Lanka the gateway to India
Minister Ranil Wickremesinghe with his Indian counterpart Atal
years of painstaking diplomacy and confidence building measures, Prime
Minister Ranil Wickremesinghe finally came good last week securing for
Sri Lanka a solid foundation with India to ensure economic as well as
Prime Minister Ranil Wickremesinghe, it was a long journey, which
commenced in the early '80s when Sri Lanka's relations with India was at
a low ebb. But he worked from the early '80s with Milinda Moragoda (at
the time special envoy of the government) to build Indian confidence in
his vision for Sri Lanka.
Wickremesinghe's vision, Sri Lanka is to India what Hong Kong is to
China. The Prime Minister's relationship with the Indian political
establishment was built from the time he was industries minister in
President J. R. Jayewardene's government and he developed a close
rapport with the Indian Prime Minister Atal Behari Vajpayee, when the
latter was India's minister of external affairs and also when he was in
was Wickremesinghe while industries minister who in the early 1990s
started negotiations with India for a Free Trade Agreement (FTA), which
was finally signed during the PA tenure in December 1998 and made
operational in March 2000. The preliminary report for Wickremesinghe to
work towards a FTA with India was prepared at the time by Dr. Lal
Jayawardena from the WIDER organisation.
assuming office in 2001, Wickremesinghe made it a point to make his
first official visit overseas to India.
was Wickremesinghe's vision that Sri Lanka should be the gateway to
India and that we should economically integrate with the giant neighbour
across the Palk Strait, especially the southern states.
in his first visit as Prime Minister after the 2001 election, at his
discussions with the Indian Prime Minister, having set out his plan for
peace in Sri Lanka, he offered to India as a confidence building
measure, the Trincomalee oil tank farms as promised under the Indo-Lanka
was also in a bid to give India an abiding interest in Sri Lanka that he
invited Indian Oil to make its presence felt in Sri Lanka.
built on the relationships established from the 1980s, the Prime
Minister thus laid the groundwork for India's dominant presence in Sri
Lanka as a safety net during his very first visit as Prime Minister.
his second visit to India as Prime Minister, the idea of setting up a
Joint Study Group (JSG) was discussed and agreed upon, while a defence
cooperation agreement was also mooted.
the number of security personnel trained on the ground by India has
increased from 700 at the time he took office to almost 2000 by March
the time Wickremesinghe took office, Sri Lanka was in an Indian list
which prohibited the sale of lethal weapons to the country. India took
Sri Lanka off the list in January this year. In addition, the two navies
have also engaged in joint cooperation.
is in this overall background that Prime Minister Wickremesinghe and
Indian Prime Minister Atal Behari Vajpayee last week decided to enter in
to a comprehensive economic Partnership Agreement (CEPA) by March 2004
and also start immediate negotiations for a defence cooperation
defence secretaries of the two countries will now meet shortly to start
work on this agreement.
reproduce below the joint statement of the co-chairmen of the JSG that
prepared and recommended the CEPA and a summary of their
statement of the co-chairmen
India and Sri Lanka enjoy excellent bilateral relations, sustained by
geographical proximity, historical and cultural affinities and frequent
high level political interactions,
The India-Sri Lanka Free Trade Agreement (ISLFTA) was signed in December
1998 and became operational in March 2000. As a result, trade expanded
significantly to touch USS 1 billion in 2002.
During the visit of the Sri Lankan Prime Minister to India in June 2002,
the Prime Ministers of India and Sri Lanka discussed the profound
changes in the international economic and political arena that have been
generated by the process of globalisation, on the one hand, and
emergence of closer regional economic associations on the other. They
agreed on the need to widen the ambit of the ISLFTA to go beyond trade
in goods to include services and to facilitate greater investment flow
between the two countries. Accordingly, a Joint Study Group (JSG) was
set up to make recommendations on how to take the two economies beyond
trade towards greater integration and to impart renewed impetus and
synergy to the bilateral economic interaction, through the conclusion of
a Comprehensive Economic Partnership Agreement (CEPA).
The JSG was appointed in April 2003 and held its first meeting in May
2003. Through its deliberations over five meetings, the JSG concluded
that accomplishment of the CEPA would take the two countries to a
qualitatively new level of engagement by intensifying and deepening
bilateral economic interaction. It would also contribute to greater
receptivity to bilateral, sub-regional and regional cooperation in the
region by demonstrating visibly its benefits to South Asia as a whole.
There was complete agreement in the JSG on the need to forge closer
economic linkages to build on the advantages of geographical proximity
and close political relations. The CEPA would have four components.
First, the existing ISLFTA would be widened to include more goods, and
deepened to improve market access through trade facilitation and removal
of non-tariff barriers. The JSG recommendations, when implemented, would
serve to enhance trade flows through adoption of additional flexibility
regarding the Rules of Origin criteria and through mutual agreement
regarding procedures on issuance and acceptance of Certificates of
Origin. The conclusion of Mutual Recognition Agreements (MRAs) between
product certifying agencies of both countries would help greatly in
mutual acceptability of goods produced in either country.
Second, an agreement will be entered into on trade in services.
