Scholar from Poland Places Facts in Correct Perspective

Elaborating on Sri Lanka’s prospects of emerging as a nation, markedly with further expansion of bilateral and multilateral trade, Sri Lanka’s economy, etc, Mr Patryk Kugiel, Senior Researcher, Polish Institute of International Affairs, Warsaw, Poland maintained that the momentum of growth, has to be further promoted while increasing export trade with the EU.

Here are excerpts of his speech to the ‘Defence Seminar - 2014’:

Thanks… It is important to keep discussing and exchanging views in spite of some disagreements.

The title of my presentation is “An Emerging Nation in Asia: A Western Perspective”. I will not talk, however, about the perspective of all Western countries, but rather concentrate on the European alone. Please note also, that I do not speak here on behalf the Polish Government nor the EU.I share rather my own assessment of the European perspective on Sri Lanka and give you my views on the subject as the EU citizen and an analyst of South Asia.
Outline.

I will focus in my presentation on three areas, for which Sri Lanka matters to the EU: economic potential, strategic significance and human rights concerns. Then I will present three possible scenarios for future evolution of relations and give some concluding remarks.
Overview

Let me start with a brief overview of EU-Sri Lanka relations.

They dates back to 1960s and in 1975 the first Agreement on Trade and Economic Cooperation was signed. It was replaced in 1995 by the so called a third generation of agreement - Co-operation Agreement on Partnership and Development - that guides these relations until today. At that time, also Sri Lanka-EU Joint Commission was created as a special mechanism to overview realization of the deal. Historically, the relations between the two have been largely concentrated around economic issues, as the EU has been a major trade and development partner for Sri Lanka.

Along economic cooperation, political dialogue evolved around the civil war in Sri Lanka and the role for the EU; counterterrorism cooperation; migration issues; security of Sea Lines of Communication, regional cooperation in South Asia; evolution of balance of power in Asia-Pacific region and others. Among major milestones one can mention here,

-    the EU role as co-chair of the peace process (with along Japan, Norway and the US) 2002-2006

-    in 2004 readmission agreement was signed


-    Declaration of LTTE as a terrorist organisation in 2006, which has substantially helped GOSL in defeating the organisation.

However, the military victory over the LTTE in May 2009, and final stages of the war have negatively influenced relations between the EU and Sri Lanka, due to alleged violations of humanitarian laws and human rights.

Nevertheless, the end of the civil war in Sri Lanka paved the way for reconstruction and fast economic growth of the country.

Sri Lanka Economy.

In the recent years we have witnessed some signs of peace dividend in Sri Lanka. At the national level the economy has been growing at average 7.5% GDP between the four year period 2010-2013 reaching 8,2% GDP in 2011 – which was much better than the global average in the same period. As a result, the size of economy more than doubled between 2005 and 2011, from US$24 million and US$59 million respectively. And GDP per person increased from US$ 1215.0 to US$ 2812.0 during the same time (United Nations Statistics Division, 2014). Poverty headcount ratio at national poverty line has decreased from 15,2% of population in 2007 to 6,7% in 2012 (WDI 2014). At the same time inflation has remained at single-digit level (8% in 2011). Unemployment rate decreased from 6,5% in 2005 to 4,9% in 2010 and 4% in 2013. Internet which was a rare luxury for only 1,9% of the population in 2005, in 2011 was accessible to 15% of the population. As a result, Sri Lanka improved its position in the UN Human Development Index by ten places in just a few years, from 102nd  rank in 2008 to 92nd in recent HDI in 2012.  

This list could be continued for a while. It is enough to say here, however, that the country has recorded a very positive period in terms of economic progress and has a potential to become one of the new emerging markets in Asia. The government implements development strategy that focus on so called Five Hubs – Aviation, Energy, Knowledge, Maritime, and Tourism. It is aimed to attain a per capita income of US$ 4,000 and to host 2.5 million tourists by year 2016.

TRADE

Sri Lanka progress is evident across the sectors. Its trade boomed from 16,8 billion USD in 2009 to 27 billion USD in 2012, although most of trade increase was due to the rising import and increasing trade imbalance (- 8,7 bln USD). Whereas SL export has risen by 2 billion USD between 2009 and 2012 (from 7,1bln USD to 9,1 bln USD respectively), its import has risen by over 8 bln USD (from 9,7 bln USD to 17,8 bln USD). (GSL, Department of Commerce, 2014).

