Economic Diplomacy and ETCA | Daily News

Economic Diplomacy and ETCA

Extracted from Economic Diplomacy and Good Governance: Reflections of Ranil Wickremesinghe, Prime Minister of Sri Lanka by Dr. Telli C Rajaratnam

Economic diplomacy is the use of the full spectrum economic tools of the state to achieve its national interest. Economic Diplomacy includes all the economic activities, including but not limited to export, import, investment, lending, aid, free trade agreements etc.


India has engaged in economic diplomacy primarily through the use of trade and aid. India set up a development wing in its government in January 2012. The Development Partners Administration (DPA), is a primary way India uses economic diplomacy, in this case, development aid, as a way to engage diplomatically. The DPA is building 50,000 housing units in Sri Lanka. Economic diplomacy and the DPA are very important to Indian foreign policy.

Credibility of leadership

Sri Lanka is moving at rapid pace paving way for economic development with the leadership of Prime Minister Ranil Wickremesinghe’s programmes and strategies including industry targeting, commercial and industrial development and competition benchmarking roads, airports marine ports, railroad facilities and public transportation, lighting up the way are energy programmes and projects – including renewable energy generation and distribution facilities, and energy efficiency programmes, road development, highways, ports, increase in the arrival of tourists, the beginning of the acceptance by Western countries and stability of Government which attracts foreign investments are all triggered to enhance the standards of living. Sri Lanka is one of the track of economics for development.

Economics for development

Economic growth signifies the increase in per capita income or an increase in GNP. In present times, the term economic growth refers to a sustained increase in a country’s output of goods and services or more precisely product per capita. The output is generally measured in terms of GNP. The term economic development is far more comprehensive. It implies progressive changes in the socio-economic structure of a country. Hence, compared to the objective of development, economic growth is at a rapid pace. By a larger mobilization of resources and raising their productivity, the output level can be raised. The process of development is far more extensive. Apart from a rise in output, it involves changes in the composition of output, a shift in the allocation of productive resources, and the elimination or reduction of poverty, inequalities and unemployment. As a concept, economic development can be seen as a complex multidimensional concept involving improvements in human well-being. Producing more life-sustaining necessities such as food shelter and health care and broadening their distribution. Raising standards of living and individual self-esteem, expanding economic and social choice and reducing fear.


Much has been discussed about the ETCA and its disadvantages which have been grossly exaggerated and magnified to deter the people. The two areas of the profession which Sri Lanka will have assistance from India is the Computer and Corrupter related services and shipbuilding and repairs. There is a dire need for research statistics which are an important tool. In recent years innovation has moved to the centre stage. However, India will open up 20 professions for Sri Lankans initially and expand later. Research statistics is an important policy planning tool for industrialized countries emerging economies and developing countries alike. Both countries have ensured that the interests of professionals are well protected.

Even as certain sections of Sri Lanka continue to view skeptically the proposed Economic and Technology Cooperation Agreement (ETCA) with India, the pact, which would be an improvement over the existing Free Trade Agreement (FTA) will soon be a reality.

Indicating this, High Commissioner of India Y.K. Sinha, used the 70th Independence Day as the occasion to tell critics and skeptics of the ETCA that ‘it is up to Sri Lankans themselves to decide on the contours of any agreements that they sign with a foreign country.” However, there had to be “genuine debate and discussion” among stakeholders in Sri Lanka. High Commissioner Sinha, referred to the latest round of discussion on the pact in Colombo and expressed the hope that the agreement, when signed, would be of mutual benefit to both countries.

Bi-lateral trade

On the bilateral trade, the High Commissioner said it was $4.6 billion last year, of which Indian exports were valued at about $ four billion and Sri Lankan exports - $645 million. Nearly 60 per cent of Sri Lankan exports were making use of the FTA whereas 90 per cent Indian exports did not use the channel.

The 4th Commerce Secretary level meeting between India and Sri Lanka took place in Delhi. The new framework called the Economic and Technology Cooperation Agreement (ETCA), that takes the current India-Sri Lanka Free Trade Agreement (ISLFTA) to the next level, was discussed by both parties. The proposed framework envisages the exclusion of professional labour liberalization by Sri Lanka other than in two sub-sectors, viz, shipbuilders and IT professionals.


The signing of Mutual Recognition Agreements (MRAs) on standards was also discussed. Moreover, the Indian side will organise workshops in Sri Lanka for Sri Lankan exporters/officials to increase awareness of Indian standards, regulations, certificate of origin.


India is Sri Lanka’s largest as well as the most balanced trading partner. Overall bilateral trade between the two countries exceeded $4.5 billion in 2014. India is the largest source of imports to Sri Lanka and the third largest destination for Sri Lankan exports. It is among the first five largest investors in Sri Lanka and bulk of the Sri Lankan FDI overseas is located in India.

ETCA framework

The ETCA will support by building on this solid foundation taking into account the asymmetry between the two countries. Sri Lanka and India will engage in rules-based trading and ETCA will provide that framework for deeper economic engagement with India. Further discussions will focus on the content and scope of the Framework Agreement and an “early harvest”, of addressing some non-tariff barriers which have been constraining Sri Lankan exports to India.

India has opened its economy to the world which will result in several new networks being formulated. Which would be advantageous to Sri Lanka. The infrastructure in both countries is rapidly developing which will result in reducing the cost of production.

Support from the Ceylon Chamber of Commerce

The Ceylon Chamber has reaffirmed its fullest support towards an agreement that widens and deepens our economic engagement with India while reiterating the need for systematic stakeholder consultations, clear and coherent communications, and a firm commitment to tackling issues faced by businesses. The statement issued by the Ceylon Chamber of Commerce follows: The Ceylon Chamber of Commerce has consistently supported the expansion of Sri Lanka’s trade interests through signing mutually beneficial and well-designed trade agreements, and this has been clearly articulated in our ‘10 Principles’ on the economy. The Chamber believes that such agreements are an important tool in deepening trade and investment opportunities for our businesses, within a rules-based framework. The Ceylon Chamber welcomes the Prime Minister’s statement in Parliament explaining the Government of Sri Lanka’s (GoSL) stance on the proposed Economic and Technology Cooperation Agreement (ETCA) with India. This statement can help allay misperceptions around the proposed ETCA. The Chamber now urges the authorities involved in the ETCA process to build on this by adopting a systematic consultative and information sharing process with the private sector. Any bilateral or regional agreement that Sri Lanka forges must be supportive of the country’s holistic economic interests (rather than cater to individual business interests); must recognise size asymmetry of the economy; and must take a phased approach to liberalization where domestic regulatory systems need updating (for instance, on movement of natural persons in professional services).

A dialogue process that is well structured and includes all relevant stakeholders can mitigate the risks of the current ETCA process suffering from the difficulties that the earlier proposed Comprehensive Economic Partnership Agreement (CEPA) suffered. We call on the government ministries and departments involved in the process to adopt a more systematic approach to private sector consultations, so that we may mobilize evidence-based representations from the private sector. 


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