US embassy cable - 02COLOMBO2196

UNCLAS SECTION 01 OF 03 COLOMBO 002196 
 
SIPDIS 
 
STATE PASS USTR FOR DEPUTY USTR AMBASSADOR HUNTSMAN 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EINV, CE, USTR, ECONOMICS 
SUBJECT:  SRI LANKA: FIRST JOINT COUNCIL MEETING UNDER 
NEW TIFA 
 
1.  Summary: In the first Joint Council meeting under 
the US - Sri Lanka TIFA, the GSL identified its goal as 
an eventual Free Trade Agreement, and, in the interim, 
stronger ties in the bilateral trade relationship and 
in the WTO.  The US representatives focused on the USG 
commitment to closer cooperation on the global trade 
agenda and in the bilateral relationship, noting that 
the peace process will bring confidence, which will 
lead to new opportunities for the US private sector. 
End Summary. 
 
2.  The first Trade and Investment Council meeting 
under the recently-signed Trade and Investment 
Framework Agreement was held in Colombo on November 20, 
led by Deputy USTR Ambassador Jon Huntsman and Sri 
Lankan Minister of Commerce and Consumer Affairs, 
Minister Ravi Karunanayake.  Representatives on the US 
side included Ambassador Wills, USTR Senior Director 
Elena Bryan, and Embassy Economic Officers.  The Sri 
Lankan delegation of over 20 members included Minister 
of Enterprise Development and Industrial Policy GL 
Peiris, Board of Investment (BoI) Chairman Arjunna 
Mahendran, Ambassador-Designate to the US Davinda 
Subasinghe, the GSL representative to the WTO, KY 
Weerasinghe, and many members of the Department of 
Commerce. 
 
3. Minister Karunanayake stated at the start that the 
ultimate goal of the GSL was a Free Trade Agreement 
with the US, as soon as possible.  He outlined some 
steps the GSL was taking which would make it a more 
attractive FTA partner, including good governance, 
pursuit of peace, closer relations with the US and 
privatization.  Minister Peiris emphasized the 
important role of trade and economic freedom in the 
current GSL peace efforts, and said Sri Lanka needs a 
stronger trade relationship with the US.  Ambassador 
Huntsman outlined the US goals, including the desire to 
strengthen ties, use the TIFA as a building block to 
further shared commitments, and establish broad 
cooperation on the global and bilateral trade agenda. 
Ambassador Huntsman also explained his desire to bring 
back a positive message to the US private sector about 
new developments and opportunities in Sri Lanka. 
 
Investment Opportunities 
------------------------ 
4. In the overview, BoI Chairman Mahendran said Sri 
Lanka is taking advantage of the high profile recently 
created by the peace process and the Prime Minister's 
investment promotion trip to New York.  He said Sri 
Lanka is fully compliant with labor best practices, and 
ILO conventions.  He thought new opportunities for US 
investment would be found in infrastructure projects 
(especially ports and airports) to make Sri Lanka a 
regional logistics hub, tourism, mineral extraction, 
information and communications technology, apparel and 
textiles, and agriculture.  When asked about 
restrictions on foreign purchase of land and import of 
seed varieties, Minister Karunanayake promised an 
answer within two weeks. 
 
5. Ambassador Huntsman urged the GSL to act soon in 
attracting US investors, and advised that a 
predictable, stable, and transparent environment would 
be critical.  Once the GSL had targeted specific 
infrastructure needs, focused trade missions could come 
from the US.  While describing the President's trade 
agenda, Ambassador Huntsman emphasized that the Doha 
Agenda was a high priority. 
 
IPR 
--- 
6. Dr. Karunanratne from the GSL IPR Office briefed the 
Council on new IPR legislation that is expected to be 
approved by Parliament by early next year.  He said it 
goes beyond TRIPS, and incorporates comments submitted 
by interested US parties.  Karunaratne said the GSL was 
progressing aggressively on enforcement problems by 
planning to train lawyers, judges, and enforcement 
personnel, by designating the Commercial High Court for 
cases, and by conducting public outreach.  He said the 
GSL needed technical assistance in this area.  Both 
Ambassador Wills and Ambassador Huntsman promised to 
examine areas for possible US assistance. 
WTO 
--- 
7. KJ Weerasinghe said that the solution to outstanding 
issues is in implementation, and that Sri Lanka wants 
to be constructive in accomplishing the Doha agenda. 
On agriculture, he said, Sri Lanka agrees to 
liberalization, but wants to protect poor, rural 
farmers.  On tariff and subsidy reductions, the GSL 
does not have these supports, but wants flexibility to 
accommodate rural farmers and to mitigate the price 
increase that net food importers would experience as 
the new WTO proposals are adopted.  Sri Lanka does not 
have any instrument, other than tariff levels, to 
protect against import surges.  He relayed that the EU 
had asked for the GSL's support on this.  He also said 
the US proposal does not address special and 
differentiated (S and D) treatment for LDCs. 
 
