US embassy cable - 04COLOMBO544

C O N F I D E N T I A L SECTION 01 OF 02 COLOMBO 000544 
 
SIPDIS 
 
DEPARTMENT FOR SA/INS J. WALLER, EBB/TPP/BNA/ANA J. BELLER 
DEPARTMENT ALSO PASS TO USTR FOR AMBASSADOR WILLS/J.ROSENBAUM 
COMMERCE FOR A. BENAISSA 
TREASURY FOR R. ADKINS 
LABOR FOR S. HALEY 
 
E.O. 12958:  DECL:  03/26/2014 
TAGS: ETRD, ECON, CE, ECONOMICS, Elections, Political Parties 
SUBJECT:  GSL CONTINUES TO PUSH US-SL FTA, DESPITE POLITICAL 
UNCERTAINTY 
 
REF:  A) COLOMBO 490, B) COLOMBO 493 
 
Classified By:  Classified by Ambassador Jeffrey J. Lunstead. 
Reasons 1. 5 b, d and e. 
 
1.  (C) Summary:  Despite its caretaker status and the 
political uncertainty surrounding next week's elections, the 
government of Prime Minister Ranil Wickremesinghe continues 
to prepare for a US-Sri Lanka FTA.  Since Cancun, Sri Lanka 
has supported US positions in WTO fora and on regional 
initiatives, such as the South Asia Free Trade Agreement.  It 
is also honoring commitments made during the last round of 
TIFA talks, including accession to the WTO Information 
Technology Agreement and sponsoring a trip by garment 
industry reps to meet yarn and textile manufacturers in the 
US.  Sri Lanka continues to pursue expanded bilateral trade 
opportunities with other countries, and has recently received 
preferential duty treatment for products entering EU markets 
as a result of high labor standards.  While the USG needs to 
assess the makeup of the next government before taking its 
next steps on the trade front, if the PM's party wins, we 
should consider announcing FTA negotiations sooner rather 
than later, in order to both advance the economic interests 
of the US and Sri Lanka and to show our political support for 
the PM's policies.  Should the UFPA win, we would need to 
consider both the interest and capability of the new 
government to proceed with negotiations and whether pursuit 
of an FTA would enhance US influence over the new regime's 
trade and economic policies.  End Summary. 
 
2.  (SBU) Even with elections slated for April 2 and with the 
economy looming as a significant election issue (Ref A), 
improved trade with the US remains a key focus of the PM's 
caretaker government.  Meanwhile, we have heard from 
different elements within the President's SLFP party that an 
FTA with the US would be a key goal of a UFPA (an alliance of 
the President's SLFP and the Marxist JVP) government, if 
elected, but they have made no public statements about it to 
date.  While the PM views an FTA as another tool in his 
economic reform tookit, along with export diversification and 
fiscal reform for example, the UFPA's position is more of a 
mystery, though they would likely see an FTA as a "lifeline" 
in the immediate post-Multifiber Agreement (MFA) expiration 
period.  Both the business and labor sectors in Sri Lanka, 
including representatives of the SLFP labor organizations, 
favor an FTA, and would support moving to negotiations. 
 
3.  (SBU) The current GSL has remained focused on its overall 
trade goals, despite its caretaker status since the 
announcement of elections on February 7.  In the WTO, the GSL 
continues to support US positions.  In the last few weeks, we 
have requested and received GSL support on issues including 
food aid restrictions and inclusion of Doha Development 
Agenda (DDA) items at the upcoming UNCTAD meeting (Ref B). 
The Trade Minister continues to vocally support 
globalization, the need for progress in the Doha Round and 
the benefits of increased economic reforms and enhanced 
market access.   Moreover, Trade Ministry Director General 
K.J. Weerasinghe recently told Econoff that Sri Lanka will 
apply to be an observer to the WTO's Government Procurement 
Agreement (one of the contentious Singapore issues), with a 
view to becoming a member. 
 
4.  (SBU) On the FTA front, we continue to see a willingness 
on the part of the GSL to pursue ideas raised during the last 
round of TIFA talks.  The GSL is now finalizing its proposal 
for accession to the WTO's Information Technology Agreement, 
an action item from our last TIFA meetings in October 2003. 
All the work on the Agreement itself is finished, and Annexes 
A and B are being finalized. The GSL is deciding on the 
timing to reduce tariffs.  All but 10-20 items will go to 
zero immediately.  Some items need a longer period to cushion 
the industry transition or because of revenue considerations. 
The Finance Ministry is due to make those decisions this 
week. After they are compiled, a Cabinet Subcommittee must 
approve the proposal.  Trade Secretary Harsha Wickramasinghe 
told Econoff he thought the process would be completed in 
late April. 
 
5.  (SBU) In response to USTR Chief Textile Negotiator David 
Spooner's suggestions of a trade delegation visit to the 
Carolinas and Georgia, the GSL is working with Sri Lanka's 
Joint Apparel Association Forum (JAAF) to arrange a trip in 
late April.  This visit will highlight to US yarn and textile 
manufacturers Sri Lanka's textile needs and open a dialogue 
on the possibilities for partnerships and improved trade 
relationships.  (Note: Sri Lanka currently imports over 80 
percent of its textile requirements for the garment sector. 
Further, certain Indian textiles, which are popular with Sri 
Lanka's garment sector, include US fiber content.  End note.) 
 
6.  (SBU) On the regional and bilateral trade fronts, the GSL 
continues its wide-ranging pursuit of liberalized trade 
mechanisms with its neighbors and main suppliers and markets. 
Secretary Wickramasinghe recently mentioned that he saw 
 
SIPDIS 
BIMSTEC (an economic cooperation agreement between 
Bangladesh, India, Burma, Sri Lanka, and Thailand) as an 
important bridge between SAARC and ASEAN, and as a tool to 
open up Burma,s trade regime.  While the GSL sees a need to 
pursue these bilateral and regional agreements, it strongly 
supports a move toward multilateral agreement in the WTO.  DG 
Weerasinghe has bemoaned the multiplicity of bi- and 
multi-lateral trade regimes, and noted the need for 
convergence. 
 
7.  (U) Sri Lanka has also benefited on the trade front from 
its high labor standards.  As of February 1, Sri Lanka 
received additional tariff concessions on all exports to the 
EU, as a result of a December 29, 2003 EU Commission decision 
that Sri Lanka had domestic legislation that met the 
obligations of the applicable ILO conventions, and was 
applying and monitoring implementation of that legislation. 
The concessions approved were: items with a tariff at or 
below 8.5% would see tariffs reduced to zero.  Items with 
tariff rates above 8.5% would see an 8.5 percentage point 
reduction.  Garment tariffs would be reduced 20%.  The 
regulations will be in effect until the end of 2004, when Sri 
Lanka hopes the concession will be renewed. 
 
8.  (C) Comment:  The results of the April 2 election will 
have a direct effect on progress toward a US-Sri Lanka FTA 
(assuming that the US decides to proceed).  If the PM 
prevails we can expect quick attention to the FTA and we may 
wish to buttress this with a public announcement stating our 
intention in moving forward expeditiously.  If the President's 
UPFA wins it will take some time for us to sort out where an 
FTA with us is on their list of priorities.  If it becomes 
clear an UPFA government is interested, we could consider 
strategy (perhaps including a U.S. public announcement) at 
that point.  Should they appear willing and able to pursue an 
FTA on terms akin to US expectations, we should also consider 
how an early announcement could provide leverage for US 
efforts to extract additional trade liberalization, economic 
reform and WTO cooperation from the new administration.  End 
comment. 
 
LUNSTEAD