It has taken a great deal of determination on the part of the political leaders of India and Sri Lanka to get as far as they have with an...
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It has taken a great deal of determination on the part of the political leaders of India and Sri Lanka to get as far as they have with an agreement on lowering trade barriers between the two countries.
Protectionist sentiment is strong in both countries as indeed throughout the SAARC region. When the idea of a SAARC free trade area SAPTA was floated at a foreign ministers8217; conference a few years ago, it was received with approval in public and scepticism in private. Politically, in the belief that closer economic cooperation improves relations, there was every reason to encourage SAPTA. But it was going to take much more than a good political argument to boost trade in a region where costs and methods of production as well as the range of exportable goods are broadly similar. Free trade among groups of equally placed producers provides rewards to those who can raise productivity levels more rapidly than others. In recent years new technology, investment and organisational methods have increasedefficiency in several sectors in India and Sri Lanka. The spectacular growth of the garments industry in Sri Lanka is one of the more notable examples. But overall, change has been slow and protectionism has remained the predominant trend. Meanwhile, Pakistan8217;s intractability on collective moves towards free trade provided everyone with the excuse to let things drift.
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Having battled hard to overcome resistance, both President Chandrika Kumaratunga and Prime Minister Atal Behari Vajpayee can claim to have achieved a large part of their aims even with a partial, unfinished treaty hedged about with conditions and negative lists which include some of their most competitive products such as tea and textiles. On her side, the push to improve Sri Lanka8217;s trade account with its big neighbour has paid off with India agreeing to introduce a zero tariff regime on a number of items over three years. On Vajpayee8217;s side the intent was to deliver the political and diplomatic message that good neighbourliness is one of hisgovernment8217;s prime concerns. It is also good business. To that end India has been generous, as it can afford to be, and allowed Sri Lanka a longer eight-year period in which to bring its tariffs on a smaller list of items down to zero.In the absence of published lists of items in the various categories, any assessment of the impact on bilateral trade will be premature. But this much is clear. Although bureaucratic wrangles will continue for a long time, a new norm has been created against trade barriers. The momentum will be towards bringing more down rather than the reverse. Competitive pressures in some sectors should induce greater efficiencies in production and open new opportunities for joint ventures. The long-running dispute over third country exports from Sri Lanka has been settled by pegging the value-added level for such goods at 35 per cent. With that avenue blocked off, Pakistan can no longer hope to enjoy the benefits of indirect trade with India while refusing to enter into a formal free tradeagreement. Hopefully, Islamabad will soon be inspired to follow Colombo and New Delhi8217;s example.
