26th March 2000

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Tea Update

No significant price changes

It was just another auction day with its ups and downs with no significant price changes on record. Low growns continued to be well received although some grades declined a few rupees over the previous auction levels.

Forbes and Walker Tea Brokers reported that CTC varieties continued to witness strong demand, which could be attributed to the limited availability of such teas at the Mombasa auctions.

However, Asia Siyaka Tea Brokers reported that dry weather conditions were experienced in most planting districts. They expect the crop intake to decline as a result. The report said that the quantity on offer over the next few weeks has reflected a lower cropping pattern, particularly in the low grown category and expect this trend to continue if no rain is reported in the planting areas.

In addition, Iraq had announced the final allocations for the supplying of tea under the seventh phase of the UN oil for food programme in which Sri Lanka has been allocated 3600 metric tons. Meanwhile, Vietnam continues to be the largest supplier with an allocation of 10,000 metric tons followed by India with 4500 metric tons. Sri Lanka's allocation is 2400 metric tons less than in the sixth phase of the programme, while Vietnam and India's allocations have been raised by 3000 metric tons and 500 metric tons respectively.

However, on a slightly different note, a new dot com company has entered the arena of the internet market and seems like the tea industry might benefit from it. A wire news service reported that the latest in American dot com companies was implementing a real-time B2B web strategy to become the primary international market maker for selected globally-produced agricultural commodities sold in bulk.

Targeted commodities include: Tea bulk wine, juice concentrates, nuts, dried fruits, spices/herbs, essential oils, green coffee, cocoa, edible oils. At the producer level these commodities total $160 billion in annual revenue. Industry-specific BulkMarkets sites will enable producers and packagers to buy and sell bulk agricultural commodities, thus reducing their dependence on traditional middlemen, the company had said.

Additionally, will provide buyers and sellers with real-time information about current market pricing, sales volume, product movement and availability, enabling both to make better decisions and save transaction costs, the report said.

"BulkMarkets members will be companies that produce or take possession of the bulk product. Non-value added middlemen or speculators will not be offered membership. We expect that our services will be primarily used for regular shipments throughout the year, not just for single lot auctions or special circumstances," CEO Mike MacDougal had said. The company is currently beta testing its proprietary software with industry participants in the U.S., South America and Europe and plans on launching its bulk wine site,, in the second quarter of this year.

Stock market update

Flurry in domestic buying

The week saw a flurry of local activity in taking up strategic stakes.

The Readywear Group, owned by business tycoon M A Yaseen purchased over a million shares in DFCC Bank to increase its stake in the bank to over 6 per cent. Readywear also anounced it had a 10 per cent stake in Seylan Bank at the end of the week.

George Ondaatjie of the Mercantile Investment Group culminated a buying spree of Ocean View Ltd by purchasing 755,300 shares this week and closed the week with a stake of 19.5 per cent.

Meanwhile Palm Garden Hotels announced its board of directors was considering a proposal to merge the operations of Palm Garden Hotels with Riverina Hotel Ltd (RHL) and Confifi Beach Hotel Ltd (CBH) by issuing shares in the company to be swapped for shares in RHL and CBH.

Foreign selling in the Colombo Stock Exchange continued unabated with net foreign sales of Rs. 206.72 mn. The All Share Price Index fell 0.76 per cent to close at 515.8 while the Milanka Price Index dropped 0.62 per cent to register 845.04. The MBSL Mid Cap Index fell 1.11 per cent to close at 897.5.

"We expect the market to remain range bound in the near term till foreign selling abates," Head of Research, Asia Securities, Dushyanth Wijayasingha said.

On the technical front there is a continued downward channel with the indices trapped within the passage, Head of Research, CDIC Sasoon Cumberbatch, Diluk Desinghe said. "If the depth of foreign selling was known the level to which the market may recede can be ascertained. Local investor confidence is strong enough to hold the market at current levels but foreign capital inflows or a local run on the plantation sector would be necessary to boost the market," Desinghe said.

