26th March 2000

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Hardly a free trade agreement

By Muttukrishna Sarvananthan

Since independence India and Sri Lanka have concluded three major treaties. They are the Srima-Shastri Pact (1964) (to resolve the citizenship question of the hill country Tamils who were brought from India to work in the plantations by the British), the Indo-Sri Lanka Peace Accord (1987) (to resolve the ethnic conflict in the Northern and Eastern Provinces of Sri Lanka), and the Indo-Sri Lanka Free Trade Agreement (1998).

The former two were political treaties and the latter an economic treaty. The Indo-Sri Lanka Free Trade Agreement was signed on December 28, 1998 and was supposed to have come into effect on March 1, 1999. But came into operation only on March 1, 2000, typifying an ingrained characteristic of South Asia. Yet, at the operational level it has not come into force in Sri Lanka by mid-March because Customs claims that they have not yet received the necessary authorisation/instructions. However, the Customs is allowing the importers to clear their goods against a bank guarantee.

The Indo-Sri Lanka Free Trade Agreement consists of the Agreement and six Annexures - list of items entitled for 25% duty concessions by India [Annexure-A para l(b)], negative list of items of India (Annexure D-l), negative list of items of Sri Lanka (Annexure D-II), list of items entitled for 100% duty concession by India (Annexure-E), list of items entitled for 100% duty concessions by Sri Lanka (Annexure F-I), and list of items entitled for 50% duty concessions by Sri Lanka (Annexure F-II). The items which are not included in Annexure-A para l(b), Annexure D-l, or Annexure-E of India are entitled for 50% duty concession, though this list is not published.

'Free trade' is understood to be export and import of goods and services unhindered by tariff and non-tariff (for example, quantitative restrictions) barriers to trade. A necessary corollary to free trade in goods and services is the free movement of factors of production, particularly capital. The content of the Annexures of the FTA are summarised in the table.

Accordingly, India has placed 428 items on their negative list and Sri Lanka has placed 1183 items on their negative list (normal rate of import duty is applicable to the goods in the negative lists). India has placed 9 items on their list entitled for 25% duty concession and Sri Lanka none. Sri Lanka has placed 889 items on their list entitled for 50% duty concession and India has not specified any. Further, India has placed 1351 items and Sri Lanka has placed 319 items on their respective lists entitled for 100% duty concession. The items listed in the negative lists, 25% duty concession list, and the 50% duty concession list do not constitute 'free trade', and only the items listed in the 100% duty concession lists constitute 'free trade'.

Therefore, only 76% of the importable goods from Sri Lanka are entitled for 'free trade' in India, and a mere 13% of the importable goods from India are entitled for 'free trade' in Sri Lanka. The trade in goods entitled for 25% and 50% duty concessions are 'preferential trade' and not 'free trade' (some of these goods may be already covered by the South Asian Preferential Trade Agreement - SAPTA).

Further, the trade in goods listed in the negative lists are neither 'preferential trade' nor 'freetrade'. In the scenario of foregoing realities it is a misnomer to call this a 'Free Trade Agreement' (FTA).

The fact that India has placed only 24% of the total goods (428 out 1788) in their negative list and the rest 76% (1351 items out of 1788) in the free trade list may look very generous. However, it is not very much the number of goods, but the type of goods that matters here. For Example, India has placed coconut and coconut products, natural rubber and rubber products, ready- made.garments and alcoholic spirits in its negative list [Annexure D (l)] in which Sri Lanka seems to have comparative advantage over similar/same Indian products.' Further, India has placed non-tariff barrier (quantitative restriction) to imports of tea and garments from Sri Lanka. A quota of 15 million kilograms of tea and 8 million pieces of garments per year are stipulated. However, in the context of prohibition on imports of agriculture produce and textiles and garments in India since independence these quotas seem to be a concession.

Likewise, although the number of goods in the list entitled for 100% duty concession by India may seem to be impressive Sri Lanka may not be in a position to exploit this concession fully due to resource and production constraints and price non-competitiveness vis-a-vis same/similar Indian products.

