Monthly Archives: January 2016

economic_partnership

CEPA, ETCA, ETCFA, et al. Whatever it’s called – is it all good?

The Preamble

Agreements?  Generally good to have them.  Why? ‘Cause they give us some degree of protection if things go wrong and people start going back on their word.  But for that to happen, the agreement must be written in good faith to begin with.  No one can write an agreement to be one sided – it must contain ‘give’ and ‘take’.  The question that most people have is whether the ETCA is a balanced agreement to begin with.

So, what’s all the fuss about?  Let’s see what we know and don’t know so far.

What is CEPA?

CEPA stands for Comprehensive Economic Partnership Agreement.  Many countries have signed these between themselves and they generally do reap the rewards.  Essentially it spells out how trade in goods and services will happen between the host countries and liberalises some of the specified markets.

When did this CEPA thing appear?

My understanding is that this is not something new.  Earlier records that I could find about this date back to the year 2003 where apparently 13 rounds of negotiations happened between Sri Lanka and India in order to iron out the details and to sign off.  Details here.  Some last minute objections from Sri Lanka put the signing on hold, and it’s been on the back-burner even since.

When India was going against us with that whole UNHCR fiasco a few years ago, the CEPA work came to the forefront again and it’s possible that since out best friend China is not so great these days, India wants to come in again and with the support that was given, CEPA may possible have become something that our Statesmen could simply not ignore.

So what happened to CEPA?

The original CEPA agreement had a number of services shortlisted for liberalisation and it included among others, Medical Services.  Quite rightly, the GMOA got into the game and threatened trade union action if the plans are not immediately halted.

With all the shouting and objections, the Prime Minister announced that CEPA would not be signed.  Source here, here, here, here, and here.  Although it seemed like a welcome respite, what actually happened was that CEPA returned, this time with a different name, the ETCA – Economic and Technical Cooperation (Framework) Agreement.

ETCA is basically an agreement about an agreement that is to be signed around June of 2016.  Draft versions we have seen are available here, with an annexture containing the services here (Please note that I cannot vouch for the accuracy of these links since the actual agreement is not released to the public)

In the meantime, various other professional organisations got together and formed an alliance by the name of the United Professionals Movement.  The representative organisations were:

  1. Sri Lankan Engineers’ Association
  2. Government Medical Officers’ Association
  3. Government Dental Surgeons’ Association
  4. The Institution of Engineers
  5. Institution of Incorporated Engineers
  6. Computer Society of Sri Lanka
  7. Institute of Personnel Management
  8. The Bar Association
  9. Sri Lanka Institute of Architects
  10. Chartered Institute of Management Accountants
  11. Institute of Applied Statistics

The UPM jointly wrote to the Prime Minister requesting for an opportunity to meet and discuss about the proposed agreement and it’s possible repercussions, but a reply was not received.

Source here

Subsequently a discussion took place between the Minister Malik Samarawickrama, and some of the professional bodies, but the results were less than impressive.  It would seem that the Indians have written their part of the agreement rather thoroughly and the Sri Lankan side of it needs some more refinement.  Our request is that the professional bodies, as the representatives of the local professionals, should also be taken in on an advisory basis to do such refinements, rather than rushing into signing an incomplete framework.

What’s on the agenda now?

The most vocal critics have had their professions removed from the proposed ETCA agreement.  Currently the focus is on Maritime Services and on IT.  The dockyard representatives who came for a common meeting at the IESL stated that they have a shortage for skilled welders, and have requested permission from the BOI to bring skilled workers from India.  No problems there, since the BOI framework allows that to happen.  Why in that case do we need a new agreement to open this up?  Their problem was that the welders that were trained were leaving for foreign employment.  That can be solved with proper contracts and bonds.  Opening up the sector to India is not the solution.

