Port City Economic Commission Bill; Separate state in the horizon?
20 April 2021 12:05 am
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The gazetting of the Port City Economic Commission Bill so quickly has raised a few eyebrows both in the local business community as well as in the legal fraternity
- Political parties including the Opposition have raised concerns over transparency and the use of Executive powers by the President to run it as a separate state
- The Bill will become a reality whatever government is in power in Sri Lanka
- The Bill makes the case for the necessity, preservation, and perhaps the further strengthening of the already strong Presidential system of government
- The people should get an opportunity to decide for themselves whether this Bill, if transformed into law, affects their freedom
- Without reforming the system in place, it is difficult to expect everything relating only to the Port City to run smoothly through the legal and judicial system
The gazetting of the Colombo Port City Economic Commission bill and its placement on the Order Paper of the Parliament 15 days after being gazetted came in as a surprise to many. The Bill seeks to establish a Port City Economic Zone within the boundaries set out in Schedule I to the Bill. “In terms of the Constitution a citizen intending to challenge the Constitutionality of a Bill has to do so within one week from the Bill being placed in the Order Paper of the Parliament,” a statement by the Bar Association of Sri Lanka read. The BASL further expressed concerns over limited time given for scrutiny and discussion of the Bill, as well as the timing of placing the Bill in the Order Paper of Parliament which was after the suspension of Supreme Court sittings. The petitions were taken up for hearing before the Supreme Court yesterday (April 19) and will continue today. In the meantime, political parties including the Opposition have raised concerns over transparency and the use of Executive powers by the President to run it as a separate state.
Highlights of the Bill
The Port City Economic Commission Bill states that seven enactments shall have no application within the area of authority of the Colombo Port City. These include :
1. The Urban Development Authority Act, No. 41 of 1978.
2. The Municipal Council Ordinance (Chapter 252).
3. The Commercial Mediation Centre of Sri Lanka Act, No. 44 of 2000.
4. The Town and Country Planning Ordinance (Chapter 269).
5. The Strategic Development Projects Act, No. 14 of 2008.
6. Public Contracts Act, No. 3 of 1987.
7. The Board of Investment of Sri Lanka Law, No. 4 of 1978
Exemptions and incentives may be granted from or under the following enactments :
1. The Inland Revenue Act, No. 24 of 2017
2. The Value Added Tax Act, No. 14 of 2002.
3. The Finance Act, No. 11 of 2002.
4. The Finance Act, No. 5 of 2005.
5. The Excise (Special Provisions) Act, No. 13 of 1989.
6. The Debit Tax Act, No. 16 of 2002.
7. The Customs Ordinance (Chapter 235)
8. The Ports and Airports Development Levy Act, No. 18 of 2011. 9.The Sri Lanka Export Development Act, No. 40 of 1979.
10.The Betting and Gaming Levy Act, No. 40 of 1988.
11.Termination of Employment of Workmen (Special Provisions) Act, No. 45 of 1971.
12.The Entertainment Tax Ordinance (Chapter 267)
13.The Foreign Exchange Act, No. 12 of 2017.
14. Casino Business (Regulation) Act, No. 17 of 2010
*The period of validity for such exemptions or incentives granted in terms of this section shall not exceed forty years.
*Designation of businesses as Businesses of Strategic Importance and the granting of exemptions and incentives to such businesses will only take place after the Cabinet of Ministers approve the proposal forwarded to the President or the subject minister by the Colombo Port City Economic Commission.
The Commission has powers to permit an authorised person to engage in business from a designated location in Sri Lanka, outside the Area of Authority of the Colombo Port City, as for a period not exceeding five years from the date of commencement of this Act.
*Such businesses shall, for a period of five years be entitled to all privileges accorded to, and deemed for all purposes to be a business situated within and engaged in business, in and from, the Port City.
If the Bill becomes law ..
