Fast track trade liberalization agreement with India
by Dr. J. B. Kelegama

It has been reported in the newspapers that Sri Lanka and India will sign a bilateral trade agreement during the President's visit to India this year to import each others products at zero tariff. This is the fast track trade liberalization agreement between the two countries proposed by a WIDER study group led by Dr. Lal Jayawardena in 1993. The rationale of this trade agreement was set out by this study group as follows:

'The expansion of Indo-Sri Lanka trade is constrained by significant barriers to trade. These have been falling in both countries and have been reflected so far in a large increase in exports from India to Sri Lanka but not the other way. Barriers remain high in India, by far the largest economy in the region and the pivot around which a regional market could develop. Further, decline in barriers to imports into India on a nondiscriminatory basis can be expected but will take time before they have a significant effect on exports from Sri Lanka to India. The growth of Indo-Sri Lanka trade could best be stimulated by a 'fast track' dismantling of barriers to trade with each other, but not necessarily with third countries, while pursuing the process of more general liberalization of trade on a non-discriminatory basis. Making trade freer between the two countries on a preferential basis could pave the way for the rest of the countries of the region to follow in developing a regional market, and obtaining benefits in terms of trade and economic growth'.

The basic thesis was that while Sri Lanka had liberalized its trade, India had not and consequently while India exploited this situation to increase her exports rapidly, Sri Lanka had not. The SMRC regional trade liberalization through SAPTA was too slow and therefore a quicker way had to be found for Sri Lanka to expand its exports to India. A fast track bilateral trade agreement to liberalize the trade between the two within the general framework of SAPTA was therefore considered the most effective solution. The main assumption in this thesis was that removal of trade barriers in India would promote Sri Lanka's exports to that country.

Lowering of Trade Barriers in India
The picture has changed to some extent since 1993 when the WIDER study was made. First, the trade regime in India has changed towards greater liberalization. The weighted mean tariff on all import products was 83 per cent in India in 1990 - 50 per cent on primary products and 94 per cent on manufactured products. When tariffs were reduced under economic reforms, the weighted mean tariff fell to 28 per cent in 1997 - 23 per cent on primary products and 30 per cent on manufactured products. This was a big reduction. Actually, India's current import tariff is not very much higher than Sri Lanka's. In 1997, for instance, Sri Lanka's weighted mean tariff on all products imported was 20.7 per cent - 23.6 per cent for primary and 19.8 per cent for manufactured products. Actually, Sri Lanka's tariff on primary products was slightly higher than India's. On manufactured imports' however, India's was higher by about 10 percentage points. Likewise, quantitative import restrictions were relaxed in several sectors. In addition, India announced its decision at the last SMRC summit meeting in Colombo, to lift import restrictions on 2,000 products of export interest to other South Asian countries. No doubt there are trade restrictions in some sectors but tariff and non tariff barriers are much lower than in 1993. Further, if India has actually implemented its decision to lift import restrictions on the 2,000 products, and if these products include the majority of items of export interest to Sri Lanka, then the question arises whether fast track agreement is now superfluous.

Lack of Exportable Goods
Second, even if the proposed fast track agreement removes whatever trade barriers not removed by India under her pledge of removing restrictions of 2,000 import items, will there be a marked increase in our exports? This assumes that Sri Lanka has a variety of exports ready to be sold in the Indian market once the trade barriers are removed. But is this the case? Sri Lanka's exports to India in 1997 amounted to Rs. 2,582 million or about 8 per cent of India's exports to Sri Lanka of Rs. 33,023 million. The fact that a country like Singapore exported about Rs. 34,512 million worth of goods to India in 1996 indicates that it is not so much trade barriers as the non-availability of goods in Sri Lanka which India demands that is preventing an expansion of exports to India. Singapore has the goods which India demands like TV picture tubes, paper board, accounting machines, telecommunication equipment, electronic micro-circuits, polythene primary forms, ball bearings, electric machinery, switch gear and parts and components of different machines and equipment but Sri Lanka does not have them or have them only to a limited extent.

