Leading industrialist and Chairman of Nature’s Secrets Samantha Kumarasinghe says that the present Free Trade Agreement (FTA) with India has left Sri Lanka at a loss. Therefore, he stresses that SL should be well prepared in advance before heading for any agreement with India. He shared the following thoughts when the Daily Mirror spoke to him.
- Indian exports to SL have increased
- Lankan exports to India remain static during the period
- We campaigned against CEPA at that time
Q As an industrialist how do you look at trading with India?
We have a Free Trade Agreement (FTA) signed with India in 1998. It came into effect in 2000. That is an agreement signed by the then President, like in many other agreements signed later on, unprepared. Then, we do not get the benefit of an agreement when you sign it unprepared. It is because the other side is prepared. It is like playing a match. If you do not go prepared, you will get thrashed. It is simple as that. At that time, entrepreneurs like us were not in the picture. Those who were there were multinationals and a handful of Sri Lankan businessmen who are basically importers and traders. They were not worried about protecting the local industry at the time of signing that agreement.
Therefore, the FTA, signed in 1998, was giving protection to the companies that were manufacturing products like soap. Those industries were dominated by multinationals. The products that the multinationals wanted to import from India were in the positive list. What they liberated from customs tariffs were products that were helpful to the multinationals and big players, and Indian interests.
There were Indians ready to put up industries for manufacturing a product called ‘Vanaspathi’. When Sri Lankans got into business after a few years later, the Indian govt stopped the import of Vanaspathi from Sri Lanka by changing custom tariff. We were not prepared. Whatever the definition they gave about success rate of the FTA with India, it is not a success story. Sri Lankan exports within the past 15 years of this agreement have grown globally. But not with India as yet.
Whatever the definition they gave about success rate of the FTA with India, it is not a success story. Sri Lankan exports within the past 15 years of this agreement have grown globally. But not with India as yet
Q There is an argument that India mostly exports to SL outside the FTA, whereas the latter does it through the FTA. What are your comments on this?
People, who talk on behalf of Indians, say that India has exported to SL outside the FTA. Yet, Sri Lanka has exported within the FTA. Whatever the argument is, the benefit of an agreement should be the increase of exports from one country to another and vice versa.
If you look at our exports from 2005 to 2015, it is basically around US $ 500 mn. It is static. Indian exports to Sri Lanka have grown from US $ 1.5 bn to US $ 6 bn. If you look at the argument about their export of fuel to Sri Lanka, we can say that we sold our distribution right of fuel to India. That is an unsolicited, non-competitive bid made by India on political reasons. India is exporting and distributing fuel.
In 2003, the government of Sri Lanka started negotiations on Comprehensive Economic Partnership Agreement (CEPA). At that time, we were in the picture. We were playing a role in the national economic activities. It included companies like LAUGFS, DSI and ours. We understand the issues. We faced difficulties while doing business with India. We also opened a showroom in India under EDB umbrella in Chennai. We spent a lot of money to set up a showroom because we were told that we could do retail business over there. 17 companies went to India in 2004 to set up showrooms. After that, the Indian authorities ruled out the possibility of doing the retail business. We were told that we could either engage in wholesale or sampling business. They changed the policy tendering some excuses. Almost all the companies that went there, lost their money. We withdrew within one and-a-half years losing all our investment. The showroom space occupied by the EDB was taken over after five years.
On the other hand, when the Indians in SL have an issue, they approach the Indian High Commission and they contact the President and ask for resolution of the issue. I have a personal experience. When our shipments were held at the port in Chennai, Indian officials were not accepting the signatures of the Department of Commerce authorizing them under the FTA. Our envoys could not sort it out even at customs level. They could not even talk to customs officers. We were badly hit due to the weakness in this FTA. In that context, we were opposed to signing CEPA because we wanted the issues arising out of the FTA to be rectified first. Services, investment and everything to be opened for India under CEPA, would be much more harmful to us than an agreement providing for trade in goods only. We had a govt change here in 2004. Following that the President appointed a new committee to look into the FTA.
In 2008, all these agreements were almost prepared without listening to our protest. It was readied for the signatures of the SL President and the Indian PM at the SAARC summit in 2008. At the last minute, we made representation to the President. He did not sign. There was another attempt in 2010, during the President’s visit to India. We were involved there too. We were invited to visit India to present our case, and we did so.
In 2012, an Indian delegation had arrived here to discuss it. But nothing happened.
