US embassy cable - 03COLOMBO1836

C O N F I D E N T I A L SECTION 01 OF 04 COLOMBO 001836 
 
SIPDIS 
 
DEPT PLEASE PASS TO E, EB, SA/INS, SA/RA, DRL, USAID FOR 
BERNADETTE BUNDY - ANE/SA, USTR FOR AUSTR WILLS; TREASURY 
FOR ROY ADKINS; DOL FOR SUDHA HALEY; NSC FOR ELIZABETH 
MILLARD; 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 
SUBJECT: SMOOTH SAILING AS DUSTR SHINER LEADS THIRD ROUND 
OF SRI LANKA TIFA TALKS 
 
 
1.  (U) Classified by Amb. Jeffrey J. Lunstead. Reasons 1.5 
(b,d). 
 
2. (C) Summary: The GSL's assertive international trade 
policy to generate growth and become a leader in the South 
Asia region and broader developing world earned kudos from 
the USTR delegation during the third round of TIFA talks. 
The country's supportive stance in Cancun was praised, and 
only minor issues were identified for further bilateral 
action.  On a potential FTA, the GSL learned more about the 
USG process and persistently pressed its case.  The USG 
side emphasized no decision had been made yet and much 
preparatory work would be needed before any decision. End 
Summary. 
 
3. (U) DUSTR Josette Shiner, AUSTR Ashley Wills, USTR 
Special Negotiator David Spooner, USTR Special Advisor 
Christopher Moore, DoS Desk Office Jim Waller, EB Trade 
Affairs Officer Jeff Beller, accompanied by Ambassador 
Lunstead, DCM and Econoffs, attended the third round of 
Trade and Investment Framework Agreement (TIFA) talks at 
Temple Trees, the Prime Minister's residence/office on Oct. 
14. 
 
4. (C) Prime Minister Wickremesinghe opened the talks by 
noting his government's priorities: an environment for 
people to prosper and grow, peace through negotiations, 
jobs and overall development.  Growth would be accomplished 
through a transformation of the economy though 
liberalization, restructuring, and open markets.  Sri Lanka 
would become a leader in South Asia.  DUSTR Shiner noted 
the importance of the bilateral trade relationship, and 
expressed appreciation for Sri Lanka's positive actions in 
Cancun. 
 
Peace Process 
------------- 
5. (C) The primary accomplishment in the peace process, 
Minister and Chief Negotiator GL Peiris noted, was the 
paradigm shift in the LTTE's view that it was no longer 
necessary to fight or secede, that a political solution 
could be found and that it would accept devolution under a 
federal power sharing structure.  Ceasefire violations 
continue, however, and critics charge that the government 
is giving legitimacy to a terrorist organization.  The 
LTTE's counterproposal on an Interim Administration is 
expected by the end of the month and another round of talks 
may take place before the end of the year.  Investors 
should not wait until a final settlement he said, as the 
process may take up to 1 1/2 or 2 years and the environment 
is conducive to business now. 
 
Economic Reforms 
---------------- 
6. (C) The Prime Minister shared his vision of Sri Lanka as 
a platform for value addition, a logistics hub, a services 
base, a business center and as a gateway to India and the 
region.  Immediate plans include a new exchange control 
law, revenue collection adjustments, structural and 
institutional reform, tax reductions, skills training and 
financial sector reform.  Sri Lanka should strengthen the 
services sector, he said, and match capital intensive 
manufacturing and technology with skilled workers to 
compete in the future.  Two bilateral agreements are key to 
the GSL strategy - the Economic Cooperation Agreement with 
India and an FTA with the US.  He noted that Sri Lanka's 
liberalization and restructuring may force India (and the 
region) to liberalize faster, and the consequent income 
rise and market opening there would benefit Sri Lanka.  The 
PM added that an FTA with Singapore should be concluded by 
mid year. 
 
7. (C) Implementation of reforms was the key now, continued 
the PM, and he had created public/private steering 
committees to address barriers.  Areas he identified for 
continuing reforms and development include privatization, 
labor, productivity, ports, English language and IT 
training, and tourism.  He mentioned the sectors Sri Lanka 
has identified to diversify the economy, i.e., rubber, gems 
and jewelry, ceramics, confectioneries, high value 
agriculture, printing and machinery components.  We are 
moving into a world, he said, where nations don't compete, 
firms do.  Amb. Shiner noted that, around the world, 
transparency is essential, especially in government 
procurement.  The PM said his priority the first two years 
of his Administration was to get the economy going, and now 
the government is working on transparency issues with new 
legislation and efforts to reduce delays. 
 
WTO 
--- 
8. (C) While acknowledging the importance of bilateral 
agreements, PM Wickremesinghe said that multilateral 
agreements are important to gain access to other markets. 
He noted the GSL's willingness to consult on trade 
facilitation, investment, agriculture, and competition, and 
thought the U.S. and Sri Lanka were on the same frequency. 
Sri Lanka took the supportive stand in Cancun in its own 
interest, but many other nations will be watching to see 
what happens after the GSL decided not to join with the G- 
22.  We made some tough decisions, said the PM, and don't 
want to be isolated. 
 