The export production structure in Sri Lanka like most other ex-colonies, is geared to meet the demands of developed countries whether it is agricultural production of tea, rubber, coconut and spices or industrial production like garments, jewellery, rubber and leather products and components of electronic machines. It lacks a broad-based and diversified manufacturing sector like India's capable of meeting the requirements of the South Asian market. Further, Sri Lanka produces goods which India too produces: in agriculture rice, tea, coconut, subsidiary foods and spices and in industry garments, jewellery, leather products and electronic components, and consequently they do not find a market in India. Foreign investments in Sri Lanka in recent years were designed to manufacture goods to be exported to USA and Europe and not to South Asia whereas in India foreign investments were made with the large Indian domestic market and the South Asian market on its doorstep in mind. The industrial exports generated by foreign enterprises and local ones therefore cannot find a large market in India, for instance, garments which is Sri Lanka's biggest export. The current pattern of exports to India reflects the underdeveloped structure of production in Sri Lanka.

Sri Lanka's Major exports to India 1997
(in Rs. Million)

There were only about 23 products whose export value exceeded Rs.10 million each and only 6 products whose export value exceeded Rs.100 million. More than a quarter of our exports consisted of goods not produced here strictly but discarded: iron, paper, copper and zinc scrap which added up to Rs. 689 million or 27 per cent of our total exports to India: iron scrap was our largest single export. They are hardly the products on which we can build our export capacity. Apart for pepper, rubber and tea, other agricultural products are of small value and the demand for them fluctuates much. Tea is of course, for blending India's tea exports and is a recent import from Sri Lanka; rubber prices are declining in the world market and rubber production has been stagnant for the last seven years: pepper exports in 1997 were of the same volume as in 1994. By and large, all agricultural exports have an uncertain future as they are imported mainly to meet shortfalls in domestic production.

The future lies with industrial exports but our industrial exports to India are of a handful and of small value. There were only eight products whose value exceeded Rs.10 million each; the largest was parts, accessories of electronic machines and the next nylon polyamides. It is unlikely that we can push our industrial exports to the Indian market until we broadbase our manufacturing sector and produce a wide variety of goods. Free trade may not help when the range of exportable goods is limited. Besides, they have to be competitive in quality and in price with East and South-East Asian countries which have all depreciated their currencies. It is simplistic to assume that Indians are waiting to buy Sri Lankan currently exportable products if the prices are reduced by a fast track trade agreement.

It is not so much trade barriers as other factors like the availability of the goods preferred, right quality and right price which determine our exportability is illustrated in the case of Pakistan. Sri Lanka exported 19.7 million kg of tea to Pakistan in 1988 but 5.21 million kg in 1997 and it is now purchasing the bulk of its requirements from Kenya. It is the same trade barriers - if any - which Kenya and Sri Lanka face in Pakistan, but Kenya has succeeded in overcoming them whereas we have failed. It may be that Kenya had CTC teas when he had not and may be its price was lower than ours.

Foreign Investment
The WIDER study group made it clear that the success of the fast track trade agreement rested on an adequate flow of foreign capital to Sri Lanka. 'The success of a reciprocal preferential scheme for Sri Lanka will depend to a substantial extent on the flow of investment from India and third countries to Sri Lanka, to take advantage of the market openings in India following the adoption of the scheme'. Firstly' inflow of capital from Japan and East and South-East Asia is likely to diminish this year and the next because of the East Asian economic crisis. The biggest foreign investors in Sri Lanka in recent years were these countries and they are in the grip of a serious crisis which will not enable them to invest abroad; Malaysia has already postponed all its investments in Sri Lanka. A survey of 4500 big firms by Japan's Economic Planning Agency reveals that the companies plan to cut foreign direct investment by 57 per cent in 1998. According to estimates of J. P. Morgan, total net capital flows to emerging markets will drop from $247 billion in 1997 to $186 billion in 1998 and to $119 billion in 1999. The general outlook for foreign investment in developing countries is thus rather unfavourable.