“Because in such a case, the Presidential system would need to remain without any changes. The enhancement of rights of citizens will be problematic, since that would create further disparities between citizens of the country and those residing/working in the Port City”
Dr. Kalana Senaratne, Senior
Lecturer at the Department of Law, University of Peradeniya
“Sri Lanka, unfortunately, lacks the sovereign power or independence to withstand economic pressure that gets exerted by a super-power like China,” opined Dr. Kalana Senaratne, Senior Lecturer at the Department of Law, University of Peradeniya. “What this means is that the Bill will become a reality whatever government is in power in Sri Lanka. The previous government was, reportedly, drafting a similar Bill. So, the establishment of something like an economic, legal and administrative regime in the Port City, which runs parallel to the Sri Lankan economic, legal and administrative regime, is unavoidable.
“This, to be sure, is not to ignore the concerns associated with the Bill. Numerous clauses of the Bill – such as Clauses 6, 35 and 63 – have an impact on the protection of the rights of citizens (including the right to equality, freedom of movement, labour rights etc), the rule of law, the separation of powers, and the people’s legislative and judicial power. It is also to be noted that the Bill makes the case for the necessity, preservation, and perhaps the further strengthening of the already strong Presidential system of government – due to the powers given to the President over the establishment of the Port City Economic Commission,” he added.
Dr. Senaratne further said that if the Bill becomes law, the need for any constitutional reform could also die a natural death. “Because in such a case, the Presidential system would need to remain without any changes. The enhancement of rights of citizens will be problematic, since that would create further disparities between citizens of the country and those residing/working in the Port City. The further devolution of powers at the Provincial level becomes even more difficult, since that would heighten majoritarian nationalist fears. Therefore, the implications of the Bill can be quite significant.
“So the question is: how can the negative effects of the Bill be minimised? Here, the Supreme Court would need to determine the issues currently placed before it, very carefully. Ideally, it is best if the future of this Bill is determined through a referendum, given its underlying spirit/motive and its possible implications. The people should get an opportunity to decide for themselves whether this Bill, if transformed into law, affects their freedom and whether they can live with it. That too will not be a decision that the people make freely, given the tremendous economic limitations people face. At least, a few basic matters would need to be ensured, such as: the equal treatment of citizens and workers in (mainland) Sri Lanka and the Port City; greater accountability of persons who have decision making power in and over the Port City; and qualified Sri Lankan citizens having a greater control over the economic and legal aspects concerning the Port City.
“This Bill can be read as a serious indictment of the legal/judicial and administrative system of Sri Lanka. Many of the clauses seek to overcome the failures of Sri Lanka’s legal system. There is, for example, the need for the Regulatory Authorities to play a subordinate role, by having to concur with the decisions of the Commission (as per Clause 3). Then there is Clause 63, which prioritises legal proceedings relating to the Port City, while making it difficult for lawyers to postpone a trial concerning the Port City. What such clauses tell, implicitly, is that the Sri Lankan legal system is an utter mess, and that foreign investors should not get close to it (in fact, this point is made in a very subtle way through the wording of Clause 73, which appears to justify the non-applicability of certain legislative enactments listed in Schedule III). This, of course, is sadly true. Yet, the problem is that if the legal system remains as it is, these clauses won’t make much of a difference at the end of the day. Without reforming the system in place, it is difficult to expect everything relating only to the Port City to run smoothly through the legal and judicial system. So, the argument that things will fall into place once the Port City gets going is not a believable one.”
“The Bill creates a novel territorial unit, with an unprecedented degree of powers being devolved to it. We don’t know how the Port City would operate in the future. It may, or may not, be the initiation of something like a ‘one country, two systems’ frameworking Sri Lanka. I favour extensive devolution, even asymmetrical devolution to specific territorial units (to address the ethnic conflict). However, the purposes of devolving powers to the Port City are different. What is quite clear, in the end, is that the Sri Lankan State trusts and values the Chinese more than the Sri Lankan Tamils.” said Dr. Senaratne.