Negotiations should cover all service sectors and modes of supply under
the GATS framework and the resulting agreement should cover a wide
spectrum of services. In this area, importantly, the JSG recommends that
the two countries explore ways to lower barriers to movement of business
people and professionals and facilitate Mutual Recognition Agreements (MRAs)
on professional qualifications. The JSG recommendations accord special
priority to market access for provision of transport and logistics
services. Among other action, this will be facilitated by liberalisation
of the bilateral air services agreement to increase the number of
flights and destinations available to each country's airlines, including
Third, the CEPA will include measures for promotion of investment in
each other's countries. The JSG recommends that administrative and
regulatory constraints be removed to promote bilateral investment flows
that would help to maximise mutual benefits of economic integration.
Specifically, the Board of Investment of Sri Lanka should set up a
special cell to encourage and facilitate Indian investment in Sri Lanka.
In India, Sri Lankan investors seeking to make foreign direct investment
or portfolio investment should be treated on par with other
international investors. Significantly, in regard to Foreign Direct
Investment (FDI), the JSG has recommended that consideration should be
given to providing pre-establishment of national treatment in sectors
where 100 per cent FDI is permitted on the automatic route in both
countries, but with appropriate safeguards built in. The existing
Bilateral Investment Promotion and Protection Agreement and the
Avoidance of Double Taxation and Prevention of Fiscal Evasion Agreement
should be reviewed by the two governments in order to enhance their
scope and effectiveness.
Fourth, the CEPA will include measures for enhanced economic cooperation
in areas hitherto inadequately explored such as transportation,
infrastructure, education, tourism, and information and communications
technology. Specific actions for example could include financial and
technical cooperation from India in modernising the Sri Lanka railway
system, and in establishing an educational institution in Sri Lanka on
the lines of the Indian Institutes of Technology, to embody the spirit
of friendship underlying the CEPA. To provide an impetus to some of its
recommendations in this area, the JSG recommends the replenishment of
the existing line of credit for commodities and services, as and when
required, and to set up a new infrastructure line of credit of US$100
million, to begin with, for infrastructure projects. In addition, the
JSG also recommends the establishment of an India Sri Lanka Economic
Cooperation Fund for US$100 million, to begin with, to facilitate
financial cooperation in such areas. The liberalisation of visa regimes
to include more categories of visitors for long term, multi entry visas
and simplification of procedures for other visas will help in the
movement of people related to all areas of trade, investment and
Both countries are committed to an agreement consistent with WTO rules.
The JSG assessed that the successful conclusion of the Comprehensive
Economic Partnership Agreement between India and Sri Lanka would help
both countries to experience the impact and potential of the process of
integration on a bilateral basis in the first place. This would be
beneficial to both countries in the context of the on-going global
liberalisation process that is continuing in the WTO framework. It would
also give affected sectors in both countries time to adjust for the
larger global changes anticipated.
We are of the strong view that negotiations for the India-Sri Lanka
Comprehensive Economic Partnership Agreement should begin as soon as
possible, with the aim to conclude negotiations within four to six
months from the submission of this report to the Prime Ministers. Such
timely action will enable both countries to reap the early benefits of
freer trade in goods and services, expansion of investment and enhanced
As co-chairmen of the Joint Study Group we have great pleasure in
submitting this report to the Prime Ministers of India and Sri Lanka.
Joint Study Group
Joint Study Group
JSG recommends that the two countries:
Enter into a Comprehensive Economic Partnership Agreement.
Build upon the ISLFTA by deepening and widening the coverage and binding
of trade in goods.
Notify the resultant agreement to the WTO under GATT Art. XXIV.
Enter into broad negotiations covering all service sectors and modes of
supply under the GATS framework.
Notify the resultant agreement under GATS Art. V.
Facilitate greater investment flows by addressing identified regulatory
and operational constraints.
Implement measures to enhance economic cooperation to complement trade
and investment liberalisation.
Complete negotiations on the CEPA within four to six months.
Establish institutional mechanisms to monitor the progress of the CEPA
so that the objectives are realised.
Facilitate interaction between, and participation of, the private
sectors of the two countries in the negotiation of the CEPA and its
TRADE IN GOODS
in the size of the "negative list," taking into consideration
the socio-economic sensitivities of both countries and the asymmetry of
the two economies.
to the Sri Lankan tea and garment exporters to make use of existing
quotas, given India's commitment to enhance them if they are nearing
Rules of origin
flexibility regarding the rules of origin criteria, by considering the
of the requirement for HS conversion at 4 Digit level where domestic
value addition (DVA) exceeds 40 per cent of the FOB of the finished
with the conversion requirement where CIF value of non domestic input is
less than 7 per cent of the FOB value of the finished product.
to Sri Lankan and Indian exporters to source inputs from each other by
considering imported inputs from ether country as domestic inputs.
of 6 digit HS conversion for certain identified groups of tariff lines.
Origin verification procedures
verification procedure be designed by the two countries that would
refine the issuance of the certificates of origin in order to facilitate
enhanced trade flows.
dispute settlement mechanism be strengthened, including greater
participation of the private sector.