Also, why IT?  The local IT industry has developed rapidly and has built up a name and a reputation for capability and quality.  As such, the local salary structures have evolved and those that are in the IT profession make a comfortable living.  Salaries are nowhere near what their US and European counterparts are getting, but it is higher than a few notable sectors in Sri Lanka.  Are the salaries prohibitive, so that new startups cannot compete?  Definitely not.  There are plenty of fresh graduates who are willing to work in the 40 to 60,000 range

An interesting comparison of the Sri Lankan and Indian Economies

My source for this is IndexMundi.

Factor India Sri Lanka
GDP Growth Rate 3.2% (2013 est.)
5.1% (2012 est.)
7.5% (2011 est.)
6.3% (2013 est.)
6.4% (2012 est.)
8.2% (2011 est.)
GDP – per capita (PPP) $4,000 (2013 est.)
$3,900 (2012 est.)
$3,800 (2011 est.)
$6,500 (2013 est.)
$6,100 (2012 est.)
$5,800 (2011 est.)
Population below poverty line 29.8% (2010 est.) 8.9% (2010 est.)
Unemployment Rate 8.8% (2013 est.)
8.5% (2012 est.)
5.1% (2013 est.)
4% (2012 est.)
Industrial production growth rate 0.9% (2013 est.) 10% (2013 est.)
Export Partners UAE 12.3%, US 12.2%, China 5%, Singapore 4.9%, Hong Kong 4.1% (2012) US 20.4%, UK 9.9%, India 5.8%, Italy 4.7%, Belgium 4.3%, Germany 4.3% (2012)
Imports – partners China 10.7%, UAE 7.8%, Saudi Arabia 6.8%, Switzerland 6.2%, US 5.1% (2012) India 22.7%, Singapore 8.8%, UAE 7.7%, China 7%, Iran 6.1%, Malaysia 4.5% (2012)
Unemployment, youth ages 15-24 total: 10.7%
male: 10.4%
female: 11.6% (2012)
total: 17.3%
male: 14%
female: 23.5% (2012)

I haven’t taken all the factors, but in terms of employment and finances, some of the most important are given above.

Justification for and against signing the ETCA

  • It’s always good to have new business opportunities, but would Sri Lankan companies be able to open up shop in India?  Keep in mind that the state governments can impose additional rules and regulations on top of the ETCA signed between the national governments and quickly make this into a one-sided arrangement.  Anyone think they can safely enter the Chennai market?
  • Allowing Indian expertise into the country will make the employment market more competitive.  Yet it will – but if the current market is sustainable, and the quality of life is better than in India, why attract them for lower salaries and thereby drive down the market?  Those who say that this would not happen, had probably not seen that article about Uttar Pradesh advertising for 350+ clerical jobs with a 16,000 rupee salary and then receiving 2.4 million applications including 255 PhD’s, 155,000 graduates, etc.  If a PhD is willing to work for 16,000 (32,000 LKR), what more can we say?  India has a unemployment of 15,000,000.  Our entire population is 22,000,000.
  • Companies will have access to cheaper professionals – yes, but if one company employs one hundred Sri Lankans, whose interest is more important?  the one or the hundred?  Keep in mind that Sri Lanka’s name is Socialist Democratic Republic of Sri Lanka – Socialist, not Capitalist.
  • Why sign with India?  Yes, they’ve sent rockets and launched satellites, etc, etc, etc.  Yes, they like to act like our Big Brother.  But, why not consider signing with a country that could really give us a technology boost such as Malaysia, Singapore, even China – but still without allowing open movement of persons.  India isn’t that great a place.

What’s next?

Maritime Services and IT and probably the test bed.  If that goes through, then more annexures would be signed to liberalise and open more service areas.  If this is not managed and controlled, things could turn nasty quite fast.

Update

25/01/2016 – For those that say this post is one sided / imbalanced – yes, just like the agreement that is to be signed this is an imbalanced article.  If things improve with regards to the agreement, full transparency is achieved, and Sri Lanka gets a win-win scenario, then my post will reflect that.  Further, if new companies and existing companies that are setup via the BOI can recruit international talent without major restrictions, why would we want to sign an agreement with India to make it easier?  Shouldn’t some form of control be maintained to sustain the image of quality that the Sri Lankan IT Sector has built up?