"We expect to see a recovery on the market based on economic improvement reflected by a growth in exports," Head of Research, Jardine Fleming HNB Securities, Amal Sanderatne said. Exports grew by 12.6 per cent in US dollar terms in January.

"With foreign selling receding the market may rebound," General Manager, Forbes ABN Amro Stock Brokers, Alistair Corera said. Quarterly results which are due may be better than the comparative quarter last year and this may also contribute towards an upturn in the market, he said.

Money Market

Tight liquidity keeps rates high

The Inter-Bank Call money market and the Overnight Repo market

During the week ended March 23, the Inter-Bank call money rate persisted at much higher levels, due to the weakened money market liquidity level. Though there was a slight improvement in the early parts of the last week, in general, throughout March, the money market liquidity remained tight. The weekly weighted average upsurged to 13.25%, 123 basis points higher than the previous week.

The Central Bank's intervention in the last bill auction held is likely to ease the liquidity pressure in the market. However, as a substantial amount of money is due to depart the banking system for festive spending, we expect the liquidity level to remain somewhat tight.

The overnight repo rate too was high, just a few basis points below the Central Bank reverse repo rate. The weekly average was 13.13% as compared with the 11.79% of last week.

The Central Bank's overnight window rates remained unchanged at 9% and 13.3%. Given the liquidity shortfall, the reverse repo window was very much active, as most of the market players reached Central Bank to borrow against their securities. The total reverse repos at the Central Bank window during the week were Rs. 11.6Bn, with a daily average of Rs. 2.9Bn. The repo window kept virtually dormant and reported only Rs. 0.29Bn for the week

The Treasury Bill Auction.

The government borrowed Rs. 2.94 billion in treasury bills last week. As a consequence of the liquidity shortage that was prevailing in the market, though the auction was fully subscribed most of them were not in the acceptable region.

Therefore, Central Bank intervened in the auction by Rs 2Bn with the intention of securing the bill yields. The rising momentum in the treasury bill yield sustained for the third consecutive week. This week's auction witnessed a sharp hike in the yields, where 91days, 182days, and 364days surged by 12, 7 and 13 basis points respectively.

Treasury Bond Auction

On the bond auction held on March 23rd, Rs. 1.4Bn worth of five-year bonds were offered to the market. Given the market anticipation of a lower interest regime and the active participation of captive funds, the longer end of the yield curve continue to flattening. The Weighted Average Yield for five years plunged by 15 basis points to close be at 12.77%. The next bond auction will be held for Rs. 1bn worth of 5-year bonds on 30th of this month.

Foreign Exchange - Dollar Spot Movement

Amidst the comparatively high rupee interest rates, the inter-bank dollar rupee exchange rate was ranged bound. The dollar rupee spot rate moved slightly lower to Central Bank selling rate. Given the gaining strength of the dollar in the international market and the weakened trade account position of Sri Lanka, the dollar is likely to remain strong against the rupee. During the week the Central Bank middle rate was increased by 14cents to close at 73.165. The market spot rate moved in between 73.56 and 73.65. The three months forward rate was at 12.75%-13.25% premium to the spot.

Security at Sri Lanka Telecom office 'on the blink'

Serious questions are being raised about the security cover at Sri Lanka Telecom headquarters in the heart of Colombo after it was revealed that a vital piece of electronic equipment used to detect explosives had been on the blink for nearly 11 months. The equipment remained unattended after there was a dispute on who would foot the bills for the necessary repairs.

This development has now prompted a top-level inquiry by the Sri Lanka Telecom authorities, and for the moment the accusing finger is pointed at the chief in overall charge of security for this vital institution, at the top of the Tamil Tiger hit list, sources close to the probe said.

According to the sources, Sri Lanka Telecom purchased two highly sophisticated explosive detectors (EVD3000) in 1997 through Access International (PVT) Ltd, each costing approximately Rs 3.6 million per unit.

