Sri Lanka’s government under President Ranil Wickremesinghe is likely to resume stalled talks on a Free Trade Agreement (FTA) with China along with India’s Comprehensive Economic Partnership Agreement (CEPA), two sources said, as the island nation struggles to find a way out of a currency crisis and sovereign debt default.
Sri Lanka is caught in a geopolitical cold war between China and India with the backing of the United States, analysts say. That cold war has led Sri Lanka to be extremely cautious in dealing with both Asian powers and even to forego some investment opportunities.
However, the economic crisis and sovereign debt default have compelled the island nation to look into all available avenues to ensure more foreign inflows to move away from the crisis.
Wickremesinghe last week told visiting Administrator of the United States Agency for International Development (USAID) Samantha Power that he is focusing on an export-oriented, very competitive market economy for Sri Lanka as the country has the opportunity to supply to South Asia, Southeast and east Asia.
Four days after the meeting with Power, President Wickremesinghe at an official function said the FTA would be revived and upgraded into a comprehensive economic and technological partnership and that his government would focus on the Indo-Sri Lanka projects that were delayed.
“It does not mean Sri Lanka will go only with India. The Chinese FTA talks also will be resumed,” a source close to the president and who is aware of the new developments on international trade told EconomyNext.
Deep pockets
Amid protests by trade unions, Sri Lanka under Wickremesinghe’s premiership in the Yahapalana government suspended a proposed CEPA with India in December 2015 and attempted to enter a new Economic and Technology Cooperation Agreement (ETCA) in 2016. But Wickremesinghe had to suspend ETCA as well in the face of stiff resistance from trade unions.
Similarly, Wickremesinghe had to temporarily stop FTA talks with China in 2018 under the last administration because Beijing disagreed with Colombo’s demand for a review of the deal after 10 years.
“Sri Lanka needs China’s deep pockets and India’s healthy relationship. So one country cannot be compromised with another. They are both important for Sri Lanka to get out of the current crisis,” the source said.
Wickremesinghe publicly said last week that he wants to remove all barriers to trade in negotiations with India.
“I think the future relations of India with its neighbours will be determined by trade integration. Trade integration gives an economic base. Common economic base is a prerequisite for a better national security and better political relations. So, keeping this in mind, we are taking two major steps,” President Wickremesinghe said addressing an event to mark the 75’th anniversary of independence of India.
President Wickremesinghe, however, has so far not commented on the FTA with China.
The Chinese embassy in Colombo declined to comment on resuming FTA talks.
“Both FTA and CEPA would go together,” another source who has knowledge on the FTA with China told EconomyNext.
Source: Economy Next