Pathfinder Foundation

  Sri Lankan Industry Linking to Indian Supply Chains Final Report

Sri lanka & India remain stong favour of deeper integration

Palk Bay has become an area of escalating fisheries conflicts and a serious political issue that has important implications for relations between two friendly countries; India and Sri Lanka. An International Maritime Boundary Line (IMBL) separates the Palk Bay area, the waters of which were historically shared by the fishers of both countries. Due to fisheries compulsions, Indian fishers exert immense fishing pressure and poach in Sri Lanka’s waters. After the cessation of the war, the fishers in the north of Sri Lanka have just resumed fishing, but confront Indian trawlers intensely harvesting their resources and damaging their gear. Fishers often get arrested for poaching and are detained for long periods of time, and both fishers and their families suffer. Neither discussions between the governments, nor those between fisher groups of the two countries have produced meaningful results.

Introduction

This paper assumes that both India and Sri Lanka will benefit from greater economic integration under the legal framework provided by the Comprehensive Economic Partnership Agreement (CEPA) that is said to be ready to be signed.  However, there is concern that a complete text does not exist because of a surprising failure to complete work on the schedules, despite the negotiators having had seven years to complete their work.  The incomplete text is not a public document, and will not be referred to.  The basic structure of CEPA was set out in the report of the Joint Study Group, which completed its work in less than six months in 2003.  The Joint Study Group (2003: para 5.4) Report sets out the framework for transport and connectivity thus:

Introduction
India is one of the world’s most dynamic economies and attractive markets with which Sri Lanka continues to have strong relations by reason of proximity and history.  India’s relations with Sri Lanka have, for the most part, been friendly and are probably the best that it enjoys with its non-micro-state neighbors.  India’s first bilateral free trade agreement (FTA) was with Sri Lanka and resulted in considerable growth in trade and investment, though not without some frictions, which for the most part have been addressed.  The Indian economy, which grew at 5.3 percent even in the fourth quarter of 2008 (when Sri Lanka’s other export destinations were experiencing negative growth) and is expected to grow at around 7 percent in 2009, is likely to be among the least affected by the global economic crisis.  This suggests significant benefits to both countries from building on the existing foundation of a bilateral disciplinary framework in trade in goods.  Sri Lanka can benefit from a larger market that will allow the realization of economies of scale, the ability to integrate into sustainable and low-cost value chains and greater investment.  India can benefit from demonstrating a model of a productive partnership with a neighbor, which if emulated has potential to generate robust regional growth and ameliorate political friction.