Besides, the rules of origin clause (whereby at least 35% of the value added of the final product has to be in the country of export which is reduced to 25% if the inputs are from the import country) in the FTA may also preclude Sri Lanka's export of vast majority of goods included in the 100% duty concession list of India. Nevertheless, this (100% duty concession) may prompt greater foreign investment in Sri Lanka (including from India), over time, in order to penetrate the much larger Indian market. Ceramic and some rubber products are two notable Sri Lankan export goods that have potential to substantially exploit the 100% duty concession by India.

The FTA mentions that India would phase out tariffs within 3 years (except for the items in Annexure- A para 1(b), and that Sri Lanka would phase out tariffs within 3 years for items entitled for 50% duty concession at the moment (Annexe F-11) and within 8 years for rest of the items (except the items in its negative list). The respective negative lists will stay intact even after the proposed phasing out of tariffs over time. Although India claims to have removed all non-tariff barriers to imports from Sri Lanka the above mentioned quotas for tea and garment imports from Sri Lanka nullifies this claim.

In sum this is hardly a 'Free Trade' Agreement, and India and Sri Lanka have to go a long way to achieve that goal. Besides, no FTA will be effective without provision, for unhindered movement of capital, especially in the Indo-Sri Lanka case. Therefore, India and Sri Lanka should work towards this goal. It seems that the Indo-Sri Lanka Free Trade Agreement was a hastily concluded treaty, because India was perhaps feeling the pinch of American economic sanctions in the aftermath of nuclear tests undertaken in May 1998 and therefore was looking for alternative export markets, and Sri Lanka was perhaps pushed into the treaty to be in the good books of India due to politico-military considerations connected to the protracted civil war in Sri Lanka.

The writer is a PhD in Development Economics - Wales

The author's doctoral thesis at the University of Wales, Swansea, was "An Assessment of Contraband Trade and Capital between India and Sri Lanka."

The landmark labour law

By S. H. Siripala

The recent amendment to the Industrial Disputes Act( Chapter 131), the Industrial Disputes (Amendment) Act No. 56 of 1999, is the eleventh in sequence, which in all respects could be considered as a landmark event in the annals of industrial relations in Sri Lanka, for the reason that the legislature for the first time recognized the need for the trade unions to be allowed to grow sans employer interferences. The amendment though belated and long overdue, is the first legislative effort in the direction of compliance with the requirements of the Articles of the ILO Convention 98, concerning the Right to Organize and Bargain Collectively, ratified by Sri Lanka, way back in 1972.

The amendment is introduced as a new part Part - Part VA to the principal Act. This Part which prohibits "Unfair Labour Practices" is brought under section 32A. Sections 40 and 43 are also amended to make "Unfair Labour Practices" by employers an offence and to punish the offending employers respectively. A fine, in an amount not exceeding Rs. 20,000 is imposed on the offender with no jail sentence. However, in respect of all other offences the jail sentence is left undisturbed.

The amendment introduces seven 'Unfair Labour Practices', the commitment of which becomes an offence. The amendment runs as follows:

Part VA

Unfair Labour practices
32A. No employer shall-

a) require a workman to join or refrain from joining any trade union, or to withdraw from, or to refrain from withdrawing from, his membership of a trade union of which he is a member, as a condition of his employment.

b) dismiss a workman by reason only of his membership of a trade union or of his engaging in trade union activity;

c) give any inducement or promise to a workman for the purpose of preventing him from becoming, or continuing to be, a member, office - bearer or a representative of a trade union;

d) prevent a workman from

i) forming a trade union or;

ii) supporting a trade union by financial or other means;

e) interferes with the conduct of the activities of a trade union;

f) dismiss or otherwise take disciplinary action against any workman or office bearer of a trade union;

i) for any statement made by such workman or office bearer in good faith before any tribunal or person in authority; or

ii) for any statement regarding acts or commissions of the employer relating to the terms and conditions of employment of the members of such trade union made by such workman or office bearer, in pursuance of an industrial dispute for the purpose of securing redress or amelioration of working conditions of such members;

g) refuse to bargain with a trade union which has in its membership not less than forty per centum of the workmen on whose behalf such trade union seeks to bargain.

