Restricted ingress

sri lanka and India recently agreed to expand trade and investment ties in the seventh round of negotiations under the proposed Comprehensive Economic Partnership Agreement (cepa) in Colombo. cepa is an effort to strengthen the Free Trade Agreement (fta) between the two countries but it is already running into trouble with some contentious issues awaiting resolution.

India's restrictions on the imports of vanaspati, bakery shortenings and pepper from Sri Lanka were some of the issues that came up during the recent negotiations (see 'Credible oil', Down To Earth, July 31, 2006). But the most significant discussion was regarding the textile industry.

In the negotiations, Sri Lanka asked for better market access to Indian clothing and textiles in a bid to reduce its reliance on the west.It sought duty-free imports of fabrics from India to supply the Sri Lankan garment industry, which also exports its produce to India.

Under the Indo-Lanka fta, Sri Lanka can export 8 million pieces of garments to India, with duty reductions up to 100 per cent, provided the items are made out of Indian fabric. But Indian fabric is not popular amongst Lankan garment exporters because it is expensive and because of restrictive fabric requirements. Thus, most garment exports from Sri Lanka to India take place outside the free trade agreement leaving most of the fta concessions unused. "Even less than one per cent of the concessions have been used," said N C Magedaragamage, Sri Lanka's acting director general of commerce.

Meanwhile, Sri Lanka has attracted foreign investors looking to enter the Indian market via Colombo. Many international companies have already set shop in Lanka to get a foothold in the Indian market.