CNCI submits views on SL-S’pore FTA to Presidential Commission

Ceylon National Chamber of Industries (CNCI) Chairman Raja Hewabowala stated in a media release that the CNCI has submitted their observations on the Sri Lanka Singapore Free Trade Agreement (SLSFTA) to the Committee of Experts appointed by President Maithripala Sirisena. 

Elaborating on the issues, Hewabowala mentioned that the Chamber is not against the FTAs as we need to penetrate into the international markets as ours is a small market of a 21 million population. Our concern is that the conditions of any FTA should be done in a more balanced manner so that the Sri Lankan industries will have a fair play. 

The business environment in the country for industries surrounded by heavy cost of production with high interest rates, high cost of energy, poor infrastructure, high cost of material imports, rapid deprecation of rupee against dollar, etc. are not conducive compared to the other countries concerned. This scenario with our scale of production does not immediately make the local industrialists ready to compete with the international giants. As the only chamber for industries in the country our endeavour is always to create a level playing field for the local industries, he further added. 

Following are the observations made by the CNCI:

Gradual removal of CESS 

Chapter 02  National Treatment and Market Access for Goods Appendix 2-A-1 Tariff Schedule of Sri Lanka List states the gradual removal of current import CESS within a period up to 12 years.

Import CESS was introduced from 2005 onwards to safeguard local industries from unfair competition through Indian imports arising from the tariff liberalisation under the Sri Lanka India Free Trade Agreement. The proposed removal of CESS under SLSFTA will not be limited only to imports from Singapore but will also be applicable to imports from other countries as well.

Since CESS is the only Para-tariff protection available for Sri Lankan manufacturers of such products to fight with imported products, we request to re-negotiate the above removal of CESS for products which need safe guarding. Further, removal of CESS should be done on a unilateral basis and not be included in the SLSFTA or any future Free Trade Agreements.

Effects of expropriation 

and retrospective benefits

In the SLSFTA released by the Government, Annex 10-A communicates details of expropriation. In Annex 10-A, paragraph number 2 refers to direct and indirect expropriation. 

Chapter 10

Section A, Article 10.10 – Expropriation 

“10.10.1. Neither Party shall nationalise, expropriate or subject to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as “expropriation”) an investment unless such a measure is taken on a non-discriminatory basis, for a public purpose, in accordance with due process of law and upon payment of compensation in accordance with this Article” 

In accordance with the agreement, the Government of Sri Lanka will have to pay compensation where an arbitrator will decide under Chapter 10 Section B-Investor-State Dispute Settlement. Thus, it is understandable that final judgement on the sum to be compensated will be decided by an arbitration tribunal. Singapore is also an established centre f or arbitration and Singapore has a very high record of arbitration success. However, Sri Lanka has had a very poor record of arbitration success.

As per section 10.A, Article 10.2 paragraph 1.b. (Scope and Coverage); the agreement provides all the benefits to investments of either country with retrospective effect.

“1. This Chapter shall apply to measures adopted or maintained by a Party relating to: (a) investors of the other Party; and (b) all investments made by investors of one Party in the territory of the other Party, whether made before or after the entry into force of this Agreement.” 

Singaporean citizens and companies are the beneficiaries of the effects of Section 10-A ,Article 10.2 of the agreement as the Government of Sri Lanka is at liberty to acquire or expropriate any land or any investment of a Sri Lankan citizen or a Sri Lankan company without referring to arbitration at any given time. Under the protection of Section 10 A, Article 10.2 not only Singaporean companies or citizens who will come to Sri Lanka in the future but the Singaporean companies who have been conducting businesses in Sri Lanka for many years will also have the protection under the right of going for arbitration and win exceptional sums of money as compensation under this agreement. This amounts to a clear discrimination of rights of Sri Lankan citizens and companies. Thus, we strongly propose to remove retrospective benefits given through this agreement. 

Reference to ‘Regional Value Content’ in Rules of Origin

Chapter 02 

Protocol 1, Section 2, Article 10 1(b) & Article 15 2

Article 10.1(b)

In determining whether a good meets a regional value content requirement, the value of the accessories, spare parts, tools or instructional or other information materials, as described in paragraph 3 of this Article, are to be taken into account as originating or non-originating materials, as the case may be, in calculating the regional value content of the good. 

Article 15.2

Each Party shall provide that if a good is subject to a regional value content requirement, the value of the packaging materials and containers in which the good is packaged for retail sale, if classified with the good, are taken into account as originating or non-originating, as the case may be, in calculating the regional value content of the good. 

As per above, the agreement refers to ‘Regional Value Content’ which is not defined within the scope of the agreement. ‘Regional Value Content’ for Rules of Origin could be interpreted to include all countries which Singapore has signed FTAs with. Thus, we request the committee to clarify above and to ensure that Rules of Origin should be strictly confined to the two party countries. 

Further, Singapore offers duty free imports of most products and there is no benefit that Sri Lanka is going to get through SLSFTA with regards to exporting goods to Singapore.

Direct consignment

As per the Paragraph 1 of Article 18 (Direct Consignment) of the agreement, “Allowing the goods transported through Third Party Countries to be considered to meet the Consignment Criteria and accepting ambiguous documentation on such consignments”. 

“1. The originating goods of a party shall be deemed to meet the consignment criteria under this agreement when they are:

a) transported directly from the territory of that party to the territory of the other party or

b) transported through the territory or territories of one or more non-parties for the purpose of transit or temporary storing in warehouses in such territory or territories, and the goods have not entered into trade or consumption there provided that 

i) they do not undergo operations than unloading, reloading, or operations to preserve them in good condition

ii) the transit entry is justified for geographical reasons or by considerations related exclusively to transport requirements”

As we know the direct shipment from Singapore to Sri Lanka takes only three-four days and there is no geographical requirement to include such a clause to this agreement.

With the ambiguous documentation requirements for consignments from third party countries as stated in paragraph 2 of the article 18 which specifies the documentary evidence required to fulfil the conditions set out in the article 1, ‘sub paragraph c’ of page 14 

“(c) where the documents referred to under sub paragraphs (a)or (b) above cannot be produced, any substantiating documents acceptable to the customs authorities”

Further, we request the Government to help facilitate development of local industries through low energy cost, low interest costs and better infrastructure which will enable our local industries to be competitive in the region. Even the above will not be possible unless indirect expropriation clause under chapter 10.10 remains in this agreement or included in any other agreement in the future. Therefore, we reiterate that indirect expropriation shall not be included in this agreement or any future agreements with any country.