The role of international agreements and diplomacy in promoting Sri Lankan business

by Dr. Palitha T.B. Kohona

The following are the excerpts of a speech delivered at the Postgraduate Institute of Management (PIM), Sri Lanka’s leading business school, where the Foreign Secretary highlighted Sri Lanka’s economic progress even under terrorist threats and how the country’s economy is challenged by anti Sri Lankan propaganda carried out by LTTE and others. Dr. Wickrema Weerasooriya chaired the meeting.

“It is with great pleasure that I address you on the subject “The Role of International Agreements and Diplomacy in Promoting Sri Lankan Business”. I spent a considerable number of years either negotiating international agreements affecting trade and investment or interpreting them to ensure proper implementation.

My earliest experience in this area was with regard to fisheries agreements. This early exposure to the fishing industry and its regulation through international instruments is partly responsible for my fondness for sushi and sashimi.

I was particularly fortunate to have been involved with the development of the treaty regime for Southern Bluefin Tuna, then involving the three major producers of this product, Australia, Japan and New Zealand.

Although in Sri Lanka, we still tend to think of fish as a livelihood provider for small operators, globally, it is a multi billion dollar business. Southern Bluefin Tuna fetches in excess of 200 dollars per kilo in the Tokyo Tsukiji fish market and it is usually air freighted, when fresh.

Intergovernmental agreements regulate fisheries in many areas of the world. The European Economic Community regulates fishing through quotas allocated to its member states, largely as a conservation measure. You will recall that the European cod fishery collapsed in the eighties due to over fishing and had to be restored through multilateral action.

Subsequently my involvement extended to negotiating trade and also investment protection agreements, in particular, the Uruguay Round of Agreements. Today, a range of agreements, both multilateral and bilateral, impact on trade and investments across the globe. In the trade area, the most prominent framework is provided by the World Trade Organisation agreement and its related treaties.

Trade

Many countries of the world are parties to these agreements, which are designed to liberalise world trade.

These are not free trade agreements but mechanisms designed to liberalise trade. The prevailing view is that liberalised trade will increase global prosperity and will benefit more people. The major trading powers of the world, the US, the EC, Japan, China, India, Brazil, Australia et al, are all members of the WTO.

A prominent exception is the Russian Federation which is still negotiating its accession conditions. But let me strike a note of caution, just in case you begin to believe that we are in a jolly world of free traders competing with each other on equal terms for market share.

The members of the WTO, especially the bigger ones, are the ones who have constantly acted inconsistently with the sprit, if not the law, of the organisation in the furtherance of their national interests. For example the US, the EC and Japan subsidise their farmers to the tune of over 350 million dollars per annum.

In the process they have impacted adversely on agriculture producers, especially on developing country producers. Agriculture still remains the critical stumbling block in the Doha Round which is being negotiated now. While the developed countries, tend to emphasise liberalisation for the areas in which they are strong, for example in the area of services, they are not too enthusiastic about liberalising areas in which they are weak.

Agriculture, textiles and garments, aviation, are examples. In fact, some commentators believe that the entire intellectual property regime under the TRIPS is anti-competitive and it is a regime that is strongly supported by developed countries.

Custodian

“More recently, as you know, I spent ten years at the UN as the Head of the UN Treaty office.

The UN Treaty office is the custodian of over 500 multilateral treaties deposited with the Secretary General, and on his behalf, is responsible for managing them, including by providing interpretative statements. This was a minefield that had to be negotiated with extreme care as each country had its own perception on how a particular treaty impacted on its interests.

In addition, under Article 102 of the Charter of the UN, over 50,000 treaties were deposited with the UN. What is significant about this treaty framework is the intricate manner in which the international community was legally interconnected and how bilateral relations were minutely regulated.

Countries enter into treaties voluntarily and in the process negotiate benefits for themselves and invariably are required to make concessions. The international treaty framework reflects a meticulous balancing of global rights, obligations and standards across the entire spectrum of human activity.

“Sri Lanka, for its part, has developed complex chains of inter-connectivity with a range of countries around the world and international organisations over the years.

