India is trying to fast-track negotiations on the proposed Economic Technology Cooperation Agreement (ECTA) with Sri Lanka, which would result in an expansion of the existing free trade pact in goods and also include services and investments, by striking a balance between services and goods. With China, too, seeking to conclude a similar economic pact with Sri Lanka this year, New Delhi is eager to ensure that it doesn’t fall behind, a government official told BusinessLine.
“India and Sri Lanka had initially resolved to conclude the pact by the end of the last calendar year but couldn’t do so due to some niggling issues in services and rules of origin. The third negotiating round in Colombo earlier this month was encouraging and we hope to take it forward in March in New Delhi and conclude the talks soon,” the official said.
New Delhi is keen to enter the services sector in Sri Lanka, but there are apprehensions in the country that the strong Indian companies could uproot local businesses. “We understand Sri Lanka’s concerns, but services remain our strong area. That is why we are trying to reach an agreement on areas within services, like IT or ship building, where Sri Lanka needs service professionals and India would not be disrupting anything,” the official said.
Sri Lanka also wants more flexible rules of origin — the rules which determine to what extent a partner country needs to add value to imported inputs for it to qualify as originating from that country.
While China’s efforts to conclude a free trade pact with Sri Lanka has put India on its toes, New Delhi has been assured that it would not be discriminated against. “Sri Lanka has assured that its pact with China will in no way affect the country’s strategic and economic ties with India,” the official said.
India and Sri Lanka signed their free trade agreement in goods way back in 1998, which resulted in higher imports from Sri Lanka in the initial years, with India catching up later and the country also benefiting on the investments front.
“Although there was no provision of investments in the FTA, India became largest sources of FDI into Sri Lanka because of the linkage between goods and investments. Indian companies, taking advantage of the free trade regime and the literate workforce started investing in the country,” pointed out Ram Upendra Das from Delhi-based think-tank RIS, which played an instrumental role in signing of the initial FTA.
Das said that even services, for instance tourism in both countries, has flourished in the absence of an agreement in the area. “A wider pact encompassing both services and investments will give a further boost to bilateral economic relations,” Das said.
India’s exports to Sri Lanka amounted to $5.3 billion in 2015-17 whereas its imports from the country were at $743 million.