The trouble began when one piece went on the blink sometime early last year, and the importing agent was asked to foot the bill for its repair, a request that was turned down at once. The agent was adamant that the initial purchase of the devices did not in any way specify a guarantee period and therefore Sri Lanka Telecom would have to see to its repairs. The security authorities at Sri Lanka Telecom were equally stubborn and refused to make any payments for the repairs.

Now it has been further revealed that the pair of EVD3000 were purchased even without the required user report either from the state security authorities or any other places where such equipment is already in use. In addition, the importing agent had forced the Sri Lanka Telecom to pay Rs. 3.7 million while the same piece of equipment was sold to the MoD for Rs. 1.5 million.

JWT and Phoenix grab the most

The Sri Lanka Institute of Marketing's (SLIM) Awards for the advertising industry were presented to the most worthy contenders in the only award ceremony for the industry.

J. Walter Thompson's continued their winning streak for the fourth consecutive year, bagging 21 of the 85 awards that were up for grabs. The 21 awards included the coveted "Campaign of the Year" award for their successful Pears Baby campaign and 8 of the 28 gold awards on offer.

Meanhile, Phoenix Advertising Pvt Ltd., came in a close second bagging 18 awards including the award for the best TV commercial for the year for one of their Elephant House advertisements. Phoenix won a total of six gold awards.

Grant McCann and LDB Lintas bagged 11 awards each. However, Grants won seven gold awards compared to Lintas's five gold awards.

Minds and Bates won four and three awards respectively including one gold award each.

Masters DDB, Q&E, Trikaya Grey, Leo Burnett, Advantage Sri Lanka and Blitz did not win any gold awards but received silver and bronze awards.

It is worthy to note that Leo Burnett being a new entrant won one bronze award and a merit award.

Philips security systems from Hayleys Engineering

Hayleys Engineering Limited, the authorised agent in Sri Lanka for Phiiips Commnunication and Security Systems, recently introduced the Philips Video Doorphone System 9000 and the Philips Autodome Closed Circuit TV (CCTV) Camera System to Sri Lanka.

The video Doorphone is a simple but effective security communication and access control system for domestic as well as industrial applications. The video doorphone camera, which is installed near an entrance, transmits via cable to the inter-phone the image and voice of the person seeking permission to enter the premises.

Another new addition is the latest in Philips dome type CCTV Cameras, the Philips TC700 AutoDome. This system is one of the most advanced, high-speed camera dome systems in the industry. The system which is designed for discreet surveillance applications is used in places with high surveillance requirements and also more practical places such as Casinos. Banks, retail stores, museums, shopping malls, hotels and car parks. AutoDomes exclusive system combines the dome, camera with high-speed pan/tilt/zoom components for the most demanding CCTV surveillance application. "This is the newest high-tech addition to our product line and a new dimension in discreet surveillance" the company release stated.

Garment exporters go to the United States

A group of exporters, Chairman BOI and Director Product Management of the EDB are meeting leaders in best selling US apparel brands in a tour to US in preparation for the phasing out of quotas by 2005.

Apparels at present are our number one export accounting for 53.5 per cent of our total exports. Sri Lanka enjoyed the security provided by the Multi-Fiber Agreement for apparel exports to the USA market, which did not necessitate any aggressive marketing. The situation has changed in view of the phasing out of the MFA by 2005. The group will seek to meet the Chief Executive Officers of 10-15 top brands to encourage at least five best brands to set up buying offices in Sri Lanka. Minister Commercial Sri Lanka Embassy in the USA - Mr. Senadheera, who has organised the meetings in the USA also, will join the Sri Lanka delegation, an EDB release said.

USA has remained the major market for apparel over the years. A population of 271 million with a per capita income of US$ 32,376, makes intensive marketing in the USA, a worthy effort the release added.