8. Ambassador Huntsman responded that it is important 
to meet the March deadlines, and the US would work with 
the GSL on these issues.  This was the only chance to 
get agriculture on an international agenda.  He 
continued that the US does not want a two-track system 
with S and D countries, rather the same goals for all, 
with the S and D treatment applying to the length of 
the transition periods.  If there are two tracks, he 
said, one may be seen as lower quality. 
 
9. Services: Weerasinghe said the current government 
wants Sri Lanka to become a services hub and plans to 
eliminate measures that would create market 
impediments.  It had already liberalized many sectors, 
and is currently looking at a strategy to open the 
tertiary education and wholesale/retail sectors and 
review the GATS commitment.  Both Minister Karunanayake 
and Ambassador-designate Subasinghe noted that 
education was a sensitive area.  Under services, 
Weerasinghe said the GSL wants also to look at the 
movement of persons to support and provide services 
outside Sri Lanka.  He noted that Sri Lanka's list of 
sectors to be liberalized, which would include air 
transport, call/service centers and exchange controls 
in the financial sector, would be ready by December. 
 
10. Market access: Weerasinghe said the GSL was waiting 
to see what proposal would be made for reduction 
commitments, and that Sri Lanka would have the same 
problems as with agriculture if the Swiss formula is 
applied.  He said there was a lack of clarity about the 
removal or elimination of tariffs.  Ambassador Huntsman 
replied that the US plans to take a comprehensive 
approach and will submit its package in early December. 
 
11. Government procurement: Weerasinghe noted a number 
of issues of concern: that it covers government but not 
market aspects, the application to foreign procurement, 
threshold adjustments for different size countries, 
flexibility allowed for procurement objectives, and 
whether a WTO decision could override a domestic 
decision.  He said that the GSL would comment on the US 
proposal the following week.  Ambassador Huntsman 
conveyed his appreciation for Sri Lanka's commitment to 
the process, and hoped that by the time of the Cancun 
meeting differences would be resolved.  He continued 
that the US would like to see Sri Lanka be a leader in 
this area. 
 
12. Small Economies and Geographic Indicators: 
Weerasinghe said that Sri Lanka should be included in 
the group that would address problems and recommend 
solutions, and that population should not be the 
judgement criteria for membership.  Ambassador Huntsman 
said that would be a practical approach, and that the 
different transition periods would address the 
different needs, rather than a two-tiered system.  On 
Geographic Indicators, Weerasinghe said the GSL wanted 
protection for items in addition to wine and spirits, 
e.g., spices and tea.  Ambassador Huntsman cautioned 
the GSL, saying it must be careful to consider what is 
already protected under TRIPS (and the US Patent 
Office), and make the most of that protection.  Since 
the EU had tabled thousands of items for protection, 
proliferation of geographic indicators could become a 
nightmare for WTO. 
 
13. SPS and TBT: On SPS and TBT Agreements, Weerasinghe 
said Sri Lanka had difficulties implementing the 
provisions because it lacks administrative capacity, 
personnel and equipment.  He requested Technical 
Assistance to help Sri Lanka fulfill its obligations, 
and later submitted a list outlining the GSL requests. 
Ambassador Huntsman noted that the US intends to make 
use of a variety of resources to assist, and that the 
US team wants to hear how effective the WTO and USG 
assistance is.  There are many sources of help, he 
said, including aid, universities, businesses, and 
trade associations.  He wanted to hear what worked and 
what the Sri Lanka priorities are. 
 
Conclusion 
---------- 
14. Wrapping up, Minister Karunanayake said Sri Lanka 
wants to receive the benefits of LDC status, and wants 
an international partner in sectors such as phosphate 
mining, tea and port building.  Sri Lanka, he said, 
must show its commitment to carry out reforms, and work 
toward a FTA with the US.  Ambassador Huntsman said 
though that could be the ultimate goal, he warned 
against getting ahead of the TIFA process and building 
unrealistic expectations.   An incremental pace of 
engaging the US, including developing the interest and 
trust of the private sector, generating political 
support and reducing the trade deficit (currently 10:1 
in Sri Lanka's favor) should be the GSL's medium term 
goals.  Ambassador Huntsman said that the next Council 
meeting could take place in WDC in Spring 2003.  He 
committed to accompanying the Sri Lanka delegation to 
Chambers of Commerce, and to help deepen and broaden 
cooperation. 
 
Amselem