Business Times

CEPA, trade-in-services and ignorance

By Rohan Samarajiva

I was at a seminar on trade this week. As I sat down to lunch, the young woman at the table said “I am against CEPA.” I asked why? “Oh I don’t know much about it, but I don’t think we should sign it. It will allow full and unrestricted entry to Indian professionals.”

The only truth in what she said was “I don’t know much about it.” And this she had in common with the people who demonstrated against the CEPA [Comprehensive Economic Partnership Agreement] with India a few days ago. But this is how policy gets made in Sri Lanka, sadly. “I don’t know much about it, but I am against it.”

Recent protests in Colombo over the CEPA agreement

First, there is the mystery as to why people who trade in goods take such a deep interest in the CEPA. A bilateral trade agreement covering goods has existed for 10 years, and the CEPA incorporates it into the new document. Is it that the protesters object to the lifting of quotas on tea and apparel and the removal of port-of-entry rules that were negotiated to the benefit of Sri Lankan companies, in the course of CEPA negotiations? Or the fact that CEPA creates a dispute resolution procedure absent in the previous agreement?

The protesters do not know about these things, for sure. Those who fund and organize these performances do, but they have reasons to not talk about them.

Basics of services trade
Some of the statements at the demonstration referred to Indian doctors. This is a good way to illustrate the lies being propagated by the opponents of an orderly economic and strategic relationship with India.
CEPA includes a chapter on trade in services. Services are things that can be bought and sold, but will not hurt if dropped on your toes. Examples are the services performed by a doctor or a container terminal operator who provides transshipment services. The containers are goods (will hurt if dropped on one’s toes) but the service of transshipment is intangible.

Trade in services occurs in three ways. One is when the buyers of services travel to the country where the seller resides, as in the case of well-to-do Sri Lankan patients who go to India or Singapore to consult specialists. This is called Mode 2 in trade jargon. No one is talking about banning this. Plus it would hurt the rich people who live longer because of it.

With the help of telecom technology, we are now able to trade in services across borders. The seller remains in his or her own country; the buyer in hers. The medical consultation, for example, occurs across a video conferencing call. This is Mode 1 trade. No one objects to this either.

In Mode 3 trade, the Indian service supplier, seeing lots of Sri Lankan customers at its Chennai facility (Mode 2), decides to expand its market by establishing a commercial presence in Sri Lanka, so heart patients do not have to take a stressful flight and family members need not stay in cheap hotels.
This is what Apollo Hospitals did in 2003. In theory, this can be done without moving any Indian employees to Sri Lanka, but in reality the patients come for the Indian doctors. They did not go to Chennai for the architecture but for the doctors. So some Indian doctors came along with the Apollo. When service providers go to the countries where the buyers live in order to sell their services, it is called Mode 4 trade.This is the aspect of service trade that the demagogues highlight. “Indian doctors taking our jobs” is a nice emotive slogan to whip up the troops.

Whether one gets treated by an Indian doctor in Narahenpita or in Chennai, the end result is the same. The patient gets the care she wants; the Indian doctor makes money; a Sri Lankan doctor does not get that piece of business. One difference is that the rich can afford the consultation in Chennai; a lot more people who are middle class can afford the care in Narahenpita. So the bottomline is that the leaders of the fight against CEPA do not want the middle classes to enjoy the medical care they personally enjoy, if not in Chennai, in London, Baltimore or Singapore.

This is no different from people who send their children to foreign universities, objecting to private universities in Sri Lanka. It’s called hypocrisy. Sri Lankan patients take the trouble to seek the services of foreign physicians because they are unhappy with the quality of Sri Lankan medical personnel. They may be wrong; they may be right. But it is their right to spend their hard earned money to address what is most important to them, their good health.

The scale of use of medical services abroad suggests that the dissatisfaction is real. Quality issues get resolved through competition and emulation. The coming of Apollo to Sri Lanka raised the game for all the private hospitals: they improved; they retained market share. The winners were not only the patients going to Apollo; all those seeking private hospital care benefited. When Sri Lankan doctors work shoulder to shoulder with good foreign doctors, they too improve their skills. Again, the beneficiaries are all the patients, not just those who sought the services of the Indian doctors.

Sri Lankan accountants are very good because they trade in the world market; because they sell their services in Mode 1 through the many business process outsourcing (BOP) operations that have come up; in Mode 4, by working abroad; and in Mode 3 and 4 when they go along with Sri Lankan firms to India or foreign accountants come to Sri Lanka along with BOI companies.

In contrast, our lawyers are pretty rusty. They face no competition and many have little familiarity with modern legal skills. Like any protected industry, the legal profession sells sub-standard services for high prices and screams for protection.So protectionism in the services trade is no different from protectionism in the goods trade. The protectionists spend their time organizing protests; successful business people like those at Colombo Dockyards, Brandix, and Damro (all operating successfully in India) spend their time doing business, creating jobs and value.

What will be lost without CEPA?
Rules and dispute resolution procedures will be lost. Ways to maintain professional standards will be lost. Trade will continue. Safeguards will be absent.
Protectionism in the goods trade takes several forms: first, high tariffs that make the imported item artificially more expensive than the local product; second, quotas; third, non-tariff barriers (NTBs). The last is the most complex, an example being the complicated and time-consuming testing of agricultural imports that cause them to rot in the port. NTBs become more important when tariffs are low and quotas difficult to impose, i.e., now.

In trade-in-services, only one instrument can be used, NTBs. Services do not go through ports and customs so they cannot be taxed and limited. They are intangible, another reason why they cannot be subject to tariffs and quotas.

So trade-in-services is vulnerable to the discretion of officials. The Indian doctors at the Apollo served at the pleasure of the BOI. Sri Lankan architects work in India, but Indian architects sign their blueprints and collect fees for doing nothing.A services agreement of the kind that is part of CEPA will set the rules and procedures to reduce the discretion that can affect the services trade. It will make the rules clearer and bribes less necessary.

It is an outright lie to say that any Indian will be able to come to Sri Lanka under the CEPA. The way services agreements work is that specific industries like medical services or port services are scheduled with time tables and specific provisions. For example, some agreements specify that professionals can come only with foreign-owned firms and are tied to that employment. The North American Free Trade Agreement applied only to personnel with degrees. It is very rarely that unaffiliated professionals will be allowed free access.

When a profession is affected, a schedule is set for authorities on both sides to work out mutual recognition agreements. In many cases this involves the professional bodies. These are some of what we will not get if the CEPA is not signed. And the same people who organize demonstrations against India will continue to bring software engineers here to work on the cheap on tourist visas, or discretionary work authorizations.

This is some of what the lady at the lunch table did not know. And she was against signing the CEPA.

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