ETCA, An Opportunity or Threat?

ETCA, An Opportunity or Threat?

What is ETCA ?

ETCA stands for Economic and Technology Corporative Agreement, which mainly focus on exchanging services between Sri  Lanka  and India. The initial suggestion was to sign Comprehensive Economic Partnership Agreement (CEPA) with India, but it was not signed due to the strong opposition of professionals led by doctors for exchanging of services with India.  This agreement is a expansion of the existing Free Trade Agreement (FTA) with India.


Existing Free Trade Agreement (FTA) with India

Sri Lanka and India signed a Free Trade Agreement (FTA) with India in 1998 which came in to effect in 2000. This agreement was majorly focusing on trading goods. According to the Rules of Origin (RoO) of the Agreement, if any product is to be considered under the FTA at least 35% of the value addition should take place in the country that is exporting.


Summary of RoO Criterion

Criteria

Specification

Domestic Value Addition (DVA)

Minimum of 35% F.O.B value

CumulativeRules of Origin(Cumulative RoO)

Exporting country minimum value addition of 25% F.O.B.if inputs from importing country are utilised, subject to the condition that aggregate value addition is 35% F.O.B value.

Change of Tariff Heading (CTH)

CTH at 4 digit HS classification

Source: Department of Commerce, Sri Lanka

When the FTA was signed, Sri Lanka was allowed a larger negative list (1,180 tariff lines) than India (429 tariff lines) indicating India can export less number of products to Sri Lanka without being tariffs imposed.

It is the same concept that will be applicable for ETCA as well. According to the International Trade Minister, Malik Samarawickrema only maritime and IT Services will be exchanged between two countries under the ETCA.

 

Malik Samarawickrama,
Minister of Development Strategies and International Trade

What's Good?

Development of Maritime Industry

One important thing Sri Lanka can gain through signing ETCA is developing the marine industry since there is lack of employees to perform certain tasks of the industry. This is mainly regarding ship building and ship repair services. Accordingly, attention have been driven to liberalize ship building and repairing service sector as those who involved in the industry had raised concerns regarding the lack of skilled labor to carry out certain tasks in ship building and repairing.


Given the significance of the geographical location of Sri Lanka, developing the marine services would help the country to gain a lot of foreign exchange.  Particularly, the shipping routes locate pretty close to Colombo port and a quality maritime industry therefore, would assist the country to emerge as a maritime service hub.


Attract Large Scale IT BPO Projects

On the other hand, liberalizing IT services may help the country to attract large scale BPO projects which Sri Lanka is unable to carry out now due to the lack of IT Professionals in the country. Sri Lanka ranks among the top 5 emerging countries with a sound business climate, hot on the heels of the BRICs, therefore, the country can expects the Foreign Investors come in and invest in IT sector large scale projects.

 

Whats Not so Good?

Non Tariff Barriers

Any trade agreement, whether it is goods or services are affiliated with the issues of Non Tariff barriers. These barriers include;

  • Quality controls;
  • State regulations; and
  • Anti dumping duties and issues regarding certificate issued by each countries regarding the goods or services exchanged.  
One of the major issues came up in the FTA, was India not recognizing the FTA certificate issued by Sri Lanka. There was a need of Mutual Recognition Agreement (MRA) regarding the quality of the goods traded. Therefore, the absence of such MRA would be a disadvantage to Sri Lanka as the country would not be able to trade liberalized service due to certain Non Tariff Barriers.

For example, even though the IT professionals in Sri Lanka are allowed to work in India as per say, different states can impose regulations hindering the opportunities available to Sri Lanka.  In that context, the way in which negations are carried out regarding the ETCA is very important and Sri Lanka clearly specify its boundaries regarding liberalizing services.


Supply and demand for IT Professionals - Demand may go down for Sri Lankan Graduates

According to SLASCOM, Export revenue grew from USD 213 million in 2007 to an estimated USD 720 million in 2013. Total employment grew from 33,700 in 2007 to an estimated 75,100 employees in 2013, and the number of companies in the industry grew from 170 in 2007 to over 220 in 2013.

According to SLASSCOM estimates, the supply of IT graduates was 7,010 in 2014 while the demand was close to 6,300. It is clear that there is no shortage of IT graduates at present unless the country is targeting to attract large scale IT/BPO projects.

In that context, if Indian IT professionals are to work here the salaries of the local IT professionals would go down as the supply of IT graduates would increase.  That might result in new IT graduates facing difficulties in establishing themselves in the labor market.

 

Unemployment in India

NEW DELHI: There seems to be a significant skill gap in the country as 80% of the engineering graduates are "unemployable," says a report, highlighting the need for an upgraded education and training system. Educational institutions train millions of youngsters but corporates often complain that they do not get the necessary ~Indiatimes.com

The number of unemployed people in India is more than 100 million and recently it was reported that a large percentage of Indian graduates are unemployable. Therefore, in the absence of proper specification about the qualifications in terms of IT Service liberalization, Sri Lanka would not get talented Indian IT professionals whom they require if the country is to attract large scale IT and BPO Projects.

 

Opportunity or threat ?

FTAs had essential components of trade policy, but every country needs to know how such trade agreements are operated. Sri Lanka, at the moment has a FTA with India which has a lot of loopholes to be addressed. In that context the government should be very vigilant in entering to a certain agreement, and need to be very specific in liberalization of services failing which would result in ETCA become a threat more than an opportunity.


Bad PR. 

Finally, this issue has been blown out of propotion for a certain level. One of the biggest reason for this is the fact that government kept this whole arrangement away from public domain. The agreement so far has not been finalized. However, a draft document of the agreement is provided here. It was said that the agreement would be in public domain prior to signing the agreement. Whole IT industry is eagerly waiting to see the final out come of this drama.

  




Some Resources relating to ETCA

Here is the Draft ETCA Agreement:




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