Mr. L. Abeysinghe speaks about ETCA

Mr. L. Abeysinghe speaks about ETCA

The Indo-Sri Lanka Economic and Technology Cooperation Framework Agreement or “ETCA” as it is more commonly known, is causing waves of controversy in SRI LANKA. Island-wide protests have been initiated by diverse professional associations, political entities and businesses which from time to time have used ETCA for furthering their respective agendas.

What REALLY is ETCA? Interestingly ETCA is still an agreement in the making which is currently at the stage of a framework agreement (ETCFA). A framework agreement is what sets the scope of future agreements whilst in its draft stages. Despite this fact, the critics are out en masse. Protests have been the norm since 1998, when the Free Trade agreement was first signed between India and Sri Lanka to be followed by protests over an all-encompassing CEPA (Comprehensive Economic Partnership Agreement) and most recently, opposition to the proposed “ETCA”.

A common theme however is evident with all protests seemingly based on assumptions instead of facts. This is a dangerous path to tread given that elements of these agreements could essentially make or break our potential economic advancements.

The core objective of ETCA is to secure Sri Lanka’s access to the largest market in the region. However, ETCA cannot be considered in isolation and should be one key initiative amongst many in Sri Lanka’s efforts to emulate countries such as Singapore, which have grown rapidly despite possessing considerably lesser resources than their bigger neighbours and counterparts.

In taking a bird’s eye view of our economic history, a common perception and belief seems to involve comparing the rise of Singapore to that of the downfall or rather the stagnation of the Sri Lankan Economy. Successive Governments, Think Tanks and Professionals have continued to voice the belief that, “if not for 30 years of war, Sri Lanka would have been on par or ahead of Singapore”. This fortunately or unfortunately has set the Singaporean economy as the benchmark for our own self-critique. In doing so, Sri Lanka should be cognizant of the fact that Singapore rose to its current status through implementation of clever strategy and a revised focus on inculcating a foreign investor/ trader friendly attitude throughout the country and its people which resulted in Singapore emerging as an international Financial Center and a Regional Hub for International business and trade.

If we were to draw parallels between conditions that existed for Singapore’s growth and that of Sri Lanka, the two constants would be: geographically both countries possess massive markets at their doorstep and both nations are located at maritime chokepoints. However, the key difference is that while Singapore has created pathways to enter these marketplaces, Sri Lanka has not. ETCA is one such doorway by which Sri Lanka can commence its journey towards extending its reach to a wider, deeper and more robust market. Other initiatives already undertaken such as the Megapolis Development Plan guided by Sesma of Singapore, construction of the Financial City (commonly known as Port City), new Hambantota Industrial Park Development and the proposed plan for the development of Trincomalee currently being prepared by Jurong of Singapore, will complement the overarching goal of propelling Sri Lanka to prominence.

One of the most common accusations that are thrown around about ETCA is that, the agreement will allow for cheaper goods to flood the Sri Lankan market, thus endangering Sri Lankan manufacturers. However, the statistics indicate otherwise. A closer look at the existing Free Trade Agreement (ISFTA) with India over the years, provides evidence that Sri Lanka has outstripped India in its percentage increase of exports by 977% to 566%, which is nearly a 2:1 ratio.

What must be highlighted is that of the two countries, Sri Lanka’s reliance on the ISFTA related goods for their exports was 65% as opposed to the Indian reliance of a mere 13% based on goods provided for by the agreement. This augers well for the benefits from ETCA to be stacked in Sri Lanka’s favour despite the high trade deficit with India. One must note that in all practicality, the deficit does not reflect a correlation between the agreements and the imbalance of goods traded.

Overall, Sri Lankan exports have grown more than tenfold to USD 598 million while imports have only grown by 6.5% which is a clear indication of the overall improvement on the trade balance as well. To put this in context with the ISFTA, Sri Lanka’s exports have grown just under 50 times while India’s has grown just under 5 times.

This is a clear indicator of how the ISFTA has been more beneficial to Sri Lanka than to India. The concern that cheaper goods becoming readily available in Sri Lanka due to ETCA is therefore, unfounded, as the statistics show that the majority of exports by India are non-reliant on the ISFTA.

There are also some elements in the protesters’ camp, calling for a fuller implementation of ISFTA provisions and, specifically, reduction of non-tariff barriers which they cite as a reason for the lower level of exports to India. Although this may hold some merit, this yet again is not the complete picture. Non-tariff barriers do cause some difficulty in exports although there are many others as well. First and foremost, it is evident that Sri Lanka does not possess the industries to compete with Indian production, simply because there are no Sri Lankan industries with the capacity to match the scale of Indian production.

There are also close to 4000 product lines provided for by the ISFTA that are yet to be utilised due to many hindering factors such as lack of industry capacity in those areas, internal difficulties, lack of testing and certification etc. It is also of concern that Sri Lanka does not have a recognised global brand presence other than its Tea and Garments. This void has severely restricted our ability to tap into Indian Markets that are increasingly comprised of discerning consumers. However, with initiatives such as the ETCA it is reasonable to predict that Sri Lanka will be able to attract global investors and renowned brands with a ready-made platform that provides access to a market of 1.2 Billion people of which 40% belong to the upper middle class or middle class categories.

Vocal opposition has also been staged over the opening of the services sector, especially the Information Technology industry and Dockyard Workers. Most of these protests project myths steeped in disinformation and misrepresentation with examples such as stories about Indian doctors that would provide cheaper health services in comparison to Sri Lankan doctors. The draft agreements contain no such provisions for such events to materialize. If we are to move forward, we need to understand that we cannot promote protectionism and yet be competitive on the global stage. This is evidenced by the fact that the Sri Lankan IT industry, even though it is picking up, is severely hampered by a shortage of top level IT engineers which has resulted in the escalation of cost. While this may bode well for the IT professionals, it has unfortunately retarded the growth in sectors where involvement of such professionals was critical. Canada provides a great example of not being negatively impacted by maintaining open entry for service related professionals with the USA. This policy has in fact fostered skill transfers and advancement of knowledge through professionals of the smaller country being exposed to the vibrancy of its larger neighbour. This debunks the theory that the larger economy presents competitive offerings of services and products which then in turn heralds the demise of industry in the smaller partner.

This phenomenon is better understood by comparing the vast differences in cost of living across India’s 29 States where there is no evidence of professions from the cheaper states encroaching on the Opportunities prevalent within the relatively more lucrative townships and cities. The reason for this can be explained by basic logic. For such a migration to be successful any such professionals would need to provide their services at a cheaper cost to be competitive. That however would be impossible as they need to contend with their own cost of migration as well as having to adjust their cost base in line with the prevailing cost structures and standards of living in their newly chosen markets.

On an even more basic level, proponents of these arguments should realize that such a threat as Indian dentists being able to attend to the dental requirements in Sri Lanka is similar to acknowledging and believing that a dentist in Nuwara Eliya would be able to provide dental care in Colombo for the same price as what he would dispense his services in his hometown. Thus the tale of a professional invasion due to ETCA loses any credibility it sought to gather.
Resource By: http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=163315

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Article Code : VBS/AT/12042017/Z-1

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