The Sunday Leader

CEPA: The Good, The Bad And The Ugly

The secret of freedom lies in educating people…” said famous Revolution Era French politician Maximilien Robespierre.

Arguments for both for and against the hotly-debated Comprehensive Economic Partnership Agreement with India have intensified and various rumours make rounds, possibly setting this contentious issue as the second most-argued topic, after Geneva.

Unfortunately, there appears to be a great deal of unmerited ignorance and lack of awareness amongst the public relating to CEPA, still. Sadly, this ignorance has led the masses to be maliciously misled by persons with vested interests on both side of the divide, manipulating public sentiments to their own petty, short-term advantages.

In fact, this dilemma compelled Prime Minister Ranil Wickremesinghe to abandon CEPA negotiations with New Delhi, during this week’s courtesy call to India- his first overseas visit as the newly-elected Premier of the now-stable United National Party Government.

Development Strategies and International Trade Minister Malik Samarawickrama issued a statement dismissing baseless rhetoric raised by several politicians with vested interests that Indo-Sri Lanka CEPA would be finalized during this visit, assuring the public that his Government would proceed only after careful scrutiny of the trade pact.

The Indo-Sri Lanka CEPA is the second most vital pact with India, second only to the Indo-Lanka Peace Accord signed in 1987, which radically changed the political landscape of Sri Lanka; and the most crucial trade agreement ever to be entered into by Sri Lanka, possibly having wider impact even in the event a free trade agreement is inked with China or Sri Lanka is included into the US$ 27 trillion worth Trans-Pacific Partnership. CEPA will create a single ‘economic space’ between the two nations, encompassing inter alia – trade in goods, trade in services, investment, economic and technical co-operation, intellectual property, competition, dispute settlement between the two nations.

With a combined population of 1,278 million, the economic landscape created by CEPA will  be roughly two and a half times the size of world’s largest two common economic areas –  the  European Union with its 508 million populace and 472 million—strong North American Free Trade Agreement (NAFTA) countries (which include United States, Canada and Mexico).

Proponents say that GDP (Gross Domestic Product- Purchasing Power Parity basis) of world’s third strongest economic powerhouse – India (US$ 7,996.6 billion) and Sri Lanka (US$ 233.6 billion) put together would be US$ 8,229.2 billion or a staggering 35 times than Sri Lanka’s economy although it’s just 44.42% of EU’s 18,526.5 billion (2014) GDP or 40.82 NAFTA’s US$ 20,162 billion economy.

On the other hand, opponents cry foul pointing out that bilateral trade between the two was US$ 5.23 billion in 2013/14 with Indian exports amounting to staggering US$ 3.98 billion in comparison to Sri Lanka’s dismal US$ 678 million exports to India.

Some who remember the horrors which engulfed the country during the signing of the Indo Lanka Accord are skeptical that CEPA is being ‘enforced’ upon Sri Lanka by its Big Brother across the Palk Strait. Some left-leaning persons have pointed out that such a partnership may led to complete ruination of what is left of the local manufacturing industry far more worse that what was experienced after the liberalization of the economy in 1977 which dealt a heavy blow due to unhindered, unchecked inflow of cheaper imports into the country.

However, pro-CEPA camp opines that Sri Lanka should learn from its past and that Sri Lankan businesses should not fear competition but in fact embrace it in order to become fully-fledged, global players. Let the liberalization be gradual and on a stage-by-stage basis so that Sri Lanka can control its negative impact if at all, they seem to say.

Although not dismissing its positivities, renowned economist and Senior Lecturer of the Department of Economics of Colombo University, Prof. Sirimal Abeyratne cautioned Sri Lanka on dangers of protectionist economies giving exclusive, preferential treatment to selected, handful of countries, in an exclusive interview with The Sunday Leader (See http://www.thesundayleader.lk/2015/08/09/boom-or-doom/).

“Sri Lanka would face a major economic upheaval if we go for bilateral pacts in free trade, giving exclusive access to economic giants such as India in exclusion to other economies, whilst having a protectionist regime… Although many do not understand, Free Trade Agreements (FTAs) are only second best options for us. Still, having FTAs without liberalization will leave room for market distortion and probably chase out other competitors which would be further detrimental for us,” lamented Prof. Abeyratne.

In the light of this comment, it is pertinent to pen down some of the thoughts shared with the writer by an Indian businessman who has made a niche for himself in Lankan apparel industry and lived for over two decades in the ‘extension of India’ as he calls it.

“From a point of view of Sri Lankan businesses, CEPA would undoubtedly favour India and Sri Lanka has more to lose than to gain. In most areas, from manufacturing costs or labour or expertise or economies of scale, Sri Lankan entrepreneurs would be in no position to match their Indian counterparts. All in all, if not structured to favour or give that competitive advantage to Sri Lanka, CEPA would sound the death knell to most local industries, be it manufacturing or be it Information Technology. Finally, I believe that India would strategically and economy-wise achieve through CEPA, would it could not politically achieve through Indo-Lanka Peace Accord three decades back!”

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