 2013) getting tariff concessions helps to more exports of boats to India. When Implementing agreement like this we should have a sound industrial policy which complies with those agreements. Therefore, tax concession, loan facility, Instructions, etc should be given to export oriented industries.

Proposal to ETCA

Sri Lankan government should be given the definition to each professional and name the qualifications. The government should assess the deficiencies in each sector and limit the number of visas issuing to Indian professionals accordingly. The agreement should be analyzed further engaging specialist in each field and analyze pre-agreement’s performance and issues. appoints people who get the credibility for the transparency of the agreement. Establish sound industry policy which coincident with trade agreements. Making a domestic system for solving problems arising in the agreement which has the consent of India without going to arbitration. Establish minimum wage policy for the profession which has the feasibility. Take actions to impose the cultural barriers to protect Sri Lankan culture.

According to my point of view, ETCA should be analyzed further and this is seeming to be a political decision rather economic decision.

Appendix

Figure 1

India – Sri Lanka Free Trade Agreement (ISFTA)
	Exports (US $ Mn.)			Import (US $ Mn.)			Trade Balance
Year	Total Export to india	Exports Under the ISFTA	% Under ISFTA	Total Import From India	Imports Under the ISFTA	% Under the ISFTA	Trade balance with India	Trade balance (ISFTA)
2001	70.12	15.9	23%	601	113.1	19%	-530.88	-97.2
2002	168.81	114.2	68%	834	8.7	1%	-665.19	105.5
2003	241.14	238.8	99%	1076	150.4	14%	-834.86	88.4
2004	385.49	339.9	88%	1342	394.7	29%	-956.51	-54.8
2005	559.21	543	97%	1399.43	246.2	18%	-840.22	296.8
2006	494.06	431.1	87%	1822.07	459.3	25%	-1328.01	-28.2
2007	516.4	398.2	77%	2875.04	385.3	13%	-2358.64	12.9
2008	418.08	309.3	74%	3006.93	541.4	18%	-2588.85	-232.1
2009	324.87	218.5	67%	1709.93	371.7	22%	-1385.06	-153.2
2010	466.6	358.4	77%	2546.23	573.7	23%	-2079.63	-215.3
2011	521.59	39.5	8%	4349.43	579.6	13%	-3827.84	-540.1
2012	566.37	379.5	67%	3517.23	156.4	4%	-2950.86	223.1
2013	543.37	368.77	68%	3092.67	393.4	13%	-2549.3	-24.63
2014	624.81	375.8	60%	3977.76	540.1	14%	-3352.95	-164.3
2015	643.03	407.2	63%	4273.3	253.3	6%	-3630.27	153.9

                                                                                                              Data: Department of Commerce

 

Table 1

Source: (‘International Trade Statistics of Sri Lanka - 2015’, 2015)

 Exchange Rate LKR/INR

Table 3

Year	2000	2002	2004	2006	2008	2010	2012	2014	2016
Ex.Rate	1.6789	1.9681	2.2328	2.3031	2.5217	2.4870	2.1986	2.1412	2.1663

Figure 4