For the purpose of this paragraph the Commissoner of Labour or an officer authorized by him in that behalf may conduct a poll at any work place in order to ascertain whether at least forty per centum of the workmen on whose behalf the trade union seeks to bargain with the employer are members of the such trade union.

Section 40 (1) of the Principal Act is amended by the insertion of a new paragraph (SS) to make the commitment of an unfair Labour practice an offence under 32A.

Section 43 of the Principal Act is amended to make the employer who commits an offence under 40 (1) SS, liable upon conviction only to a fine not exceeding Rs. 20,000.-

The seven identified types of unfair labour practices by the employers are designed to cover the Articles of the Convention and satisfy the requirement of giving the necessary legal effect. The Convention deals with (i) the protection against Acts of anti union discrimination (ii) the protection against Acts of interferece and (iii) the promotion of collective bargaining. The three key functionaries operating in this area are the workmen, the employers and their trade unions and the trade unions of workers. The protection against Acts of anti union discrimination is sought to be achieved through sub sections (a) and (b), the protection against Acts of interference through (c), (d), (e) and (f) the promotion of collective bargaining through subsection (g).

The commitment of any one or more of the unfair labour practices by an employer is an offence which has to be proved before a Magistrate. Thus the Commissioner of Labour is cast with the arduous task of mustering all corroborative evidence, oral and documentary, to prove before a competent court of law, the commitment of the offence of unfair labour practice by an employer. The task of the Commissioner of Labour in proving such offence is relatively difficult visa-a-vis an offence of, for example non payment of wages by an employer. The reason being under the latter the area of operation is narrow and the evidence to be led in proof very straight- forward and less in complexity. In the case of the offence of an unfair labour practice, the areas of operation is vast, open and wide. The offence being associative with workman, employer and trade union, a relevant ingredient has to be brought up in evidence, which by no mens an easy task.

In the set of unfair labour practices, the last listed, is a situation where the employer refuses to bargain with a trade unon having a membership strength of forty per centurm of the workforce in the workplace. The forty per centum strength has hitherto been the normal requirement acceptable to the member firms of the Ceylon Employer's Federation with whom many trade unions have collectively bargained and entered into Collective Agreements, purely on the basis of a voluntary desire for mutual benefit although in very rare instances trade unions failing to live with it have secured negative rewards. Now with the amendment the possibility of an escalation of trade union strength augmentation exercises in work places be ruled out at least in the few years to follow. The very acquision of the forty percent strength by a trade union or a group of splinter unions in a work place could now push the employer into a dialogue of bargainng. This also has the strength of extending to the secured areas like the three B.O.I. zones as well as the other work places which had more or less discouraged the formation of trade unions.

Associative with the unfair labour practices by employers is the issue raised by the employers and their organizations that unfair labour practices by employers must necessarily accompany unfair labour practices by employees. The request appears to be very reasonable because it is the only way where we could have the balancing effect very vital for harmonious labour relations. It is very useful to note that elsewhere in another forum responsible trade unions have come round to accept a set of unfair labour practices by employees including the principle of de-recognition of trade unions.

The immediate concerns of the Government to hasten amending the Industrial Disputes Act was born out of two considerations. Firstly a petition dated 31st May 1991 filed by the International Labour Rights and Research Fund was filed with the United States Trade Policy Staff Committee, under the Generalized System of Preferences Programme (GSP) of which Sri Lanka was a beneficiary country, seeking to remove her eligibility beneficiary status on the grounds that mandatory worker rights of the freedom of association were denied to workers in the B.O.I. zones and the right to organize and bargian collectively have been subverted throughout the country by the operation of Emergency Regulation No. 1 of 1989 published in gazette No 563/16 of 24.06.1989 as amended by Regulations published in gazette No. 586/16 of 24.06.1989 which had the virtual effect of denial of trade union action throughout the country.