Top three export partners in 2012 were US, UK and India, whereas top import partners were India, China and U.A.E.

FDI

Sri Lanka became more attractive investment’s destination. The inflow of FDI has risen from 404 mln USD in 2009 to 981 mln USD in 2011 and 916 mln USD in 2013. (UNCTAD) The stock of FDI in Sri Lanka risen from 4 283mln USD in 2008 to 7 846 mln USD in 2013.

Geographic directions of FDI inflow has changed however, as less FDI comes from the developed world, and more from developing countries in Asia. Major investors in SL are China (24%), Hong Kong, Singapore, India, Japan, Australia, UK, Germany.

FDI to Sri Lanka are driven not only by economic recovery and strategic location but also by more favourable business climate. Sri Lanka offers attractive regulation for foreign investments, and access to huge markets in India and Pakistan thanks to signed bilateral Free Trade Agreements with these two countries.

In 2014 Doing Business report by the World Bank Sri Lanka was ranked 85th, the best among South Asian countries and up by 16 places since 2008 (101th in 2008). It is also ranked the best in the region in Corruption Perception Index by Transparency International – 91st in 2013. (up 1 place since 2008).

TOURISM

Peace dividend is apparent in the tourism industry, as number of tourists rose from around 438 thousand people in 2004 to cross 1 million for the first time in the country’s history in 2012(17.5 per cent more than in 2011). Tourism generated earing of Rs. 132,427  million (US $ 1038.3 million)in 2012, and was the fifth largest source of Foreign Exchange Earner for the National Economy in 2012 (responsible for 5,2 per cent). This is also important as tourism gives work directly to 67,862 and to another around 100 thousand indirectly. The positive trend continued in 2013, as tourists arrivals rose by 26% to 1,274,593 people.

AID

Finally Sri Lanka became less dependent of foreign aid, especially from the Western donors. The assistance disbursed by OECD countries has fallen from over 1,1bln USD in 2005 (in the aftermath of the Tsunami), to 487 mln USD in 2012. However, more aid is provided to Sri Lanka by “emerging donors” especially China, India and Russia. China has even overpassed Japan as the largest donor to Sri Lanka.  In 2013China committed $517.9 million in commercial loans (around 39 percent of the $1.32 billion total) for multi-billion dollar projects including new ports, airports, coal power plants, roads and railways. Also India increased its development assistance, especially in the North of the island.

EU-Sri Lanka Economic Cooperation

There are some concerns that growth is not distributed evenly across the country and still effects of reconstruction and development in Northern Province and Eastern Province are not felt by local population. And the peace dividend does not reach all Sri Lankan communities. There are qustions about the sustainability of some of grand infrastructural investments and rising imbalance in trade and decreasing foreign reserves.

I would argue that, return to peace brings new opportunities and Sri Lanka seems to be on its way to becoming a fully-fledged middle income country (MIC). It should realize its economic potential and maximize profits from its strategic location if it manages to build peaceful and stable environment domestically and develop good relations internationally.

Here , is the role to be played by the EU.

What is the current position of the EU in Sri Lanka’s economy?

In short, the EU is still second largest trade partner for Sri Lanka, the largest market for SL export, the largest source of tourists to SL, fourth largest donor in SL and a potential source of capital and technologies.

First general observation to be drawnhere, is that economic relations are asymmetrical, which means that the EU is far more important economic partner for Sri Lanka, than it is for the EU. In other words, the EU has limited economic interests in the island, whereas it matters a lot to growth of Sri Lankan economy.

EU-Sri Lanka Trade

The EU as a whole is the biggest export destination for Sri Lankan goods, and third largest source of import to Sri Lanka (after India and China).

The EU is major trade partner where Sri Lanka sells much more than it imports from. According to the EU data, in 2012 the value of EU import from Sri Lanka stood at 2.52 billion EUR and EU export was 1.30 billion EUR. Thus the trade balance was in favour of Sri Lanka at €1.2 billion.

In June 2010 the EU suspended Sri Lanka from its preferential access to the EU market within the enhanced system of trade preferences known as GSP Plus. The GSP+ gives a zero duty market access and is given by the EU to countries which ratify and effectively implement 27 international conventions (on human rightslabour rights, and good governance and environment).EU investigations in 2009 had found ”shortcomings in respect of Sri Lanka’s implementation of three United Nations human rights conventions – the International Covenant on Civil and Political Rights, the Convention against Torture and the Convention on the Rights of the Child.” Therefore since mid-2010 Sri Lanka's access to the EU market is subject to thegeneralised system of preferences (GSP).

