The signing of the Economic and Technological Cooperation Agreement (ETCA) with India that is still at a negotiation stage has become a controversial issue at present. This bilateral agreement is expected to contribute towards development of both countries in four main spheres: trade, economy, investment and technology. However, critics do not believe it would benefit Sri Lanka.
The ETCA is the third bilateral agreement between India and Sri Lanka. First, it was Indo-Sri Lanka Free Trade Agreement in 1998/2000 and the second was the Comprehensive Economic Partnership Agreement (CEPA) in 2002. To some critics, the ETCA is the same old CEPA under a different title. However, the difference is that unlike the CEPA, ETCA covers trade in services, especially IT, marine, shipbuilding and engineering. The most controversial clause in the agreement is Mode Four-“Presence in person” with regard to trade in services, which has led to huge controversy in the country.
Professional bodies like the Government Medical Officers Association(GMOA) are fearful of intrusion of doctors from India. Their concern is no doubt due to the prospect of their monopolistic private practice and high fees being eroded. The information technology industry is divided on the issue, some favouring while others not agreeable.
Small and Big
One of the concerns is the asymmetry of the two countries. Critics point out that with the significantly large population and labour force, there is massive unemployment in India. It is feared that the signing of the ETCA and inclusion of the section on Services tradewill allow free migration of professionals between the two countries. Furthermore, they contend that with the above labour market in India, there is no opportunity for Sri Lankan professionals to get employed in India. There is a fear that there would be an influx of Indian labourers that would aggravate the unemployment issue in Sri Lanka.
However experts, including the Institute of Policy Studies (IPS) point out that these fears are unfounded. They point out that the fears in entering this agreement is based on the rather wrong delusion that the agreement would be disadvantageous to the country as Sri Lanka is tiny compared to its northern large neighbour. If this is a valid argument, then it would not be possible for small countries to have trade agreements with large countries. In fact Singapore, a much smaller country than Sri Lanka, has a number of economic and trade agreements with large countries. New Zealand has a trade agreement with Australia, her very large neighbour that is of much benefit to the small island. A large number of trade agreements in the world are small country-large country agreements. The asymmetry of the two economies does not mean that the ETCA would inevitably be detrimental to Sri Lanka’s trading and economic interests nor result in a loss of employment.
However, the asymmetry between the two economies has to be considered in framing the agreement. This issue can be addressed by negative/positive lists and transitional arrangements can result in an ETCA, which provides a framework for taking advantage of the proximity to the growing Indian economy and her huge market. It is generally recognised that it is in the interests of smaller countries to negotiate a rules-based regime to manage bilateral relations with much larger economic partners. The challenge is to ensure that the rules maximize Sri Lanka’s interests and that there is a dispute settlement mechanism in place. The prospects of achieving this are likely as both sides have accepted the principles of non-reciprocity, and special and differential treatment.
The other main fear is that the agreement would favour Indian imports rather than Sri Lankan exports. Critics say that if Sri Lanka signs the ETCA, Indian products will come to us without tariff. With low prices, they will become dearer to us. Consequently there is a fear that the trade deficit with India would increase. The possible impact of the ETCA on Sri Lanka’s trade will be examined and discussed in the next column.