Secondly more or less at the same time, the Labour Standards Department of the ILO being alerted by a complaint lodged by the International Textile Garment and Leather Workers' Federation on the same lines exerted enormous pressure on the government for immediate remedial action and report, quoting urgency of compliance with ILO Convention 98 ratified by Sri Lanka.

Regards the freedom of association within the B.O.I the then government responded with adequate evidence that apart from the freedom of association guaranteed by the Constitution and the ratification of ILO Convention 98, all labour laws apply without exception to the establishments in the B.O.I and the errant employers were prosecuted by the Commissioner of Labour. The Trade Union Ordinance had equal application to the B.O.I establishments allowing employees to form trade unions of their choice. The charge that outside trade union leaders were denied free entry into the zone applied equally well to employers and others due to security reasons where the area had to be treated as Customs Bonded Zone.

On the issue of the right to organize and bargain collectively, the government resolved to the removal of offending Regulations and to the introduction of laws prohibiting discrimination against union activity in accordance with the ILO Convention 98. Accordingly the seven identified types of unfair labour practices by employers are designed to meet the provisions of the Convention and satisfy the requirements of giving legal effect.

In conclusion it is necessary to make a few observations keeping in mind the nature of the amendment and its possible effects on the labour relations of the country. Unfair labour practices by employers recognized as offences and the mandatory recognition of trade unions with a forty per cent membership strength of the workforce, undoubtedly are very sensitive nerve centres of the polity which could tell on the shape of labour relations in the country, especially in the absence of balancing determinants of unfair labour practices by the employees as remarked earlier. Incidentally this was one of the recommendations in the Sessional paper XXVIII of 1967 on the law and practice of Trade Unions. Therefore it is vital that all actors in the drama, workers and their trade union leaders, employers and their trade unions and the Commissioner of Labour and his delegated officers share a common understanding of the law and its implications with a view to avoiding possible abuses and live within the puritanic intentions of the law. Of immediate importance is the need to educate the Labour Officers and their supervisory staff who are to handle all aspects of enforcement. Therefore there is a perceived necessity to step up training programmes in respect of all social partners. At the same time the Ministry needs to address itself to implement, well designed unfair labour practices by employees to have the balancing effect referred to.

The writer is a former advisor to the Ministry of Labour

Navigation Maritime gets ISO approval

Navigation Maritime Colombo (Private) Limited, who are the local agents for renowned Hanjin Shipping Corporation, South Korea, were awarded the prestigious ISO 9002 Quality Systems Certificate by the National Certification Body in Sri Lanka, the Sri Lanka Standards Institution.

The presentation was made at a ceremony earlier this month.

Chief guest at the occasion was S.H. Lee, Hanjin Shipping Sri Lanka, while the guest of honour was N.M. Junaid, Secretary, Ministry of Port Development, Rehabilitation and Reconstruction.

Navigation Maritime also have the honour of receiving the award for the Best Shipping Agent for Customer Service, Europe-Colombo 1999.

The award given by the Institute of Chartered Ship Brokers was awarded for the high degree of customer services offered by the firm.

Speaking at the ceremony, both Lee and Junaid paid tribute to the firm's commitment and congratulated its efforts in obtaining two prestigious titles.

Lee further said that Hanjin Shipping's commitment to a trusted worldwide service, is underlined by the triple focus on quality management, customer service and professional performance.

In his keynote address, T.D. William, Managing Director of Navigation Maritime commended and thanked the staff for their commitment and dedication, to whom he gave all the credit.

He attributed the company's success to the excellent teamwork and coordination of the staff.

Cargo Chorus adds value to freight

IT provider Syntegra has announced plans to build a new generation air cargo IT system to manage performance, operational procedures and information flow during the ground handling process.

Syntegra's Cargo Chorus system will offer major airlines and their partners a way to transform today's largely paper-based air cargo processes into a truly global e-business.