In 1990, Sri Lanka exported apparels worth Rs. 16.5 billion - 66.46 per cent of total apparel exports to USA, which has increased by 1999 to Rs. 101 billion - 61 percent of total apparel exports.

Emirates Airlines competiton for Dubai Festival

Emirates passengers flying the Airline between now and March 31, stand a chance to win a holiday for four to Dubai.

During this period, Emirates and the Le Meridien Dubai are running a worldwide competition of the Dubai Shopping Festival on board all its flights across the network, a news release said.

The airline is giving away 10 Dubai holiday prizes each for four people inclusive of return economy class tickets to Dubai from any destination in the Emirates network. The 10 winners will get a week's accommodation in two deluxe rooms at the Le Meridien Dubai, the release says.

Emirates will arrange entry visas to Dubai, arrival meet-and assist services at the airport and complimentary tours by Arabian Adventures. The DSF inflight competition is another of Emirates' efforts to raise awareness for the festival. Emirates is a major sponsor of the DSF, which takes place from March 1 to 31, as a month of fantastic retail discounts, family entertainment and cultural events.

Entry forms for the competition are placed in seat pockets on board all Emirates aircraft.

Institute of Directors to be launched

The Ceylon Chamber of Commerce, which acts as the voice of the corporate sector, will launch the Sri Lanka Institute of Directors by end March 2000. This initiative comes at an opportune time and fills a void felt by business leaders for an organization that is dedicated to addressing their needs.

The Institute will function initially under the auspices of the Chamber and thereafter as a wholly independent body, run by directors for directors. It will educate, inform and assist corporate heads to effectively govern the companies on whose Boards they serve. Members will join the Institute in their individual capacities and in return will recieve advice, information and guidance on being effective organizational leaders, a chamber release says.

The Institute will achieve its objectives by providing a range of services including seminars, conferences and workshops to educate and update members on various aspects of directorship. In addition to directors, senior managers at the threshold of becoming directors, sole proprietors of unincorporated businesses and partners of professional practices will fall within the purview of such initaitves.

The programmes, conducted with local and foreign collaboration, will highlight topics ranging from the rights, duties and liabilities of Directors to the ethical and moral considerations governing decision -making by the Board. The Institute will serve as a support network and create a forum for key business leaders to meet, fraternize and exchange ideas, while building strong peer networks.

As part of its service, the Institute will issue members with a "Directors' Handbook" highlighting the principal elements of Good Directorship.

In the pursuit of its objectives, the Institute will establish close links with professional bodies, non-governmental organizations and international funding agencies.

Pegasus Reef to be managed by Keells

In a strategic move by Carson Cumberbatch & John Keells, on April 1, 2000, the management and marketing of Pegasus Reef Hotel, Wattala, will come under Keells Hotel Management Services, who own and operate 10 other Resorts in Sri Lanka and 2 in the Maldives. While adding to the present room strength of Keells Hotels, it will also ensure that they have a highly marketable property on the coast, north of Colombo city, within easy access to the Airport.

This spacious garden resort by the sea is located just 24 kms. south of the Colombo International Airport and is only a 15 minute ride away from the City. The spacious standard rooms are airconditioned and equipped with twin beds, hot and cold water bath/shower, telephone, with a private balcony or terrace overlooking the pool or garden. The deluxe rooms in the north wing have the additional facilities of a TV & Mini bar, a company relase says.

The owning Company, Pegasus Hotels of Ceylon Ltd., signed up with Keells primarily due to their legendary style of sound hotel management. It was also evident that the Hotel would benefit from the operational strengths of the Tour Operating Companies within the John Keells Leisure sector - i.e. Walkers Tours, Mackinnons Tours and Whitalls Travels, who are the Ground Agents for many International Tour Operators like the CNN Group, Hotelplan, Kuoni Travels, Turisanda and British Airways Holidays.

Mr. Kumar Thambyah, Director/General Manager (Beach Resorts) at Keells Hotels will take overall charge of Pegasus Reef Hotel, as its new General Manager.