“The other concern is the Port City Economic Commission - who is going to appoint the commission and who will be appointed is an issue. The draft produced by this Government is similar to what we introduced and it states that officially appointed individuals should be appointed to this Commission”
Samagi Jana Balawegaya MP
Dr. Harsha De Silva
- The Bill creates a novel territorial unit, with an unprecedented degree of powers being devolved to it
- It’s common for the Port City Commission to have its funding, just as any other public body and commission has its funds, states a release from the Media Centre for National Development
- Any such regulation which is not approved by Parliament shall be deemed to be rescinded as from the date of such disapproval without prejudice
- The Port City Economic Commission can maintain a separate fund outside of it that does not require parliamentary approval
- According to the latest proposal the President can appoint any seven members to this Commission
Collapse due to coup
“Successive governments have been in power when sand filling took place at the Port City,” opined Samagi Jana Balawegaya MP Dr. Harsha De Silva while addressing a media briefing to highlight certain concerns with regards to the latest draft legal and investment framework. “At the end of 2017 I was appointed as a steering committee chairman and our role was to draft the legal and investment framework. The initially feasibility study was done by a Dubai based company after 2015 to analyse what sort of activities could be carried out there. Even though there were plans to setup a racing track, the then premier Ranil Wickremesinghe had an idea to make it a financial city by the name Colombo International Financial City. The steering committee had a representation from President’s office to Central Bank officials and prominent audit specialists.
“The first draft was produced in September 2018, but everything collapsed with the constitutional coup. Thereafter in 2019 operations commenced with the participation of 12 legal personnel from attorney general’s department. Subsequently a new draft was prepared by June 2020 and the latest draft was prepared a couple of days back which was gazetted and is before the Supreme Court,” he added.
He reiterated that the Port City should be successful. “Firstly Parliamentary approval is required to draft regulations. The draft we submitted states that every regulation and order by the Minister shall be published in the gazette, every regulation made under this act shall within a period of three months after its publication in the gazette be brought before Parliament for approval; any such regulation which is not approved by Parliament shall be deemed to be rescinded as from the date of such disapproval without prejudice. This is included in the 2019 draft as well. But the latest draft states that the gazette should be produced in Parliament only to make its members aware and that approval from the Cabinet of Ministers isn’t necessary.
“The other concern is the Port City Economic Commission - who is going to appoint the commission and who will be appointed is an issue. The draft produced by this Government is similar to what we introduced and it states that officially appointed individuals should be appointed to this Commission. Ten members including the Chairman could be in the Commission while the Chairman and seven others should have positions in the government sector (Ex-Officio). Those appointees should be approved by the Constitutional Council. But according to the latest proposal the President can appoint any seven members to this Commission. This raises a question as to whether they would be locals or foreigners.
“The other issue is with regards to regulations. For example, offshore banking should be regulated according to the guidelines and regulations set out by the relevant authority. Thereafter Parliamentary approval should be sought. But now, the President has the authority to regulate,” he added.
“Financial regulation is important because we need to attract leading banks in the world. But if they are to setup an offshore account they need to be clear that a proper financial regulation is taking place in this dedicated zone. This regulation happens via the Central Bank. But now it happens through this Commission. The problem is whether they would open an account in a place where they cannot place their trust.” he said.
The draft states that the President can draft laws with regards to offshore banking. According to this Act the finance minister can issue a permit. Then there are orders such as amending, dismissing the permit which are done by the Central Bank. But these are now being done by the Commission. This poses a question on the transparency of regulating these processes. We believe that the powers vested on the Commission will make this an unsuccessful venture and will have a long-term impact on the entire country.” he added.
“1115 acres come under the purview of the Commission appointed by the President. Sri Lankans are also subject to paying a tax the moment they purchase an item from the Port City and moves inland. This happens only if a person moves from one country
to the other”
JVP Leader Anura Kumara Dissanayake
process must be defeated
In his comments, People’s Liberation Front (JVP) Leader Anura Kumara Dissanayake claimed that the Port City Economic Commission Bill violates the Constitution as well as several important laws in the country. “On the other hand, seven enactments will also have no application within the area of authority of the Colombo Port City. No provincial or district council has authority over this area including Colombo. 1115 acres come under the purview of the Commission appointed by the President. Sri Lankans are also subject to paying a tax the moment they purchase an item from the Port City and moves inland. This happens only if a person moves from one country to the other.” said Dissanayake.