What is interesting here is that, termination of the EU GSP+ to Sri Lanka has had a rather limited impact on Sri Lankan export to the EU, which continued to grow in 2011 and 2012. There is however a decline reported in 2013. “It was estimated that GSP+ saved Sri Lanka EUR 78 million in import duties in 2008 compared with the standard GSP, around 6 per cent ofits total exports to the EU” (FRIDE 2011). Thus, unsurprisingly, this sanction did no harm and could not influence Sri Lanka’s decision making process.

What is even more interesting is another graph, which show disturbing trend in EU-Sri Lanka trade. It confirms, that though bilateral trade continued to grow in recent years, the EU share in Sri Lanka’s trade has declined. Still back in 2007 the EU received 36% of Sri Lanka’s export and this has shrunk to 26% in 2012 (by ten per cent points) in just couple of years. This means, that the EU, although still the most important economic partner, is losing ground in Sri Lanka to other regional players.

Trade (2)

Importantly, over 50% of Sri Lanka export to the EU is made by apparel and garments. This export alone was worth over 1,4 billion EUR in 2012, and was 50% of total export of the industry. This means that it would be very hard for Sri Lanka to replace the EU market.

On the other hand Sri Lanka was EU’s 62nd major trade partner in 2012 (75th in export and 57th in import). Its share in EU trade did not exceed 0,1% of total EU export or import. The only area in which SriLanka was among top 10trade partners for the EU was import of clothing with 2,1% share in EU import. Sri Lanka was 9th largest source of clothing to the EU. Apart from this area, Sri Lanka is not an important trade partner.

TOURISM

Another important area of contacts between Europe and Sri Lanka is tourism. European tourists amounted to around 500 thousand people in 2012 and constitute over 50% of tourist’s arrivals. More importantly, despite political tensions, the tourists from the EU took benefit from the end of civil war in 2009 and have preferred Sri Lanka as attractive destination. This is area with great potential for further growth.

MIGRATION

The EU is also second largest migrant destination for Sri Lankans, after the Gulf States. In 2010, 17,5% out of 1,85 million Sri Lankan emigrants (or 323 thousand) were staying in the EU countries, mainly in the UK, Italy, Germany and France. Although there are no data on remittances flows, one can safely assume that the EU is a significant source of private money flows to Sri Lanka, which is estimated at 6 billion USD annually.

THE EU AID

Currently, the EU is fourth largest donor for Sri Lanka.  The total EU assistance over the 2005-2013 periodin its many programs amounted to some €587 million. Most of it (humanitarian aid, post Tsunami aid, etc.) is already over, and the last Country Strategy worth 110 mln EURO were directed for reconstruction and development of Eastern and Northern Provinces.

Most EU MS have withdrawn development assistance from Sri Lanka, so the bulk of EU aid is provided currently by the EU institutions, and through multilateral organizations. Looking at the next financial perspective between 2014 and 2020, the European Investment Bank has already provided a new line of credit worth 90 mln Euro in 2013, and standard EU assistance program will most likely continue at the same level as it was in 2007-2013 – that is 110 million EUR. It will focus on wider thematic priorities and will go also to other provinces in Sri Lanka, beyond North and East.

Strategic Significance

Second important area are strategic matters. As 21st century is sometimes called “the Asia-Pacific century” this enhance strategic importance of Sri Lanka, which is strategically located at the crossroads of major shipping routes connecting South Asia, Far East and the Pacific with Europe and the Americas. Sri Lanka is next to the fast growing Indian sub-continent with close proximity to Southeast Asia and the Middle East.

Sri Lanka is important partner in terms of security of SLOCs, anti-piracy cooperation, countering-terrorism and illegal migration. Moreover climate change and environment concerns can be increasingly important areas for cooperation.

If the EU would like to emerge as important political and security player in Asia, it would need Sri Lanka as a close partner. Thus far, however, the EU is present in the Indian Ocean in a very limited way, mostly through some of its member states (UK, France or Italy).

Human Rights Concerns

Talking about Western perspective on Sri Lanka it is impossible not to mention one controversial and important aspect which has largely dominated relations in the last few years.

First are the tensions over different understanding and assessment of the final stage of civil war.