SCB opens regional software centre in Colombo

The opening of regional software centre in Colombo by Standard Chartered Bank recently will provide cost-effective, quality IT systems development and support for the group and consequently to the bank's customers.

This new centre will provide the South Asian region of the group with software required for the bank's operations. Operating from a lease from Dubai, the new system will re-write the BBS, the banking support system to EBBS with the latest technology. This will also provide the JAVA web-base internet application for support services, which is seen as a tremendous leap in electronic banking.

The starting of the development centre in Sri Lanka is a strategic step. It is all about the wealth of local IT talent available and delivering cost-effective and quality systems development and support. It underlines our constant effort in pursuing technology enablers to our business, said V Chandrasekar, Regional Head of IT, Standard Chartered who was in Sri Lanka recently for the opening of the centre.

It was logical that we locate this in Colombo as technology is well developed in Sri Lanka with matching infra-structure and more importantly, skilled and qualified IT professionals to man the centre, says Ahmed Rehman, Chief Executive of the Sri Lanka branch.

This will provide an opportunity for local personnel to obtain hands-on experience in this area, supported by Dubai and be exposed to a progressive banking support services scenario, he added.

Colombo Model UN was a great success

The Sixth annual session of the Colombo Model United Nations was held in March this year. The event held at both the Overseas School of Colombo - the initiate, and at the Bandaranaike Memorial International Conference Hall, was a great success.

Over 200 students from 20 schools participated at this year's event, where nine resolutions were passed, including regulations for the prevention of the sale of women and children, child prostitution and child pornography.

A statement from Her Excellency President Chandrika Bandaranaike Kumaratunga noted the attempt on the part of the students of the OSC to open a discourse on matters of national and international significance as praiseworthy.

United States Ambassador, His Excellency Shaun Donnelly and Dr Samad Abdallah, Medical Officer of the World Health Organisation in Sri Lanka were guest speakers at the conference.

Awards were presented to participants based on country representation and individual achievement. Observers from outstation schools comprised Kandy, Gampola, Ambalangoda, Batapola and Henegama.

Participation in the conference is open to all schools islandwide with a minimum requirement of two students between the ages 13-19. A fair command of English is a pre-requisite. Schools who wish to participate in next year's convention should contact the coordinator, Darwin Smith at the Overseas School of Colombo.

Gateway to the South

Encouraged by increased interest in the sorrounding provinces, Gateway Kids School of Computing will open a branch in Matara. Being only three years old, Gateway has achieved considerable success with a total student body now at 3,500. Currently, the school operates eighth branches - five in Colombo and one each in Kandy, Negombo and Kurunegala.

A unique concept, the Matara branch will operate under a franchise programme where the school will provide the curricula and course material, teacher training and quality assurance. The franchise operators in Matara are Southern Education Promoters, Chaired by the former Permanent Secretary of Education and Finance N.V.K.K. Weragoda. Under the chairmanship of R.I.T. Alles, Gateway also has the distinction of franchising its education programme to a neighbouring SAARC country, Bangladesh. Introduced in December, 1999, the centre's success has prompted local investors to launch a second centre as well.

The programmes at Gateway are provided through two primary centres - the Kids School of Computing for children between the ages of four and 14, and through the Centre for Information Technology (CfIT) for school leavers and adults. Based on the British National Curriculum for Information and Communication Technology, the courses for children are available both on weekdays and weekends and structured into three stages. On the completion of each stage students receive certificates endorsed by the University of Southampton.

State-of-the-art customer care from Metropolitan

Metropolitan, the local partner and agent for Ericsson Business Communication Systems and Nitsuko telephone systems, are at the forefront of office communication systems and have the largest installed base of office telephone systems in Sri Lanka. The company has over time built a service infrastructure to cater to the discerning needs of its customers. Metropolitan Communications Limited (MCL) in their bid to continuously improve customer care, recently set up a state of the art call centre at their Service Division. The call centre features automated greeting of all service calls on service hotlines within two rings and automatically directs calls to Customer Relations Officers (CROs). The ability of the system to identify the CRO enables it to post the call to an officer who is free, ensuring the customer call is attended to with the least delay.