9. (C) Regarding international trade, the PM said Sri Lanka 
intends to be the "gold standard" in South Asia.  Through 
bilateral and multilateral agreements, trading partners 
could gain access not only to the Sri Lankan market of 19 
million people, but also to the billion-plus in India.  The 
PM added that it is easier and cheaper to do business in 
Sri Lanka than in India.  He also highlighted Sri Lanka's 
commitment for Colombo to become the first US Customs 
Container Security Initiative port in South Asia. 
 
10. (C) Amb. Shiner described US desire to get WTO back on 
track but conditions are not right to move ahead now.  The 
opportunity was lost in Cancun, she said, by those not 
ready to negotiate.  She praised Sri Lanka's courageous 
stand at WTO and relayed that many in the US had taken 
note.  The PM said the GSL is already lobbying other 
countries to take a similar stand.  Amb. Lunstead asked 
about a backlash from India following Cancun, and the PM 
replied that the Prime Ministers and Commerce Ministers had 
spoken, and the Indian side understood that the two 
economies are different, and it didn't mean that Sri Lanka 
was against any regional agreement.  The PM said that Sri 
Lanka would open two or three agricultural sectors to show 
it is possible for developing countries to open 
controversial sectors successfully.  With rice, it could be 
a model for India, since it had the same issues.  We need 
to modernize and liberalize the small farmer, he said, to 
become competitive, create jobs and get people off the 
land. 
 
India 
----- 
11. (C) A discussion about India followed with the PM 
noting that upcoming elections would cause problems moving 
ahead.  Amb. Shiner said the US would like to see India as 
a counterweight to China's aggressive trading approach. 
The PM mentioned plans for cooperation with Tamil Nadu, and 
said the Indian government would not mind.  He said if the 
BJP had the same or more numbers in the upcoming elections, 
they may open up in certain sectors -- a lot depends on the 
rural areas.  India's main fear, according to the PM is 
that, if they open up, there would be no reciprocity, and 
what then would happen to their farmers?  Amb. Shiner 
reiterated USTR Zoellick's stance that finding solutions to 
each country's political concerns is necessary for 
negotiations to be successful. 
 
Potential FTA 
------------- 
12. (C) Amb. Shiner said the GSL's interest in an FTA was 
noted, as were its constructive actions.  The TIFA process 
has been successful in identifying and resolving trade and 
investment questions, and should continue, she said.  She 
recognized the government's extensive work pushing reform 
and addressing outstanding issues.  She said that work 
would have to be done before any decision could be made. 
As next steps, she suggested government-to-government 
dialogue on some important issues, such as IPR, labor, 
government procurement and IT tariffs.  Amb. Shiner noted 
that any steps taken by the GSL in pursuing reforms would 
benefit the nation as well as make it a stronger, more 
attractive trading partner for the US. 
 
13. (C) The PM reiterated that an FTA with the U.S. was a 
pillar of the country's economic strategy and it would 
support the peace efforts through economic opportunities 
and growth.  Sri Lanka's Ambassador to the US, Davinda 
Subasinghe, noted that the GSL had reviewed the Chile and 
Singapore FTAs and were comfortable with what would be 
required.  That exercise had helped to map out next steps 
and bolster the ambitious reform agenda.  He said that work 
had already begun to address issues such as transparency, 
investor support and business facilitation.  The GSL 
planned to continue its cooperation with the U.S. on 
multilateral issues, he added. 
 
14. (C) Describing the decision making process and steps 
necessary for a country to be considered as an FTA 
candidate, Amb. Shiner said it was important that key 
players in the U.S., including Congress, labor and others, 
were consulted and supportive of an FTA with Sri Lanka 
before a decision could be made.  This visit provided the 
opportunity for USTR to learn more about Sri Lanka and 
consult on further cooperation.  She promised to brief the 
Administration, Congress and industry on her return and 
discuss her favorable assessment of Sri Lanka's potential. 
She suggested Sri Lanka could send a delegation to the U.S. 
to show big U.S. sectors, such as the yarn/textile 
industry, that there could be benefits for them from an 
FTA. 
 
15. (C) Comment: The PM's vow to leave no stone unturned in 
pursuing an FTA with the US was evident in this TIFA round. 
The meeting was extremely helpful in clarifying for the GSL 
that a decision to negotiate an FTA is still some way off, 
that the U.S. would need to see some potential benefits, 
and that the GSL could take steps to define potential 
opposition to an FTA.  The PM hosted the meeting, taking 
over from Commerce Minister Karunanayake, and committed to 
continue GSL cooperation with the US. 
 
16. (C) Criticized by developing countries for breaking 
ranks, the PM said, "We were never in the ranks." He seems 
to have a clear vision of what is necessary to generate the 
8-10% growth necessary to move the country into prosperity 
and out of the shadow of war, and has moved in determined 
fashion to get there.  Aligning with the U.S. is a keystone 
of that strategy. End comment. 
 
17. This cable has not been cleared by DUSTR Shiner. 
 
Minimize considered. 
 
Lunstead