US resolution: What will the impact on Sri Lanka be? Brief insights from Asia Wealth

With the country abuzz with the contentious US resolution on Sri Lanka at the ongoing UNHRC sessions Asia Wealth Management Research team has come up with a brief analysis of the move’s impact if any.

Here are excerpts from Asia Wealth’s analysis:

The US proposed resolution on Sri Lanka in the current session of the UNHRC calls on the Sri Lankan Government to implement recommendations of its own Lessons Learnt and Reconciliation Commission (LLRC) and initiate credible investigations into allegations of human rights breaches not addressed by the LLRC report. It calls for the regime to “accept advice and technical assistance” in implementing these steps and present a “concrete and comprehensive action plan” before the next UNHRC session scheduled to be held end of this year.

This is to say that the impact US resolution could bear on Sri Lanka’s economy and capital markets is not entirely benign.

The Sri Lankan Government is assisted with a ‘grace period’ to bring about the developments proposed by the resolution which calls for independent inquiry of extra judicial killings during war and enforced disappearances, initiate a political settlement to the ethnic issue focusing on power devolution and demilitarisation of the north and east.

These measures proposed by the LLRC go far beyond the general conduct of the Sri Lankan Government. Failure by the Government to implement these recommendations before the next UNHCR session could result in United States adopting an unfavourable measure on Sri Lanka in the form of imposing bilateral trade sanctions. However, currently, any immediate measure against Sri Lanka is ruled out and Colombo is offered a way of ending international criticism and the danger of Government leaders facing war crimes trials.

For the Obama administration, the issue is a device to put pressure on Colombo to shift away from the closer diplomatic and economic ties established with Beijing. At the same time, Sri Lanka is lobbying against the US-backed resolution and appears to have the support of China and Russia, but India has not declared its hand.

New Delhi is seeking to boost its influence in Sri Lanka, but is also concerned about the political impact in Tamil Nadu of rejecting the resolution. Clearly, the fact that India and China supply over 30% of Sri Lanka’s imports-led consumption as against 1.2% by the US suggests that it’s in the national interest of these two nations to stand against the US backed resolution.

On the other hand, the US and the EU account for over 56% of Sri Lanka’s exports receipts as opposed to China and India accounting for only 0.9 and 5.6%, respectively. This reflects the degree of Sri Lanka’s export dependency on Western markets and the impact of any US led bilateral trade sanction on overall economic welfare of Sri Lanka. As of 2009, there are several United States embargoes and sanctions enforced against several countries.

Some sanctions imposed by the United States Government are:

Requiring the United States to oppose loans by the World Bank and other international financial institutions.

Tax credits for companies and individuals denied for income earned in listed countries.

Duty-free goods exemption suspended for imports from those countries.

Authority to prohibit a US citizen from engaging in financial transactions with the Government without a license from the US Government.