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N. Ramakrishnan

Mr Amarananda S. Jayawardena, Governor, Central Bank of Sri Lanka.

CHENNAI, June 20.

THE next step is to chip away at the negative list and put those items on the open list," says Mr A.S. Jayawardena, Governor, Central Bank of Sri Lanka (CBSL), of the free trade agreement between India and Sri Lanka, signed three years ago.

He told Business Line that every year the agreement is reviewed and the purpose is to chip away at the negative list and also increase the quantity of imports allowed by both countries. He firmly believes that the agreement has helped dispel the mutual suspicion in both the countries and in the long run will foster better relations.

He is of the view that the India-Sri Lanka FTA could be a model for similar agreements with not only countries in the region but also elsewhere. For instance, Sri Lanka has signed a preliminary agreement with the US and a final agreement could be expected to be signed in the next few months.

A positive fall-out of the Indo-Sri Lanka FTA is the increasing advertisement of Indian products in the Sri Lanka media. Till the agreement was signed, there was hardly any Indian product advertising in the island nation, but that is now changing with advertisements in print and television, he says.

There has been a huge improvement in two-way trade between India and Sri Lanka after the FTA was signed, Mr Jayawardena points out. All the fears about opening up trade have been removed. For instance, in Sri Lanka there were concerns about a large country finishing off the local industry. That has been proven a myth, he says. "Even a small country can have an advantage over a large country because of specialisation," he says. Likewise, Indian industry was worried about products from Sri Lanka flooding the market. That has also not happened.

According to Mr Jayawardena, the SAPTA (South Asian Preferential Trade Agreement) helped change the attitude among the member countries to trade. Earlier, the countries were keen only to trade with large economies outside the region to the detriment of trade within the region.

He points out a couple of instances when free trade within the region, between India and Sri Lanka, was not possible more because of historical reasons and mindset among the people than anything else. For instance, during the British rule, exports of fruits such as apples and oranges from India to Sri Lanka were not allowed citing quarantine reasons. This continued for a long time after British rule ended and fruits were imported into Sri Lanka from Australia and New Zealand. The fruits were quite expensive. After this restriction was removed, a vast majority of the fruits being imported into Sri Lanka are from India, according to him.

There were restrictions placed on the import of coconut oil from Sri Lanka into India, mainly to protect the domestic coconut oil industry. However, there was widespread smuggling of coconut oil into India. Even after the FTA came into being, a Sri Lankan national - a Tamil from Jaffna - wanted to export milk-chilling plants to India. This was not allowed, and the person decided to set up a small manufacturing plant in India. That plant is now up and running, and the Sri Lankan national is doing good business, according to the CBSL Governor.

He said that despite Sri Lanka permitting import of seeds and plants, trade with India was not developing in this area mainly because there were restrictions in India on exporting these. "They permit exports to Singapore but not to Sri Lanka," he said and added that plants and seeds from India somehow found their way into Sri Lanka.

The benefits of the FTA with India was that Pakistan and Bangladesh were keen on similar agreements with Sri Lanka, Mr Jayawardena said. Another benefit of the FTA was that the manufacturing sector in the sub-continent could look at increasing production by viewing the region as one large market, rather than exporting to Europe and the US. The advanced economies were slowing down, and China and India were perceived to be the regions of growth. If India grew, the neighbouring countries could also benefit, he said.

The next stage in Indo-Sri Lanka relations would be the friendship and cooperation agreement, an umbrella agreement that was under negotiation. This would not only expand trade but would also address the services sector, he said.

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