US embassy cable - 03COLOMBO1702

C O N F I D E N T I A L SECTION 01 OF 02 COLOMBO 001702 
 
SIPDIS 
 
DEPT PLEASE PASS TO E, EB, SA/INS, SA/RA, DRL 
DEPT ALSO PLEASE PASS USAID FOR BERNADETTE BUNDY - ANE/SA 
TREASURY FOR JERRY ADKINS 
DOL FOR SUDHA HALEY 
NSC FOR ELIZABETH MILLARD 
DEPT PLEASE PASS USTR FOR AUSTR WILLS 
COMMERCE FOR ARIADNE BENAISSA 
 
E.O. 12958:  DECL:  ONE YEAR AFTER CONCLUSION OF US-SL FTA 
TAGS: ETRD, EAID, ECON, EFIN, KIPR, ELAB, PREL, CE, ECONOMICS 
SUBJECT:  LABOR AND IPR IMPLICATIONS OF POTENTIAL US-SRI 
LANKA FTA 
 
Ref:  a) Colombo 1386, b) Colombo 772, c) Colombo 1673 
 
1.  (U) Classified by Amb. Jeffrey J. Lunstead for reasons 
1.5 B and D. 
 
2.  (C) Summary:  As the next round of TIFA talks 
approach, Post will highlight bilateral trade issues to be 
addressed in TIFA (and in FTA considerations), and provide 
updated information.  Topics of concern include government 
procurement, investment, labor and IPR.  This cable 
addresses the latter two - labor, where the GSL's good 
record is suffering because of mishandling one case, and 
IPR, where a good law needs a good implementation plan. 
Moving forward on an FTA (as outlined in Ref C) would give 
us an opportunity to influence GSL actions and decisions on 
these fronts in positive directions.  End summary. 
 
Labor 
----- 
3.  (SBU) Sri Lanka is justifiably proud of its labor 
record.  It has ratified all the relevant ILO Labor 
Conventions, some of its labor conditions are "the best in 
the world" according to a major US buyer, there is no child 
labor in the formal sector, and the top tier buyers of Sri 
Lankan goods demand compliance with high labor standards. 
There are situations with lower standards, but overall, and 
especially compared with the region, Sri Lanka is ahead of 
the pack.  Important labor issues fall into two categories 
- enforcement of existing laws in Export Processing Zones 
(EPZs), and labor law reform. 
 
4. (SBU) The recent international attention given to 
labor issues here is due to restricted union access to 
factories in the EPZs.  This was the basis for the 
(ultimately not accepted) petition to USTR by AFL-CIO to 
deny GSP privileges in 2002.  It also is the basis for a 
complaint filed in the Freedom of Association Committee at 
the ILO, and, reportedly, a delay by the EU in granting 
broader GSP privileges.  Much of the problem stems from the 
oversight responsibility of the Board of Investment (BoI) 
in the EPZs.  The labor laws are fairly strong, but 
enforcement in the EPZs had been left to the BoI, rather 
than the Ministry of Labor.  Steps were not taken to allow 
union access, or to address alleged intimidation and 
repression of unions. 
 
5. (C) There appears to be more involvement by the Labor 
Ministry in recent months, but no broad changes to allow 
union access.  It seems that the GSL is trying to defuse 
specific situations because of their negative impact on FTA 
chances, rather than making the positive systemic changes 
that would lead to stronger protection of labor rights in 
the EPZs.  Advisors admit the GSL has not responded well 
and seems to remain in a reactive, defensive mode.  Some 
public, consultative steps would go a long way to show the 
GSL understands the problem and plans to address it. 
 
6. (SBU) The other main concern is some of the existing 
labor laws, which the government has recognized are 
antiquated and a hindrance to investment.  The GSL has 
delayed implementation of some amendments to these laws 
that were passed by Parliament in January until a 
compensation formula is decided and a social safety net is 
in place, expected by year's end.  These amendments will 
allow for speedier resolution of labor cases, a standard 
formula for separation benefits, and more realistic 
overtime allowances.  New amendments are proposed that 
would expand allowed hours of operations and workmen's 
compensation, and facilitate subcontracting.  Establishment 
of a responsive, fair system is needed.  Such a system 
should allow employers to know the cost of entry and exit, 
should allow work hour flexibility, should leave the 
decision on the number of employees to the employer, and 
should speed up dispute resolution.  A consultative process 
and support for better management/labor relations also 
would improve the situation greatly. 
 
Intellectual Property Rights 
---------------------------- 
7. (C) As reported (ref a), and encouraged in all 
previous bilateral trade discussions, Parliament recently 
passed strong IPR legislation, which should enter into 
force next month.  Today, pirated goods are openly sold, 
even in government-owned outlets, and US companies have 
come to us with their concerns.  While illegal production 
and sales do not reach the level of neighboring countries, 
the problem is growing.  This is a critical time to put a 
structure in place before the problem gets out of control. 
The GSL has cited the flawed current law that is about to 
be replaced as a reason for inaction.  The major concern 
now is the lack of an implementation plan to be initiated 
once the new law takes effect.  Action must be 
multifaceted, including training of police, lawyers, 
judges, and customs personnel, public education, and high 
profile raids. 
 
8. (C) We have convened an IPR Working Group with 
interested US companies and the Amcham.  The GSL has agreed 
to meet with this group on a monthly basis, to begin next 
week.  We plan to identify some specific problems, suggest 
next steps and offer assistance where possible.  Commerce 
Minister Karunanayake has repeatedly requested that we 
establish a `regional IPR policing unit' in Sri Lanka.  We 
have told him the GSL needs to work on implementation at 
the national level first, before any grander scheme could 
be considered. 
 
9. (C) Comment: While these areas need attention, the 
situation in Sri Lanka is significantly better than in 
other countries in the region.  The desire for an FTA with 
the U.S. gives us the opportunity to lock in and strengthen 
the GSL's efforts on reform, making a stronger economy, and 
a stronger partner (Ref C). End comment. 
 
LUNSTEAD