To ETCA Or Not To ETCA: What Is The Question?
By Ruvan Weerasinghe –February 17, 2016
Dr. Ruvan Weerasinghe
The metamorphosed version of CEPA, the Economic and Technical Cooperation Agreement (ETCA) has sparked off various segments of our industry, and our politicians to respond in diverse ways. Much of this has been either of a knee-jerk type or of text-book economic theory. The former reaction is connected with the general dislike of our neighboring big brother, while the latter harps on the size of the market that will open up to us. In this article I want to show why both these reactions are flawed.
Market liberalization
In order to bring some logic into the argument, we first need to take the India factor out of our discussion owing to various, mostly negative connotations that are evoked. In order to do that, we can ask ourselves, is it good to liberalize our service industry to Country X? In order to give some context, we may need to also consider at least two parameters of Country X: its size in terms of population and its political/economic status. In order to focus our debate, we should set both these parameters at higher values than ours.
The rather simplistic argument of many of the politicians has been that it is advantageous for a small country like Sri Lanka to enter into a large market. This assumes that there is an absolutely equal playing field. This assumption is flawed owing to the second parameter: which country on earth that is stronger in terms of its political and economic status than us, would sign an agreement that is more advantageous to us than to them[1]? However, we should avoid throwing the baby with the bathwater. There are many examples of larger, more powerful countries benefiting neighboring smaller countries owing to liberalization, such as possibly Bhutan and recently Myanmar in our region and Vietnam and Cambodia not far from us.
The human resource factor
What we need to then ask is, when is it mutually beneficial for a smaller, less powerful country to open its market to a larger country which most probably will stand to benefit more? Many of the examples that have been proposed as success stories in terms of increased foreign direct investment and exports, have not brought the social costs into their calculations. Even if we leave that aside for the sake of this argument (though we probably shouldn’t), the countries in these examples were mostly not just smaller in size and political/economic status, but also impoverished in terms of the quality of their human resource: something that usually is rarely considered. In our situation, this is clearly not the case for the industries that have been linked with the CEPA/ETCA discussion: medical, engineering and IT professionals. In our case, arguably, the per capita human resource quality is higher than most countries in the region[2].