In 2015, the regime changed. Then, Indian PM Narendra Modi visited here. Afterwards, they started to sign it. In February, 2016, there was a strong protest and we were also part of it as industrialists. It was largely by professionals. They had understood that it would be harmful to the professionals. As a result of that, the govt changed the name from ‘CEPA’ to ‘ETCA’.
When our shipments were held at the port in Chennai, Indian officials were not accepting the signatures of the Department of Commerce authorizing them under the FTA. Our envoys could not sort it out even at customs level. They could not even talk to customs officers. We were badly hit due to the weakness in this FTA
Q You mentioned that Sri Lankan companies failed in the Indian market. Yet, it is argued that some companies like DAMRO and BRANDIX found success there. How did you fail while others were successful?
I really do not know the success story of DAMRO. Its owner has never come forward and narrated his success story. Other people like the govt officials cite this story. I think DAMRO owner lives in Australia. If it is a success story, it should have been shared by him/her. It should be made clear whether DAMRO’s Indian wing is owned by him/her or another. We do not know.
BRANDIX is a different story. It is a success story for the company making money globally. I have my doubts whether it helps SL. They are developing a 1000-acre apparel village in India. It has the facility for manufacturing buttons, thread, fabrics and everything. On the long run, any sensible person could understand whether it would help SL. Then, India would have a more competitive edge over us. Their supply chains would be in the same premises. From the Indian point of view, it has made a smart move. They have got one of the best garment exporters from SL to invest there. It is a success story for the entrepreneur and India, not for SL as such.
Q If you are given access, how confident are you that you could be a success in selling your cosmetic products in India?
We were selling in India through our showrooms. There is a good demand for our products. We differentiated our products by quality. Our quality is superior to most of their own products. We use different raw materials and we do not use any Indian raw materials as a strategy. When we came to manufacture cosmetics in 2001, the FTA was in force. It is much cheaper to engage in manufacturing in India than here, as the labour cost is much lesser. There are less stringent regulations. The number of working days is more. In Sri Lanka, labour laws are very stringent. We cannot manufacture anything at a competitive price. That is the reality.
India would have a more competitive edge over us. Their supply chains would be in the same premises. From the Indian point of view, it has made a smart move. They have got one of the best garment exporters from SL to invest there. It is a success story for the entrepreneur and India, not for SL as such
Q What are the main barriers in accessing the Indian market?
You cannot access the mass market of India that easily. That is because distribution channels are so big. Even Indian companies find it difficult. For SL, low-end products are out of question. We cannot competitively manufacture. Our products such as tea and garments have some advantage. Our garments have many years of lead time against India. It is now shrinking. Tea is an exception. For such products, they have placed barriers in terms of quotas etc. For other products, the cost of production is very high. Ours is not a country that produces raw materials.
Q What is your experience with bureaucracy there?
It is so much. There are no traffic barriers. SL has been successful in trading with other countries but not with India. Our exports to India accounts for only 5%. The rest goes to other parts of the world. The FTA did not help. Our negotiators ask why can’t we export to India if Vietnam can. If China can export, why can’t we? Realities are different.
In China, there is communist rule. That does not allow trade unions activities. In Vietnam, there are no trade union activities and labour regulations like ours. There are no holidays like here. It has to be understood what we can export. Any govt should support the local industries to survive in the local market. Any enterprise that is engaged with export business without any trade in the local market, cannot survive. These realities have to be understood.
You cannot access the mass market of India that easily. That is because distribution channels are so big. Even Indian companies find it difficult
Q There is another argument that products that SL exports are also manufactured by India. However, it is said that countries such as China and South Korea export products such as electronics that India needs. So they succeed. What is your response?
The answer is simple. How did they develop their electronic industry? The respective governments support them to become exporters. Our garment industry can export to India. But, they have put a barrier there. There is a quota of eight million pieces only. That is why nobody is trying to export to India. Our negotiators toe the same line with India. There is no difference between what Indian officials say and our people say in that regard. It is like India playing a match with 11 players against 10 or even less by SL!
- A trade agreement should have been made to increase exports from one country to another and vice versa
- We had to close down showrooms in Chennai after India changed its policy
- Our negotiators toe the same line with India
- It is like India playing a match with 11 players against SL’s 10, or even less
- It is difficult to access mass market in India
- Labour cost is high in SL
- SL has been successful in trading with other countries, not with India