ETCA: Why so hush-hush?

By Shabiya Ali Ahlam
Sri Lanka’s attempts to deepen ties with other nations have often, if not always, created uproar across diverse groups of society. The latest example is the hue and cry made against the Economic and Technical Cooperation Agreement (ETCA) that is scheduled to be inked with India mid this year.

The government has slammed sections of the public and professional groups, who in their view, are ‘overreacting’ to the situation. But looking at the manner in which the existing trade agreements have been signed, one cannot blame the latter for reacting in that fashion.

Whenever the government announces its decision to expand its trade relations with a neighbouring nation, the public typically waits with bated breath to learn what is in store for them, which in most instances have been an unpleasant shock instead of a pleasant surprise.

Why the negative sentiment?
The negative sentiment that has surrounded the ETCA in the recent weeks is not entirely about the agreement itself. It is more the way it is negotiated. An example of entering into an economic agreement that resulted in more harm than good to local businesses is the India-Sri Lanka Free Trade Agreement (FTA). On the face of it, the deal seemed to bring in a win-win situation for both the nations. But the non-tariff barriers imposed on the island have tipped the scale, leading India to enjoy a lion’s share of the benefits.

Poor negotiation by local authorities and increased pressure by our neighbouring giant has been attributed to the FTA favouring India. The uproar this time round is largely due to the masses having a flashback where they see history repeating itself. What we are typically witnessing now is the growing doubts among people who are of the view that countries signing bilateral trade deals with Sri Lanka have not entirely been fair to the nation.

Should Sri Lanka be cautious with India?
With regard to the existing FTA with India, the issue that is being raised is whether India has treated Sri Lanka fairly in the past.

According to economist Luxman Siriwardena, among the Sri Lankan community, friendship of India is questioned based on the historical experiences from the time of late President J.R. Jayewardene’s administration, although it is acknowledged that India did help Sri Lanka to end terrorism in spite of its role supporting separatism in the 80s and early 90s.

In this backdrop, the direction of the recent bilateral trade negotiations has raised fresh concerns.
“India’s level of extreme poverty and unemployment make Sri Lankans suspicious of potential flooding of cheap labour to a number of fields. I believe the best option for Sri Lanka is unilateral trade reforms or plurilateral trade agreements with several countries to limit dependence on a single country,” opined Siriwardena.

Against what? India or liberalization?
Having listened to a number of professional groups across diverse sectors, it can be established that the majority is against neither. While fingers have been pointed towards certain industries which are against allowing India to freely set foot into the country, or Sri Lanka opening up to the world, these factors are not even close to what most are against.

Today it is India we are negotiating with, tomorrow it will be China, and somewhere in the near future it could be Korea or Japan. So every time the government talks about exchanging a firm handshake with a country that has better economic indicators, are the local industries going to oppose? No, it cannot be the case. The business community has acknowledged that for Sri Lanka to progress to the next level, liberalisation is imperative. But they stress that it should take place in a manner that does not hurt local industries.

While they do welcome healthy competition, industries are yet to be assured the outcomes of these agreements will not be one-sided like those previously signed. What they are against is the hushed up manner in which the negotiations take place. Just as they have voiced out numerous times before, the business community’s main concern is the lack of transparency.

Having expected the unity government to be more open, transparent and act different to the previous regime, disappointment is the sentiment at the moment.

What is the problem with ETCA?
The key issue engulfing the proposed ETCA with India is the lack of communication and consultation from the government with the relevant stakeholders, which has paved way to suspicion and unwanted speculations.

The government keeping industries on their toes by not sharing the contents of the agreement is observed to be the key issue and the ministry officials highlighting tight deadlines without revealing what the document entails only agitates them further.

Verité Research Senior Analyst and Head of Research Subhashini Abeysinghe, who is quite thorough in the field of trade negotiations, asserts that before formulating negotiating positions, critical in trade dialogues is ensuring that the government has consultations with all relevant stakeholders and do a thorough analysis of costs and benefits from a national perspective.

Different sectors will have different interests but as a government, it is important to take into consideration different views and take a position from a national perspective,” she noted.
Unfortunately, this is something that is yet to happen.