Some of these linkages go back hundreds of years and even millennia. Many, originating in cultural, religious, trading and colonial factors, are today based on multilateral and bilateral treaties.

Linkages

While we emphasize our treaty based linkages, we must not forget our very strong intrinsic cultural connections, particularly in our own region. While the colonial links have served us well, we must also exploit the important historical cultural links within our own region - a region which is now vigorously contributing to the economic advancement of the world.

“Sri Lanka’s contemporary bilateral and multilateral treaty connections substantially underpin much of its global relations whether they are political, economic, commercial, etc. It could be said that very little of Sri Lanka’s external relations is undertaken today without relying on a complex web of multilateral and bilateral treaties.

An understanding of this factor would substantially facilitate our trading and economic activities. While these treaties establish or reflect bilateral interests and in many cases, global standards, they also impose binding rights and obligations. Admittedly, we are part of a system that is not perfect, but it is a system that is gaining in strength.

For example a letter posted in a roadside mail box in Colombo would reach its destination in any corner of the world without hindrance, thanks in part to our postal service, but essentially due to a well established framework of international rules relating to postal services first established in 1865.

Similarly, international telephonic communications, sea transportation, air travel, banking, trade transactions, etc take place against the background of an intricate web of international norms underpinned by treaties to which Sri Lanka is a party.

Modern commerce would not have reached today’s level of overriding importance in the absence of this treaty framework. We owe our modern prosperity to a large extent to this framework of global norms.

“Sri Lanka, as a member of the international community, is dependent on this network of norms for its development and continuing prosperity and naturally others who are its members are also in a position to use this facility to exert influence on us. They will definitely insist on their treaty rights.

In addition, it is the window through which the world observes us. It is also the window for us to show our best face to the world. We need to be constantly conscious of its potential and its drawbacks. This is a challenge to our diplomacy. While we benefit from it, we also open ourselves to the world through it.

“Let me pause over a few examples. Sri Lanka is a member of the WTO. The WTO Agreement requires Sri Lanka to take agreed measures towards progressive trade liberalization. Currently a new regime is being negotiated called the Doha Round. The previous one was the Uruguay Round.

We must engage actively in these negotiations both as an individual country and as part of a group or groups that have common interests. This would be a task for our diplomats. Cross-border trade is enhanced, through bilateral Free-Trade Agreements (FTAs).

Sri Lanka concluded the first FTA with India in 1999, and a similar FTA was signed with Pakistan in August 2002. The Agreement with India has resulted in the bilateral trade reaching approximately US$ 3 billion. Sri Lanka is now in the process of negotiating Comprehensive Economic Partnership Agreements with both these countries.

These are in the nature of Economic Integration Agreements (EIAs) - a primary vehicle in liberalizing trade policies, the ultimate benefactors of which will be the people of Sri Lanka. The expansive nature of such Comprehensive Economic Partnership Agreements, aiming at the liberalization of trade in goods as well as services, is also consistent with the obligations undertaken by Sri Lanka under the main substantive agreements of the WTO system such as the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the Agreement on Trade-Related Investment Measures (TRIMS), which were the outcome of the Uruguay Round of Trade Negotiations held from 1986 to 1994. They entered into force as a package in 1995.

“There are other important categories of international agreements which benefit Sri Lanka economically. I note that Sri Lanka uniquely provides extensive protection to foreign investments under Article 157 of the Constitution. These investment protection treaties ensure that globally accepted standards are respected by the parties in their dealings with foreign investors.

In particular, political risk is covered. Bilateral Investment Treaties (BIT) play a major role in this regard as they provide a degree of reassurance to foreign investors. Sri Lanka has entered into over 25 such investment treaties with other States. Most recently, the Government of Sri Lanka was able to finalise two further Agreements with the Czech Republic and Jordan.

“Following a proactive approach to establishing economic and trading relations, the government in February 2007 concluded an Agreement on a Framework Programme for Financial Cooperation with Hungary, while an Agreement on Economic and Technical Cooperation with China was signed in February, 2007.