“Referring to the Acts that are being exempted Dissanayake said that there are two Acts in Sri Lanka; the Board of Investment Act and the Strategic Development Act. Those bills allow huge tax breaks. It was under this that the Rajapaksa’s gave tax relief to the Shangri-La Hotel for 25 years and Ranil gave tax relief to the Chinese company in the sale of the Hambantota port. Despite having these acts, they have not been applied and a large number of privileges have been granted under a commission similar to power of a state.
“Only foreigners can invest in this Port City. It has indirectly prevented Sri Lankan businessmen from investing. That is by informing that only those who raise those funds from abroad can invest here. In a nutshell, this is a separate state.
“This Commission has special financial powers and a separate fund. Government revenue is added to the Consolidated Fund. Parliamentary approval is required to obtain money from it. But the Port City Economic Commission can maintain a separate fund outside of it that does not require parliamentary approval.
“The money received by the state is subject to the supervision of the Auditor-General. But the Port City Economic Commission’s accounts are audited by a private company. It has been removed from the state audit.
“Several important acts that have already been passed in Parliament are not being implemented in the state. Therefore, plans are being made to make this Port City a Chinese province. China has a plan similar to the one in Hong Kong for the Port City project. This is an attempt to break the backbone of the remaining economy of our country and present the economy to powerful states. Therefore, this process must be defeated and the citizens of this country must speak out against it. We are also looking into whether legal action can be taken against this by our legal team. However, the Government has turned the judiciary of this country into a centre that can be manipulated according to itself. It is now very clear why this is. This is why the 20th Amendment gave the President some super power. These laws are being drafted to build a state for the Chinese Government and the Chinese Harbour Company, in violation of all laws applicable to Sri Lanka”.
Response to allegations
“A Government doesn’t need a 2/3 majority to introduce a bill in Parliament. It can be passed by a simple parliamentary majority except in the case of a Supreme Court ruling or other special ordinance,” a statement issued by the Media Centre for National Development read. This was issued in response to the allegations made by Dissanayake, reasoning the why and how of appointing the Commission.
“The Board of Investment Act or the Greater Colombo Economic Commission Act is now more than 43 years old. The aim at the time was to encourage production-based investment, for example, garments, rubber products, assemblies, etc., to attract foreign investment in those sectors. The Strategic Development Act, 2008 was introduced to attract services and commercial investment not covered by the Board of Investment Act. As the Port City is a project aimed at the financial and service sectors the need for an inherent legal framework has developed over time.
“It is common for the Port City Commission to have its funding, just as any other public body and commission has its funds. Although other state institutions receive public tax money through parliamentary approval, the Ports Commission will operate with a different method of earning its own funds, mainly from foreign investment, and handing them over to the Government. The Commission is accountable to the President of the country or a Minister nominated by him, so in the end, it is accountable to the people of the country.
“Article 154 of the Constitution stipulates the need for an international audit to oversee the audit process. As the final audit report has to be submitted to Parliament, the people’s representatives have the opportunity to study it thoroughly.
“If it was possible to raise funds locally or overseas in any way, Sri Lankan businessmen, as well as active foreign businessmen from Sri Lanka, would transfer their cash reserves in Sri Lanka to foreign currencies or withdraw money from their foreign currencies into Sri Lankan banks very quickly and would have been transmitted to Port City, but this condition made it mandatory for any local or foreign businessman to bring in foreign reserves from a foreign country, which would inevitably attract foreign investment to Sri Lanka regularly. Even at this time some local companies are depositing such money to banks in Singapore, Hong Kong and Dubai. The first beneficiaries of the Port City Commission will be these local businessmen who have deposited such foreign reserves abroad.
“Anyone who has any doubt that this Act will create a separate country can go to the Supreme Court and seek justice,” the statement read.