Will India invest in new industries in Sri Lanka? India has already made direct investments of Rs.1,387 million in about 36 ventures approved by the BOI as of mid-1998, but these are mainly import substitution enterprises to meet the domestic market requirements. India may invest more in such enterprises and even in ventures to export to third markets but it is likely to hesitate to invest in firms or joint ventures to produce goods for the Indian market as Sri Lanka's cost of production is generally higher than India's and its productivity is not high enough to offset the higher labour costs. A fast track trade liberalization agreement is unlikely to make any difference for even under Article 12 of the existing Bangkok Agreement. India can extend the concession of duty free entry to products of joint ventures with Sri Lanka. The fact that Indian businesses had not invested in joint ventures with buy-back arrangements in spite of this concession (which is now being repeated under the fast track agreement) shows that it was probably deterred by higher cost of production. Bhutan and Nepal on the other hand, have lower costs of labour than India's.

Would foreign multinationals be attracted to invest in Sri Lanka because of this fast-track agreement which would liberalize access for Sri Lankan exports to the Indian market? The tendency in actual practice, is for foreign multinational corporations to invest in India rather than in Sri Lanka for several reasons. The Indian domestic market is large enough to generate sufficient profits; Indian cost of production is lower than Sri Lanka's; they can capture the South Asian market more easily from India as four countries are on India's borders. Thus, Tata Benz, Ashok Leyland Suzuki-Maruti, Hyundai, Toyota, Honda, Daewoo, Mitsubishi' General Motors, Union Carbide' etc., have made India the production/export base for the whole of South Asia. A substantial number of items we import are from these ventures in India. There is no evidence that any multinational corporation is planning to make Sri Lanka an export basis for India. The situation will not change even if there is free trade between the two countries, for the Indian market is so large that any foreign investor will find it more economic to have his base there rather than supply it from a base in Sri Lanka.

What of Other Export Markets?
It appears as if we are attaching too much importance to the Indian market, in fact far out of proportion to its relevance to our trade and development. India at present is a very small market for Sri Lanka's exports accounting for only Rs.2.6 billion or 0.9 per cent of total exports. There are, however, 16 countries which provide larger export markets to Sri Lanka: developed countries - USA Rs.98.3 billion (35.9 % of total exports), UK Rs.31.0 billion (11.3%), Japan Rs.13.8 billion (5.0%), Germany Rs.13.6 billion (4.9%), Belgium Rs.11.6 billion (4.2%), Netherlands Rs.8.1 billion (2.9%), France Rs.6.0 billion (2.2%), Italy Rs.4.4 billion (1.6%), Canada Rs.3.3 billion (1.2%), Australia Rs.2.9 billion (1.1%); developing countries: Turkey Rs.5.8 billion (2.1%), UAE Rs.5.2 billion (1.9%), Singapore Rs.3.4 billion (1.2%), Hong Kong Rs.3.2 billion (1.2%), South Korea Rs.2.6 billion (1.0 %) and Russia & CIS Rs.10.1 billion (3.7%). Shouldn't we consolidate and expand these larger markets without gambling on the still unexplored Indian market? In fact, the growth of Sri Lanka's exports to some of these countries exceeded that to India. Between 1993 and 1997 for instance, Sri Lanka's exports to India expanded by 170% but exports rose by 215 per cent to UK, 312% to Russia and CIS and 872 per cent to Turkey. Sri Lanka also more than doubled the value of its exports in this period to USA, Australia, Italy, Hong Kong and South Korea. If the Indian market has much export potential for Sri Lanka, so have these markets. The obsession with the Indian market may make us lose our perspective and result in complacency regarding the larger and growing markets. What we need are large and expanding markets for our exports; whether they are in India or elsewhere does not matter for we want expansion of exports not diversion.

Further, the Indian economy is moving rather slowly at present. India's overall economic growth this year is expected to be around 5 per cent, industrial production which grew at 6.6 per cent in the fiscal year 1997/98 increased by only 3.5 per cent in April-August 1998; export growth which was 2.6 per cent in 1997/98 was minus 4.9 per cent in April-August 1998. A survey by the Confederation of Indian Industry of 82 sectors revealed that 31 sectors reported negative growth and 32 only moderate growth with sales below 10 per cent in the first quarter of 1998. The sluggish sales and falling profits seem to presage a decline. This will reduce India's capacity to import and slow its import liberalization.