Other developments concerning the subject of bilateral economic relations were the signing of an Agreement on Trade and Economic Cooperation with Israel (in April 2007) and a Trade Agreement with Jordan, in May 2007. Similar agreements have also been signed with Iran. These agreements are always preceded by considerable activity through the diplomatic channel.

“Sri Lanka has also entered into over 50 bilateral air services agreements.

“The conclusion of such agreements dates back to 1948, when Ceylon (as Sri Lanka was then known) entered into an Air Services Agreement with India.

“This was immediately followed by agreements with countries such as Pakistan (1949), Thailand, Myanmar and Australia (1950) and the Netherlands (1953).

“There has been renewed activity in the field of air services, especially, during the recent past. For instance, in April 2007, Sri Lanka signed an Open Skies Air Services Agreement with Switzerland. Also, a memorandum of Understanding which provides for liberalized air services between Sri Lanka and China was signed in March 2007.

Currently agreements are being pursued with a range of European countries.

“The European Commission has asked that Sri Lanka enter into a EC wide agreement on air services which will ensure consistency with Community law. Along with air services agreements, we also seek to make visa formalities easier for our business people. This, as you will appreciate, is not an easy task.

“Sri Lanka is a state party to the major international conventions and protocols concerning environmental protection, such as the Montreal Protocol, the Vienna Convention on the Ozone Layer, the UN Climate Change Convention, the Kyoto Protocol to the Climate Change Convention, the Convention on Biological Diversity, the Cartagena Protocol on Bio-safety, the Basal Convention on the Control of Transboundary Movements of Hazardous Wastes, the Stockholm Convention on Persistent Organic Pollutants and the Convention on International Trade in Endangered Species.

“Domestic legislation has been enacted to ensure that the international obligations arising from these multilateral instruments are adequately given effect to in Sri Lanka. For instance the Flora and Fauna Protection Ordinance introduced as far back as 1937, the National Environment Act of 1980 and other relevant legislation which have been amended consistently to meet the international standards.

“The critical importance of Sri Lanka’s participation in these multilateral environmental agreements is two fold. For one, we become part of the global effort to ensure the sustainability of our environment for future generations. On the other hand, we create business and economic opportunities. Compliance with key environmental treaties is an essential precondition for the extension of the GSP+.

In addition, under the Kyoto Protocol we could join the global carbon credit market under the Joint Implementation Mechanism. There are also significant subsidies being offered by the EC and others for environment standards compliant investments. Sri Lanka is also pushing to have accepted the principle that tropical rainforests must be ascribed a marketable carbon value.

“These international agreements confer extensive benefits to Sri Lanka. The benefits gained through our international network of treaties have helped Sri Lanka in great measure to expand our exports, find new markets, attract more investors and in the process, create employment, reduce poverty and achieve economic development.

Our success in expanding our trading activities has contributed significantly to our compliance with wider global standards. Outside the international legal framework, but in line with UN goals, Sri Lanka has shown considerable success in accomplishing the Millennium Development Goals, which aim at reducing poverty and improving the lives of people, as agreed upon at the Millennium Summit in 2000.

We should be proud that the number living in poverty in Sri Lanka has dropped to 15.2%. Our literacy rate remains very high. The Government has a target of achieving a 50% computer literacy rate by 2010. While much more needs to be done, the progress Sri Lanka is making is noteworthy, especially at a time when the entire country is challenged by the brutal terrorism perpetrated by the LTTE.

“In this context, it needs to be remembered that the LTTE, consistent with the strategy of other terrorist groups who have sought to cripple the economies of target countries, has aimed its sights at the economy of this country. It is a strategy which appears to be succeeding to some extent, unfortunately due to the conscious or unwitting acquiescence of certain international players.

The LTTE has attacked major economic targets in the country, and has threatened to continue such attacks. Unfortunately, against this obvious background, we also hear talk of trade concessions being withdrawn, development assistance being reduced and harsher economic conditions being imposed by our international partners.

This approach does not help at a time this country is struggling to maintain its democracy and its democratic institutions in the face of the LTTE’s determined efforts to cripple it economically.