The two sides of coin ETCA: The good and bad
The costs and benefits by and large depend on the level of liberalization undertaken by the two countries. The document hidden away makes it difficult to paint an accurate picture in this regard.
It must be acknowledged that any agreement creates both winners and losers and there will be sectors that will benefit from improved market access to the Indian market. Consumers in general are expected to benefit from the removal of barriers as it is expected to trim the price of imported goods and services due to competition in the market place.

However, there will also be sectors that would get hurt as a result of the increased competition from Indian products and services. While it is not all grim, increased competition can benefit the country, only if the house is in order.

“Competition can benefit if it compels local companies investing in technologies and skills to become more cost effective, efficient and innovative, to defend their market share and profits,” professed Abeysinghe.

The young economist made an interesting point stating that the other local party that stands to lose from the agreement would be the government. Since 50 percent of its revenue is earned by taxing the external trade and India accounting for almost 25 percent of total imports into the country, this may be an area of concern for Sri Lanka, which already has a low tax to gross domestic product (GDP) ratio. 
The main concern with any agreement Sri Lanka enters into is the country’s capacity to export, competitiveness of exports and the portfolio of products and services available. If the country has only a handful of exportable products and services and if only a handful of companies are engaged in manufacturing and providing these products and services, then the ability to benefit from entering into an agreement seeking improved market access will be low. 

Economists have highlighted that to revive exports, more emphasis needs to be given to improving cost competitiveness and capacity of exporters, alongside diversifying the products and services. 

Who will take the hit?
While initially it looked like it was the healthcare sector that would be impacted by the ETCA, only in the early part of last month it was revealed that it would be the country’s IT sector, the fifth largest foreign exchange earner to the country that gets jolted by the ETCA.  

Development Strategies and International Trade Minister Malik Samarawickrama’s casual mention at a routine press conference that “only” shipbuilding and information technology service providers would be allowed to work in Sri Lanka as per the agreement, was able to send shockwaves within the local IT sector.

The concern surrounds the possible adaptation of the fourth mode of the General Agreement on Trade in Services (GATS) by Sri Lanka. Sri Lanka has already allowed the first three modes. The fourth mode deals with the movement of natural persons across the borders - being a little more specific, in Sri Lanka’s case, movement of people between the two countries in the IT and shipbuilding industries.
“There is confusion at the moment due to conflicting information being released by some parties where one party states that mode four is not in the agreement, whereas another party states that mode four will apply and that Indian professionals will come to Sri Lanka,” said the Computer Society of Sri Lanka (CSSL), while maintaining they are in favour of liberalization of markets and in no way wishes to stand in the way of progress.

Questions raised by IT sector
The CSSL, an association that has been readily vocal about the concerns of the IT sector, puts forward six questions the government must answer for the industry to gain clarity on the implications.
The questions are as follows:

1. Sri Lanka does not have an effective framework for the recognition of professionals. Therefore, how can we ensure that properly qualified people come with documented and verifiable qualifications and skills?

2. As India is a country with an unemployed population twice the size of the population of Sri Lanka, how can the government assure that these persons will not freely flow into Sri Lanka?

3. What control and link is available between the immigration process and work permit allocation process to ensure that the migrant worker will return to India once the employment contract is terminated?

4. In a context where Sri Lanka has been attempting to reduce brain drain and inviting Sri Lankans working overseas to return to Sri Lanka, how can we justify any action that will lead to a reduction of the present salary scales of professionals?

5. Sri Lankan software solutions have been accepted world over and notable examples are available for this. This has been achieved without major concessions purely based on the capabilities and the perceived quality of local solutions. What mechanism will be in place to ensure that this position is not compromised?

6. The government has rightly identified IT as a key employment sector.  Many initiatives have been taken to encourage studying in the field of IT, such as the new Technology stream for Advanced Levels and the setting up of separate universities for teaching IT. Once these students graduate, what are the job prospects that they can look forward to, when they have to compete with Indians in their own country?

SLASSCOM stance
While the CSSL is observed to be making a firm stand on the ETCA, rather unexpected it was to see the Sri Lanka Association of Software and Service Companies (SLASSCOM) take the backseat.
The apex body that brings the scattered companies spread throughout the IT/BPO industry of Sri Lanka under one umbrella is yet to strongly convey its position on the agreement and its probable implications.

The reason the SLASSCOM cites is that it has not seen the agreement as yet, thus would refrain from making any comments.