Improved reliability

We have been working on the concepts and designs of Cargo Chorus for two years and see this as complementary to the work completed by Cargo 2000, which focused on producing standard industry processes and improved reliability said Mike Navin, Syntegra's strategic sales specialist for air cargo systems.

It is widely accepted that the only time to add value to air cargo is when it is on the ground, which can be up to 80 per cent of its total transit time. As shippers increasingly look for time-specific delivery, smart management of performance and operational processes, the flow of information is going to be critical to every organisation,he added.

Cargo stars as Cathay soars

A significant rise in cargo turnover has boosted Cathay Pacific's financial performance. An increase of 29 per cent of the airline's total revenue for the year 1999 puts Cathay back on its way to the road to recovery after its loss in 1998.

Results for the 1999 show that the development will go a long way towards ensuring the carrier's cargo contribution will increasingly be seen as a valuable asset to its profits.

The return had moved from US$42.6 million loss in 1998 to US$165 million profit last year.

In comments from Cathay Pacific Chairman James Hughes-Hallett, it was noted that cargo, which constitutes 29 per cent of the carrier's revenue, was the star performer, achieving record levels of both tonnage and revenue.

This record revenue set a new record turn-over of US$1.02 billion - up 20.6 per cent on 1998. Demand for air freight was being helped by the strong growth in Asian Markets.

The results have rounded off an eventful year for Cathay Pacific, during which it had expanded its fleet and added new services and routes.

Although rising fuel prices did not help cost targets, the lowering of landing and parking charges at Hong Kong International airport from January was a welcome change. The adjustment in price factor will aid the carrier in keeping costs down, a spokesman for the airline said.

As market conditions continue to improve, steps are being taken to meet future demands said Hughes-Hallett. We are well positioned to take advantage of new opportunities. He added that the airline intended to develop its e-business strategy on a high priority basis.

Hong Kong, Asia's Superstop

Where in the world could you stay for just US$ 25 for your first night's stay with the option of staying on longer at a discounted rate? With its super offer now on, Cathay Pacific Airways gives visitors just this chance of visiting Hong Kong.

Whether on business or pleasure, on holiday or looking for the excitement a new destination might offer, you are certain to discover that Hong Kong offers just what you need. And at a price that you would never have thought possible!

With hotel rates on the increase globally, Hong Kong is definitely Asia's top value stopover at the price. This super-value offer is aimed at creating awareness among travelers about the many diverse attractions of Hong Kong - from its super shopping options to its history which are legendary.

Passengers on Cathay Pacific have the option of extending their stay in Hong Kong by five additional nights at the rate of US$ 27. A choice of seven conveniently located hotels include the Hong Kong Hotel, the Marco Polo Hotel, the Excelsior, Grand Plaza, the Prince, Grand Tower and the Royal Plaza.

Exclusive Cathay Superstop Hotel offers include early check-in and late check-out up to 3.00 p.m. depending on room availability. In addition to the discounted room rate, passengers receive the entire range of benefits available under Cathay Pacific's ëYum Sing promotion. These include 50% off sightseeing tours, a 25% discount at selected restaurants and a selection of two-for-one entertainment options. The listed tours are operated by Splendid Tours and Travel Limited who offer a range of exciting tours to points of interest for visitors.

Cathay Pacific in its role as a tourism promoter carried over 10 million passengers last year. Working closely with the government of Hong Kong and the travel industry, the airline hopes to transform Hong Kong into Asia's pre-eminent transport and tourism hub. To this end the airline has invested over US$ one billion in the new airport and related projects.

ACP starts a new chapter

After months of negotiations, senior managers at UK-based airline management company Air Cargo Partners (ACP) have led a buy-out from parent Virgin Group, forming one of the largest independent airline management companies.

The buy-out headed by ACP managing director Graeme Howard, who launched the company in 1995, concerns all ACP operations - UK, Australia, US and South Africa - with 100 staff spread across four continents and an estimated global turn-over in excess of US$35 million.

We are delighted to start this new chapter in ACP's life, said Howard. Our association with the Virgin organisation has been beneficial to both of us, but the time has come to create new horizons and they will be best reached if we are a totally independent company,he added.