Free Imports will Undermine Domestic Agriculture and Industry

While the increase in Sri Lanka's exports to India as a result of a fast track trade liberalization agreement is uncertain, an increase in imports from India to Sri Lanka is certain to undermine domestic agriculture and industry. Cheap imports of rice and subsidiary foods like onions, potatoes, chillies and pulses - which already threaten domestic farmers-are likely to destroy their livelihood. The C.l.F, costs per kg of foods imported from India in 1997 were as follows:

C.l.F. Cost of Imports from India
Rs. Per kq

Sri Lankan farmers cannot produce any of these crops at Indian cost of production and they are likely to be wiped out when the market is flooded with Indian imports. The price gap is so wide that there is little chance of domestic produce competing with Indian produce unless it is given protection. A fast track trade liberalization agreement will throw thousands of farmers out of their jobs. Similarly, cheap imports from India of manufactures is likely to undermine import-substitution industries like textiles, plastic goods, aluminium hollowware, cement and tiles. Loss of business will result in unemployment, poverty and social unrest.

Zero tariff on imports from India will also tend to divert our imports from other countries to India and create dissatisfaction in those with which we have large trade surpluses like the USA and European Union countries. For example, we imported Rs.11.0 billion worth of goods from USA while we exported Rs.98.3 billion. Any reduction of our purchases from USA as a result of diversion to cheaper Indian suppliers is likely to lead to opposition and possibly even retaliatory action by USA. By trying to develop new export markets for non-existent goods we may lose the traditional markets for existing goods.

Do Not Force the Pace
India does not need a fast track trade liberalization agreement to promote its exports here, for it has already expanded its exports without zero tariff to become Sri Lanka's largest supplier of imports. Between 1993 and 1997 our imports from India doubled in value and this occurred at existing tariffs; what it means is that even at current tariff levels Indian imports are cheaper than from most other countries, and further concessions like fast track liberalization agreements or free trade area are hardly necessary. India will continue to be Sri Lanka's largest foreign supplier for a long time whether there are tariffs on Indian goods or not, for their cost of production is lower than that of American or European suppliers and nearness gives them the advantage of lower freight and quick delivery. And it is in our interests to buy cheaply from India just as it is in our interests to sell to USA or European Union which want our goods.

Our national priority should be to build and expand our manufacturing base to increase and diversify our manufactures/exports as India has done. We do not have fast track agreements with USA, UK, Japan, Germany, Belgium and others to make them our largest export markets; we only produce what they demand. In this task foreign investment helps by creating its own markets for invariably foreign investors buy back the products or sell them to others with whom they have firm contracts. Our task is to produce what the world (including India) wants and it is doubtful whether we can force the pace of trade by fast track agreements, without first building our export capacity and improving our competitiveness.

Pay attention to seed quality
by Dr. V. Arulnandhy, Senior Lecturer, Faculty of Agriculture, Eastern University, Chenkalady.

One of the most important factors contributing to maximum agricultural production per unit area of land is the use of good seeds. Such seeds should have a purity value which means they are free of other seeds whether of weeds or of cultivated plants and their germination capacity should be high, thus providing the best possible guarantee of a good seedling stand, inspite of diseases, insects, competition of weeds and unfavourable weather conditions. This fact has been long known but systematic storage of seeds to maintain viability and the routine testing and analysis of seed for planting value began from this century.

Increased interest in and knowledge of seed problem have resulted in the establishment of private and state seed testing laboratories and the formation of national and international rules for seed testing. Along with the improved method of testing has come the necessity for proper storage facility to maintain high level of germination. It is important to seedmen to be able to keep surplus supplies for sales in the later years. In some instances this has been done without proper storage conditions for maintaining high quality seeds. As a result everyone who buys seeds is opt to get seed lots of low quality or which fail to germinate. As more information is secured on the storage requirements, reputable seedmen are building dehumidified or cold storage rooms. The possibility of holding seeds for at least two years reduces the amount of land needed for seed production, as crops can be then altered.

The possibility of long-term storage is a boon to persons concerned with genetic or with plant introduction because it provides a constant source of valuable seed stock without growing large number of plants and controlling seed production.

Granted that good storage conditions for a certain seed stock have been determined, there are still questions that arise. Will the seed from storage, especially low temperature storage, survive removal for packeting which must be done well in advance of the time of farmers buy and plant them? Further more after packing, seeds are sometimes stored under very unfavourable conditions on the retailer's shelves. However, some experimental results on this problem have demonstrated the efficacy of moisture proof packets. The best storage conditions, for a specified seed, provide it with maximum resistance to harmful conditions.

