Sri Lanka decades behind ETCA with India, just catching up now: economist

• Calls for key domestic structural reforms prior to far-reaching trade pacts
• Says every trade pact has winners and losers; urges special safety nets for losers 
• Stresses Sri Lanka cannot escape from its geography when trading
• Points out a lot depend on quality of the agreement, negotiations 

Sri Lanka is at least three decades behind in getting into a much deeper trade, services and investment agreement with India, and therefore the country is now in a catch-up phase of the lost opportunities through its proposed Economic and Technical Cooperation Agreement (ETCA), according to an international economist.   

“Sri Lanka, in my view, is playing catch-up. When we liberalised in 1977, I would have thought, if I were designing Sri Lanka’s trade strategy, I would have said in a logical sense, eight years after you have a certain set of reforms, (then) you begin to consider a trade agreement with the largest economy in terms of geography because trade 
follows geography.  

Sri Lanka is doing this (ETCA), 25-30 years too late. So, we are playing catch-up on regional trade,” said Dr. Ganeshan Wignaraja, Advisor to the Economic Research and Regional Cooperation Department of the Asian Development Bank (ADB), delivering  a public lecture on slowdown in exports and its implications for Asia and Sri Lanka, hosted by Advocata Institute, an independent public policy think tank in Colombo. 

He, nevertheless said, the timing for such an agreement is immaterial given the huge market that will open up for Sri Lanka. 

“I think the timing doesn’t matter for it, we should get that market access,” Dr.  Wignaraja said in response to a question by Mirror Business on whether Sri Lanka is ready to open up its market access in the current context given its limited domestic capacity. 

Meanwhile, he rejected the idea that Sri Lanka’s large trade gap with India should close doors for a deeper trade and investment accord with the fastest growing large economy in the world because he was of the view that the ETCA would potentially bring in Indian investments into Sri Lanka, which in turn will create manufacturing and thereby creating jobs for the locals.  

“If we want to get into them (value chains), if you want to create manufacturing jobs in this country, you have to use as many engines as you can. (So), an ETCA will help potentially,” Dr. Wignaraja added.   

However, he urged the policy makers to make key structural reforms and to create safety nets for losers because every trade deal has winners and losers. 

“So, as the first thing, we have got to think a little bit about what kind of FTA utilization we want. So, the first thing that we want to think about is, what is the domestic reform agenda and what are we going to open up (and) we put those things into FTAs and we lock in those structural reforms (into FTAs). That’s the way you see those (FTAs) in East Asia and you do it that way,” he explained. 

Apart from ETCA, Sri Lanka plans free trade agreements (FTAs) with China and Singapore.

Dr.Wignaraja said a trade pact with Japan would also be beneficial for the country, which could be later expanded into a region-wide FTA. 

Cautioning on the possible losers of FTAs, he stressed on providing adjustment assistance to them by way of re-training them in new industries and developing safety nets.

Dr.Wignaraja said a lot would depend on the quality of the agreement and how far the policy makers pay attention to those losing sectors resulting from far reaching trade pacts, such as ETCA. 

It was only the other day Razeen Sally, an Associate Professor at Lee Kuan Yew School of Public Policy at National University of Singapore said, ETCA may not result in market access and competition in the scale that is expected due to the toxic politics played by both sides and the poor negotiations, particularly from the Sri Lankan side, which could undermine the true potential of the trade pact. 

“We are not going to see that many new markets opened, new competition and forging of much deeper integration between Sri Lanka and India because of politics of both sides and particularly of politics here (Sri Lanka).

The negotiations weren’t prepared here and certainly the communication with the Sri Lankan public was not done,” Professor Sally told a recent forum also organized by Advocata Institute jointly with Echelon business magazine.