However, in a communiqué released recently, the SLASSCOM highlighted that in response to speculation about the scope and impact of the ETCA, the SLASSCOM had clarified with the Commerce Department.

“We have been made to understand that any agreement in relation to labour liberalization will take place only after consulting with respective industry bodies, which has not taken place yet. The SLASSCOM will with utmost caution evaluate any trade agreement and we reiterate that we will not support any agreement that is detrimental to the industry and country,” it said.

When queried about the body’s stand on the ETCA at a panel discussion organised by the CSSL last week, SLASSCOM Chairman Mano Sekaram said it was surprising that the entity was “never” invited for any discussion although the relevant authorities maintaining they were adopting an inclusive approach.

“We made inquiries at the Commerce Department and we were told the agreement would not be signed without consulting our industry. We asked for the agreement and were told it was not available.
“Our mandate is to generate foreign exchange and create employment, local and not foreign. So any agreement that will be contradictory to this mandate we will oppose. We are clear about it,” pointed out Sekaram.

A deaf ear to collective voice
In an effort to lobby the government and ensure concerns across diverse industries are heard, the United Professionals’ Movement (UPM) was established in November last year.

With the objective of ensuring a transparent mechanism with stakeholder participation is established by the government, 11 professional groups have joined hands to from a collective voice.

UPM Spokesperson Engineer Gamini Nanda Gunewardena said despite numerous attempts made to meet with the President and Prime Minister to share concerns with regard to the ETCA, to date the movement had been unsuccessful in its efforts.

The professionals were directed to the International Trade Ministry and despite having met with the minister, to whom areas of concerns were deliberated at length, no progress had been made.

Gunewardena said the UPM met with the minister early December, last year and discussed issues pertaining to the ETCA. He also said the UPM’s proposals for a balanced ETCA were also shared with the minister. 

After nearly two months of inactivity, the UPM received a letter from the ministry on January 26, requesting to put forward their concerns and recommendations on the agreement, an exercise that was already done.

Interestingly, the proposals were asked to be sent on or before January 29, so the same can be shared with the Prime Minister at a meeting that is scheduled to take place within two weeks. It is unclear if the industry representatives are invited to participate in the same. 

“This is not what we expected. We are not against the government; we want to constructively work with the government. We have openly made the commitment to them that we will appoint a group of professionals representing diverse industries to work with them to ensure the ETCA is inked in a manner that would allow both the nations to reap benefits. What more can we do,” charged Gunewardena.

He stressed that the UPM is nether neither against nor for the ETCA as they have yet to gain access to the document. However, it is learnt that the Commerce Department had put forward a framework document, which was slammed by the movement.

“This we reject. We cannot agree to a framework agreement. What we want is for the government to do is a detailed study and sign a proper agreement. These framework agreements are dangerous,” asserted Gunewardena.

Expectations from government
To ensure there are no negative ramifications on the industries that will likely be liberalised, professional associations have repeatedly urged the government to release the official version of the agreement.

They say that foreign expertise should be acquired by a time-bounded contract and should not be given indefinite employment.

While the UPM insists that foreign individuals should be assessed via an internationally recognized skills certification framework, a minimum salary should be defined for foreign personnel who come to Sri Lanka for employment.

Furthermore, the government is strongly urged to enhance and strengthen the immigration controls to keep track of the professionals that enter this country and ensure that they leave when the contract is over.

Way forward
While the government must consult widely and genuinely with various stakeholders, sectors and professional associations, Ceylon Chamber of Commerce Chief Economist Anushka Wijesinha emphasized that the private sector must look beyond the narrow company or sector interests and present well thought out, rational cases and concerns that take an economy-wide view.

“Ultimately, we need to be realistic. A deeper economic engagement with India is both inevitable and essential. An agreement like this helps to formalise that and ensure it happens within an agreed framework.

“It’s incumbent on the government to hear as many sides as possible and have as wide a consultation and not just listen to a few associations or groups or individuals. It should then take a strong and informed decision, and a clear communications effort to build awareness and bust myths,” professed Wijesinha.

Research and stakeholder consultations play a critical role in determining the effectiveness of trade agreements and ensuring it is a win-win situation. Opposition to trade liberalization is normal worldwide.

While it is acknowledged that no agreement in the world has gone through without any opposition, the need of the hour is open communication, greater consultation and most importantly, transparency, the key three elements the public expects from the new government as promised.