The quality of plants which can be expected from old seeds is another matter of importance. An increasing body of evidence shows that the performance of any seed depends less upon its age than upon the conditions under which it has been stored. The absolute dependence of world population on plants for food and the realisation that most plants are grown for seeds, should be sufficient to dramatise the importance of producing good quality seed and conserving our seed supply.

The expansion of seed production in tropical countries, including Sri Lanka, is limited by several constraints. The most serious is related to seed quality. Adverse weather conditions during maturation and pre-harvest period cause severe seed quality problems. Hot dry weather and soil moisture stress during seed development and maturation can result in low quality seed. It is possible that the short-term moisture stress during pod/ grain filling stage would result in considerable loss in seed yield and quality. Therefore, it is essential that the seed crop should not be allowed to undergo moisture stress even for a short while during this stage. The legume crops are very much sensitive to this situation.

The weather at the time of seed maturation is very important for high quality seed production, especially under humid tropical conditions. Mean air temperature and maximum relative humidity at seed maturation were found to be the significant contributing weather factors to seed quality. Crop establishment needs to be adjusted to coincide with the best weather conditions at seed maturation. In this respect, May to June in the dry season and October to November in the wet season are the most suitable times for crop establishment in the dry zone of Sri Lanka.

Delays beyond optimum harvest maturity extend field exposure and intensify field weathering of seed. Harvest maturity is the stage when the seeds are at full maturity and sufficiently dry. Harvest delays also lead to shattering during hot weather, which would result in yield loss. Quality of wet season seeds, especially legume seeds, could be improved by reaping the crop at physiological maturity and drying the plants in a well ventilated open sided shed until seeds dry up to the required level. Seed obtained in this manner has proved to be of a better quality than seed of harvest maturity. The crops at physiological maturity could be easily identified from the external appearance and at this stage seed accumulates the maximum dry matter and has the highest germination capacity.

It has been well established that good quality seed is more viable than poor quality seed under any type of storage. Deterioration of good quality seed proceeds at a slower rate under ambient conditions.

Many fungi attack seed in the field and reduce the quality of seed produced. It has been known that foliar application of appropriate fungicides during seed development and seed maturation remarkably reduces the field weathering of seed so that the quality of seed is kept high and this seed also stores better. This technology is more preferably when adverse weather conditions prevail during the period of seed development and maturation.

The seed industry, one of the most important in the world because it is at heart of the survival of man, involved varied investment and skills. It requires the services of scientists working in different fields. Geneticists and plant breeders are required to develop and select varieties superior in performance in yield of vital food and clothing materials. Plant physiologists are constantly working to determine the effect of nutrition and environmental conditions and many other factors in growth, seed set and quality. Plant pathologists aim to control the diseases of plants and entomologists study insects which affect plant life in a never ending battle to reduce the ravages of these pests. Growers must practice the highly specialised techniques of seed production. Special attention must be paid to the harvest and curing of seeds. Germination problems are many and they may be determined for each seed type. Testing and analysis of seed lots have become problems of major concerned to every country and most countries have set of standards which must be met before seed can be offered for sale in them. Seed marketing forms an industry in itself. Finally equipment manufacturers must provide the required apparatus and materials for the efficient functioning of this complex industry.

In addition to the seeds grown for the production of food, clothing and shelter for man and domesticated animals, there is a large and expanding flower seed industry. Seed trees also add their importance. Tons of such seed are required for reforestation of lands throughout the world.

Members of the seed industry have the grave responsibility of furnishing a good start for growth of important crops by providing seeds of desirable strains and high quality season after season and year after year. It is always necessary to hold the seeds from the time of harvest until planting time and it is often desirable, in the interest of economy, to store excess harvest for one or several seasons. It becomes necessary to know safe storage conditions, which vary from seed type to seed type. Over the years, seed physiologists and other individuals concerned have tried to uncover the secrets held with coats of seeds, both viable and dead, in order to determine their keeping qualities under various conditions.

We must aim at producing high quality seed to enhance agricultural productivity at the national as well as at global level.
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