All customer information including system details and service history is available on-line to the CROs through an advanced database available on the company's Local Area Network. This database provides up-to-date information to the officers to assist the customer with a minimum of delay.


Rule of origin cuts us out

By Nimal Sanderatne

The economic event of the month was no doubt the Indo Sri Lanka Free Trade Agreement [FTA].As to be expected controversy raged around it,but much less than when it was first mooted. Many of the early fears appears to have died down,while expectations of the business community have been enhanced.

The assurances of the government that certain sectors,especially agriculture, would continue to be afforded protection was the main reason for lesser anxiety.

The prospect of the Indian government allowing a greater degree of freer trade in some commodities produced in Sri Lanka, was the main cause for expectations of greater benefits from the Agreement.

Trade Chambers have not only welcomed the Agreement ,but are organizing themselves to take advantage of its provisions.

A welcome facet of the agreement is the collaborative efforts which the chambers of both countries have taken even before the signing of the agreement.


Yet,practical difficulties abound when it comes to the implementation of free trade in already well established economies.

Established industrial structures,cropping patterns,entrenched inefficiencies,economic costs and dislocation of industries and agriculture, vested interests and political pressures make the dismantling of protective barriers very difficult.

This is the rationale for exceptions to free trade in the free trade agreement signed by the two countries. To the extent that free trade is blunted by the restrictions,the overall advantages of free trade would be curtailed.To the extent that these restrictions protect established industries in each country, the immediate dislocations and disadvantages are removed.The Indo Sri Lanka Free trade Agreement by imposing a considerable amount of restrictions have effectively reduced the full potential benefits of free trade for the present,as well as ensured that certain sectors of the economies of the two countries,particularly Sri Lanka ,would not be adversely affected.

It is to be seen in future years whether the two countries would move towards a gradual withdrawal of these restrictions to gain full advantages of free trade with suitable domestic adjustments to industries and agricultural activity in each country.

The most notable fear in Sri Lanka was that free trade in agricultural produce would wipe out our food crop agriculture.

It is well known that in India,most agricultural products are a fraction of the price in Sri Lanka. Some have argued that this is due to considerable subsidies enjoyed by the Indian farmer,which his Sri Lankan counterpart does not.

More informed sources indicate that this is not the material reason for the huge differences in the costs of production.

The costs of production are lower owing to lower labour costs,lower costs of many agricultural inputs,use of better seed material,and more intensive cultivation.

Had we permitted free trade in agricultural produce these lower costs of production in India would have enabled Indian exporters to capture our market quite easily.

This has been prevented by the negative listing of this produce.So the agreement has protected the Sri Lankan farmer of food crops.The other side of the coin is that the Sri Lankan consumer has lost the benefit of free trade and has to pay a higher price for his food.Another way of looking at it is that the consumer is subsidising the producer.If this continues ,then one of the important benefits of free trade between the two countries would be lost for ever.

The position taken with respect to agricultural produce is understandable as a short term measure.But if free trade between the two countries is to be meaningful in the long run for the two countries, there would have to be a phased dismantling of the protective measures.For Sri Lanka's part it would have to take a close look at agrarian structures, cropping patterns,support measures, costs of production and the factors bearing on these and evolve an agriculture which is competitive in the international market.

If we can grow crops, which bring a higher returns in the international market,our farmers,consumers and the country would be much better off by their producing such crops for the international market and importing the less costly food from India. This is however a concept and an idea which is difficult for a country which has striven to be self sufficient in food to accept. What are the advantages of the agreement for the country? One of the biggest advantages would be the cheaper inflow of raw materials and machinery from India.This should decrease industrial costs of production and improve our competitiveness in international markets. We could have done this by ourselves without an agreement.However,through the FTA we have bargained for a quid pro quo.