Customs administrations adopt risk management procedures on compliance
efforts on high risk goods and clear low risk goods expeditiously
through the "green channels," and exchange information on best
countries adopt paperless trading and give priority to the
implementation of paperless trading at the major ports of Mumbai,
Chennai, Nhava Sheva and Colombo.
countries make available all laws, regulations, judicial decisions, and
administrative rulings relating to requirements for imported and
exported goods on paper on the electronic medium and paper.
between the relevant agencies of the two countries should form the basis
for commencing negotiations on MRAs at the earliest.
product standard certifying agencies of both countries should meet at
the earliest to set out a roadmap defining the scope and parameters of
mutual recognition of standards and conclude MRAs expeditiously.
non-tariff barriers and work towards their elimination.
TRADE IN SERVICES
JSG recommends that the two countries:
Enter into negotiations that cover all service sectors and modes of
supply under the GATS framework and conclude an agreement that will
cover a wide spectrum of services.
Bind market opening in telecommunications, computer and related services
Facilitate increased tourism trade through liberalisation of the cluster
of related services and visa formalities.
Accord special priority to market access for provision of transport and
Increase passenger transport by liberalising the air services agreement
and commencing ferry services.
Further Mode 3 trade and facilitate Mode 4 trade in health services
through Mutual Recognition Agreements (MRAs).
Encourage Mode 3 and other trade infrastructure
services and enable energy trade by linking utility grids.
Establish rule based arrangements for trade in construction and related
Increase cooperation between financial regulators, beyond the
multilateral framework to respond to CEPA driven changes.
Explore ways to lower barriers to movement of business people and
professionals and facilitate MRAs on professional qualifications.
JSG recommends that:
Administrative and regulatory constraints be removed to promote
bilateral investment flows that would help to maximise mutual benefits
of economic integration.
Board of Investment of Sri Lanka to have a special cell to encourage and
facilitate Indian investment in Sri Lanka, particularly for
Sri Lankan investors, both individuals and companies seeking to make
foreign direct investments (FDI) and portfolio investment in India be
treated on par with other international investors.
In regard to FDI, consideration should be given to providing
pre-establishment national treatment in sectors where 100 per cent FDI
is permitted on the automatic route in both countries. Appropriate
conditions would need to be framed such as restricting this facility to
nationals and juridical persons of the two countries and excluding
categories such as permanent residents and branches of non-incorporated
Cross listing of Indian companies on the Colombo Stock Exchange and Sri
Lankan Companies on Indian Stock Exchanges be considered through the
depository receipts mechanism.
Top rated Sri Lankan financial institutions be permitted to raise
resources in India.
The investment promotion authority (BOI) in Sri Lanka and the Exim Bank
in India play a more pro-active role for identifying areas of
co-operation including opening of additional LOCs with banks/financial
institutions in Sri Lanka.
Reviews be carried out by the two governments to enhance the scope and
effectiveness of Bilateral Investment Promotion and Protection Agreement
and Avoidance of Double Taxation and Prevention of Fiscal Evasion
Focus be given to investment promotion, and cooperation In the area of
Work out an appropriate institutional mechanism for provision of
information and support services to enhance the quantity and quality of
investment flows between two countries.
ECONOMIC COOPERATION TO COMPLEMENT TRADE LIBERALISATION
JSG recommends that the two countries:
Engage in economic cooperation beyond rule-based liberalisation, in
order to facilitate trade and investment, engage in joint activities
with mutual benefits, and build understanding and trust.
to facilitate trade and investment
Liberalise the Bilateral Air Services Agreement to increase air
transportation capacity to serve current and anticipated demand.
Conclude an agreement on, and facilitate early operation of, ferry
Build on Indian cooperation in modernising the Sri Lankan railway
Liberalise visa regimes to include more categories of visitors for
long-term, multi-entry and simplify procedures for other visas.
Increase cooperation on undersea cables and encourage a regional peering
point for Internet traffic.
Implement expeditiously the existing MOU on cooperation in IT and IT
Encourage redundancy and backup facilities for software and business
process outsourcing industries in each other's countries and ensure
compatibility of e-government and authentication systems.
and joint promotions
Engage in joint promotion of tourism and facilitate short-term visas for
bona fide third country tourists.
Make joint bids for international sporting events.
Promote film and TV programmes with themes and locations from each
other's countries and obtain regional exhibition rights to cultural
Undertake joint efforts to explore mineral and biological resources.
Study fisheries resources.
Cooperate to minimise frictions caused by transgressing fishermen.
Encourage financial and technical cooperation in establishing an
educational institution in Sri Lanka on the lines of the Indian
Institutes of Technology, to embody the spirit of friendship underlying
Facilitate supply of affordable generic drugs.
Improve cooperation in Ayurvedic research and development.
Implement expeditiously the existing MOUs on agricultural research
JSG recommends that India
Replenish existing lines of credit as required and create a new line of
credit for US$ 100 million, to begin with, for infrastructure projects.
Establish an India-Sri Lanka Economic Cooperation Fund, for say US$ 100
million to begin with, to facilitate economic cooperation.