Thursday, 9 April 2015 11:42
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The industrialists and business houses successfully resisted Indian pressure to dominate us into accepting CEPA. The Sri Lankan business community vehemently resisted. They marched in procession to the President’s ‘Mandira’ and handed over a petition outlining the grave dangers that would befall the local industries, the strangulating effect it would inevitably have on the small-scale entrepreneurs. Fortunately we were in time to prevent it going beyond for further action.
India was actively pursuing the introduction of CEPA. This was the time when we were approaching the maturing of the Indo-Lanka FTA where the residual list was to be completely removed in 2008. The Comprehensive Economic Partnership Agreement (CEPA) was rejected by the Sri Lankans except by a microscopic minority of industrialists of Indian origin, now domiciled in Sri Lanka.
Why did Sri Lankans reject it?
The important question is, why did the Sri Lankans reject it? Let’s go back and look at the scenario. Not only ourselves but every Sri Lankan who has had a facility in India has sad stories to relate. CEPA would have been harmful and would have created severe repercussions to trade and employment in our country.
India has a population of over one billion, whereas our tiny island has 20 million. India is industrialised; Sri Lanka can only boast of a few FMCG industries that may succeed in a niche market against the Indian giants. The scale of operation in India is large, gigantic in comparison, and the advantages are manifold.
The COP is less and has a competitive advantage over Sri Lankan products.
Large-scale advertising, which is affordable to the huge companies, would smother the local efforts. Besides, those advertisements are brought as a package in India, which includes Sri Lanka without additional costs. All production costs for the advertisements including artistes, even the airing is paid in India and we get zero perhaps monitoring costs that is a pittance.
The large conglomerates can sustain a long price war, which the industries of the small neighbour cannot afford.
Other advantages that India has over Lanka, according to the Chairman of the Confederation of Indian Industry, Subodh Bhargava, published in the Daily Mirror Business section on 18 March, to quote: “Sri Lanka doesn’t have raw materials (on par with India) and the skilled labour pool is limited.”
He further states that in 2005 Indian exports amounted to $ 1.44 billion while Sri Lankan exports were $ 590 million. The gap has narrowed and exports to India have grown faster than India’s export over here. However, though statistics look favourable, the study reveals that the increase of exports is mainly from the Indian operation of vanaspathi and copper. Raw material for these two products is imported and the value addition is from employment, energy, and local profit.
Energy is again an import and perhaps subsidised. The local profit is minimised so that it will swell tax-free income in India. In effect the actual value addition is from employment and office expenditure. But in employment large numbers are from India, both at the factory level and in management drastically reducing the opportunities for local employment.
Part wages of the Indian workers are paid in India, which will swell the profit of the tax free repatriated income. Cheap Indian labour housed in congested rooms is profitable to the operators but is creating dissension amongst the local population and if allowed to grow unhindered may cause a serious situation. It nearly happened in the Horana industrialised zone.
All these reduce the value addition in Sri Lanka, and when the tax-free profit is repatriated to the Indian owners, what is the real value addition to the country?
India’s attitude to imports from Sri Lanka
The non-tariff barriers and the local Indian taxes were issues even before the FTA came into operation, but no meaningful action was taken to resolve them. A more important matter is India’s attitude to imports from Sri Lanka. There is resistance and harassment overtly displayed to Sri Lankans.
Out of the very few home-grown companies who had tried to export their products, most have given up because of the harassment at Customs, very visible in Chennai. It has happened to us too often. Most Indians too are aware that Customs officials are averse to imports. An officer once asked, “So you are now exporting?” as if to say you have no right to do so.
CBL was exporting to over 35 destinations. Today it has risen to over 52 countries. In another instance when we exported by air our range of speciality chocolates to study the Indian market before venturing in to a manufacturing facility, we experienced Custom delays, pilferage and storage in non-A/C environment, which dissuaded us from proceeding further.
Then again for a short time Ceylon Biscuits was blacklisted by the Chennai authority, claiming that we were under invoicing. At that time the Indian operation was heavily subsidised and there was no logic in increasing the debt especially as the local banks and the Exchange Control were breathing down on us on overdue payments on exports. Another delay was encountered by subjecting the imports to a standard and quality evaluation that created inordinate delays, sometimes well over four weeks and the consignment incurred demurrage and product deterioration.
A regular exporter of floor tiles to India for a number of years was suddenly called upon to pay duty as Customs challenged the validity of the HS Classification. He got redress after a long-drawn-out court case at great expense. These amply demonstrate that the Indian ethos is anti-imports and more pronounced towards Sri Lankans.
Ceylon Biscuits’ operation in India
Ceylon Biscuits’ operation in India was considered a flagship operation for a Sri Lankan industry, but unfortunately we have had resistance from the beginning with the export of Tic Tac to India. The value addition was much more than the 35% as stipulated in the Asia Pacific Trade agreement. Unfortunately the attitude should be not rejection at the slightest excuse but to assist and take a realistic approach as outlined in the FTA.
The Sri Lankan Ministry of Commerce has time and again supported not only the Tic Tac issue, there are much, much more items too facing similar problems, but there has been no response from Delhi despite the numerous times these have been taken up.
I too have met secretaries and the Director of Commerce in India who assured that there is no issue with Sri Lanka but against other exporters. But after Tic Tac was established in the market, the decision was reversed, obviously for the selfish motive of starting the operation in India.
The Tic Tac issue was over two years at that time and instead of postponing these issues and keeping them in abeyance we as industrialists would like a firm ‘yes’ or ‘no’.
Spirit of the FTA heavily undermined
Under these circumstances, where the spirit of the FTA is heavily undermined, entering into CEPA is totally inadvisable. These are not anomalies that could be corrected but an established mindset too formidable and concretised to change. It may require a few more Modis with determination to effect changes – to realise that other countries too like to expand and would compete where fair trade is established.
From India’s point of view, Sri Lanka is an attractive market for their products, and unhindered at the entry point. And our attitude is not one of anti-imports – not even to the Indians.
There are serious apprehensions about the intent of calling it the India-Sri Lanka Comprehensive Economic Partnership Agreement whereas the agreement signed between India and Singapore was called CECA, Comprehensive Economic Cooperation Agreement. A partnership suggests a legal binding, an entrenchment, whereas cooperation is not rigid.
GATS Article 1.2, which refers to Mode 4, should apply to Movement of Natural Persons (MNP) from developing countries to developed countries. Hence this movement between Sri Lanka and India would be one-sided and needs no imagination to know the disaster that would spell to tiny Sri Lanka. Already the Indian influx to labour and managerial posts is evident and the Sri Lankan construction industry has already protested. The advertising and travel trade are further examples.
Another danger that must be brought to the surface is that Indian CEOs have a tendency to close down local operations and source products from India to supply the local demand. Our protests to the Customs to raise duties in such instances have not been effective.
Finally, I would like to reiterate that India is massive and strong and has great economic and industrial clout.
That India would soon become a world leader is not a prediction but a fact that will happen sooner than what the pundits forecast both in material and spiritual progress.
We have to recognise this and India’s attitude should not be one of resistance and obstruction but supportive and condescending towards its tiny neighbour.