Virgin Group founder Sir Richard Branson regretted the departure but accepted the move was amicable. I am sure that Graeme will relish the challenges that lie ahead for him and his team, he said.

MCA's report points finger at old vessels

Ships over 15 years old inspected in the UK were found to have nearly three times the average number of deficiencies as those under five years of age.

Of the 155 vessels held during the fiscal year 1 April 1998 through to 31 March 1999, 10.4% or 123 were more than 15 years old, 5.4% or 31 ships were between five and 15 years and 0.5% or just one vessel detained was under five years old.

The total of 155 foreign flag vessels detained out of 1,980 in sections, represents the lowest figure for six years. Almost 80% of these were either bulk carriers or general cargo ships. The average number of defects per vessel was 5.4 and almost 75% of vessels had at least one deficiency.

Problems with the life saving equipment was the most common complaint amounting to 17.5% of all deficiencies, followed by radio equipment with 14.3% and fire-fighting appliances totalling 12.8%.

Analyzing the larger class societies, which had over 100 vessels inspected each, American Bureau of Shipping (ABS) heads the list in percentage terms with 6.1% (seven ships) held out of 115 inspected.

ABS was closely followed by the Russian Maritime Register, which logged 5.9% (12 ships) detained out of 205 ships inspected. Third was Bureau Veritas with 5.3% (16 vessesls ) out of 300 vessels surveyed.

Best in term of percentage in the 100-plus inspections category was Det Norske Veritas with only 1.3% (three ships) held out of 228 inspected.

However, the number of detainees listed by class were only those for which the societies were wholly or partially responsible.

Looking at flag states, Malta led the way with 19 detentions out of 130 inspections (14.6% followed by Panama with 15 detentions out of 135 inspections (11.1%)

In third place in percentage terms was Antigua and Barbuda with 10 detentions out of 124 inspections.

Competitiveness rating for Lanka underway

Harvard Research Fellow Dr. Andrew M. Warner recently met with Commerce & Food Minister Kingsley T. Wickremaratne, in the preliminary stages of putting Sri Lanka on the global map through a competitiveness index. He was accompanied by David B. Flood, Resident Advisor for the TIPS- funded Sri Lanka Competitiveness Initiative who acted as facilitator, US AID's Gary Robbins and Ms. Sarasili Fonseka, a ministry release said.

Dr. Warner and Mr. Flood explained the 142 factors considered in compiling the 'Country Rating' Responses to questions from the public and private sectors provided the answers. These were collated and tabulated systematically.

All factors were quantifiable and beyond that, the qualitative aspect was also incorporated and blended to produce the 'Big Picture'. Dr. Warner and Mr. Flood explained that Sri Lanka was yet to be globally ranked, but the all-important process was now underway. The outcome would permit the ranking of Sri Lanka on the global index, the release added.

For example, the competitiveness rankings in 1999 place within the Top Ten: 1. Singapore, 2. United States, 3. Hong Kong, 4. Taiwan, 5. Canada 6. Switzerland, 7. Luxembourg, 8. United Kingdom, 9. Netherlands, and 10. Ireland. India was 53 out of the 59 countries ranked.

The 'factors' considered were: openers, government, finance, infrastructure, technology, management, labour, and institutions. The major economic indicators measured were: GDP, population, per capita GDP, per capita GDP growth, consumer price inflation, and unemployment.

Technology aspects which were taken into consideration were: spending on research and development as a per centage of GDP, internet hosts per million inhabitants and PCs per 1,000 inhabitants. Sri Lanka, too, would be measured against these indicators.

The purpose of this exercise is to find out exactly where Sri Lanka is on the global 'map'. This would help planners in taking remedial and corrective action and also prioritise and plan necessary changes. It would also help build investor confidence, and important factor in attracting capital and foreign direct investment.

Dr. Warner also met Governor Central Bank, Industrial Development Minister, the Department of Census & Statistics, the Board of Investment, the Institute of Policy Studies.

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