Increased imports from India would mean that our trade gap with India would widen.The bilateral trade balance is already skewed in favour of India and this is likely to be accentuated by increased imports from India.Only a narrow minded perspective would see this as a disadvantage.

There is no need whatsoever for a country to balance its trade with individual countries. What we must aim at is to achieve an overall balance in our trade with all countries.We must source our imports from the cheapest and thereby cut our import costs.

Even more significant is the fact that any impetus to our industries as a consequence of cheaper input prices would have an important bearing on our international competitiveness. THERE IS HOWEVER A VERY SERIOUS DISADVANTAGE ON OUR INDUSTRIAL EXPORTS PLACED BY A RESTRICTION IN THE AGREEMENT WHICH PERMITS ONLY SRI LANKAN EXPORTS WITH A DOMESTIC VALUE ADDITION OF AT LEAST 35 PER CENT THE CONCESSIONS UNDER O THE FTA.

This rule of origin provision virtually cuts out most of our industrial exports from the Indian market.Our main industrial export garments is in any case excluded,except for a limited quantity of 2 million pieces of garments at a reduced duty and a further 6 million pieces made of imported Indian fabrics.

There may be some justification where garments are concerned as it is an industry highly dependent on imported materials.

Even if we exclude this industry,our industrial structure is such that no more than about 70 per cent of our other industrial products would qualify for export to India under the FTA.

This means that of all our manufactures in the country less than 20 per cent of our products could benefit from the opening of the Indian market. The rule of origin interpreted as 35 per cent of domestic inputs would be a permanent disadvantage to our manufactured exports as our industrial structure will continue to be highly import dependent for raw materials.

A more advantageous definition of origin of content would be necessary if our industrial exports are to benefit appreciably.

There are other reasons too why we cannot expect to benefit much from the FTA.There has been considerable rhetoric about the access to the large Indian market. But what are the industrial products which we can manufacture more economically than Indian producers, in large quantities, to feed this market?This is especially so because of the restriction placed on the import content of the industries. It must be also recognised that India is very much of an industrial state with advanced technology.There may be a few light industrial goods we can market in India,that is all. In contrast India produces a wide range of industrial goods which we import.

There is also an expectation that foreign investors would pour into the country to invest in industries to cater to this large Indian market. What are the manufactures they will produce with substantially local raw materials?What are the great advantages they have in coming to Sri Lanka to produce these items? Surely there are greater advantages in locating these industries in India itself,which has lesser security risks,more local raw materials,cheaper labour and much higher levels of skills?

Once again with respect to industry as well, it is necessary to view the FTA as an initial move towards a greater degree of economic integration. Both countries would have to modify the restrictions they have imposed on each other and change them in the light of emerging possibilities of establishing industries in either country to the mutual advantage of both.

The restrictions imposed in terms of quantitative criteria should give way to more qualitative judgements for mutually advantageous concessions.The governments in the two countries and industrialists must look to an era of regional planning of industry rather than national planning alone.

In this connection it is most important to look at the possibility of a vertical integration of industry.It is well known that modern industry sources components of the final product from many countries.

The modern motor industry is a good example of this.The FTA is an initial step to induce such vertical integration of industry in the two countries.Such an approach would greatly enhance the value of this agreement for future years.

Too much of the discussion on the FTA has been within the narrow confines of whether Sri Lanka could export more to India,whether Indian goods would destroy Sri Lankan agriculture and industry,whether Sri Lanka's trade balance with India would improve or deteriorate and so forth.If our economic relationship with India is to be a really productive one, we must move away from this type of tunnel vision to the vast vistas of international trade.We must use the FTA to improve our international trade prospects by strengthening of the two economies to gain advantages, which would make both economies stronger and more competitive in the international market place. The FTA provides a basis for a beginning in a vision for this kind of development.Will the two countries rise to such heights in thought and action?

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