Still during the military operation against the LTTE in 2008 and 2009, the EU raised serious concerns regarding the situation of civilians trapped in the conflict area calling for respect for the international humanitarian law” and for “immediate humanitarian cease-fire” (Council Conclusions in February 23, 2009; April 27).

Since May 2009, the question of human rights has largely dominated EU policy towards Sri Lanka and undermined cooperation with Sri Lankan authorities across the sectors.

The EU insisted on independent inquiry over death of Tamil civilians trapped in the conflict zone.

Until today, the question over accountability and reconciliation negatively affects relations between the European partners and Sri Lanka.

The EU position on this issue was repeatedly stated in EU Council Conclusions (in May 18, 2009 and October 27, 2009), declarations by the High Representative for External Relations, resolutions of EP parliament statements by EU embassies in Sri Lanka. The EU position is characterized by three major elements:

1.    Stress the importance of “independent and credible inquiry” and “accountability” for possible violations of international humanitarian law and human rights”. (Council Conclusions, 27 October 2009).

2.    Call for implementation of recommendations of the Lessons Learnt and Reconciliation Commission (2011)

3.    Support for inclusive political process “which addresses the legitimate concerns of all communities in Sri Lanka”, based on devolution of power and 13thAmendment of the Constitution
    
    In addition to this, in recent years the EU started raising more concerns at the local level (Delegation in Colombo) regarding the state of democracy in Sri Lanka, pointing in its local statements at attacks against Muslims and other religious minorities, threats to freedom of press, restrictions on NGOs and human rights defenders or independence of the judiciary. This added a new dimension of tensions into bilateral relations.

Human Rights 2

After the defeat of the Tamil Tigers, the European states were at the forefront of international campaign calling for independent investigations over alleged human rights violations.

-    The EU welcomed the appointment of the UN Panel of Experts on Accountability in Sri Lanka in June 2010, and recognized the publication of the report in 2011 as “an important development”.

-    All EU MS which were members of Human Rights Council voted in favour of resolutions on Sri Lanka in UN Human Rights Council in 2012, 2013 and 2014.

-    The EU welcomed the publication of Lessons Learnt and Reconciliation Commission report in December 2011, and encouraged the “Government of Sri Lanka to act expeditiously on the LLRC’s recommendations”. It regretted, however, that some “questions raised in the report of the expert panel of the UN Secretary General have to large extent not been reflected” in this report. (HR, 23 February 2012)

-    The EU supports the formation of the UN Investigation team in March 2014 and in July 2014, High Representative welcomed the appointment of experts toadvisory team of the Commission and urged “the Government of Sri Lanka to fully cooperate with the investigation to address accountability issues as an important step for fostering genuine reconciliation”.

At the bilateral level:

-    the EU has withdrawn GSP+ preferences as a measure to pressure GOSL into cooperation on human rights violations accountability.

-    The European Parliament issued several critical resolutions on situation in Sri Lanka in October 22, 2009, May 12, 2011 and December 12, 2013.

-    The high level political and economic dialogue between the EU and Sri Lanka was frozen for several years on practice. Only in late 2013, after five years gap, the meeting of SL-EU Joint Commission took place.

In the end, the Human Rights controversies have created an unfavorable atmosphere for EU-Sri Lank relations in every sphere and negatively impacted business, societal and security cooperation. It is main hindrance for closer SL-EU relations.

Human Rights 3

Trying to understand the EU stance, one can argue that actually, the EU position is pursuing a balancing act between different values, interests and pressure groups. On the one hand, the EU itself is based on foundations of respect for human rights and democracy, and made them part of its international image, thus it feel compelled to attach much importance to these issues in relations with other countries. It believes that accountability is part of reconciliation.

Moreover, European public opinion, human rights groups, media, international organizations, and Tamil diaspora groups put a strong pressure on EU authorities to act decisively on human rights issues in regards to Sri Lanka.

Finally one need to remember about different interests of EU Member States, role of the European Parliament, business partners and other players, which also  influence EU stance.

On the other hand, the EU is aware of the ongoing strategic competition in Asia, it has to take into account its pragmatic security and economic interests and regional realities.

Therefore, I would argue that the EU has tried to purse a strategy of “restrained criticism and engagement”. If one read carefully EU documents on Sri Lanka from recent years, can realize they are drafted rather in a conciliatory manner, use mild language and mostly refer to the Lanka’s Lessons Learn and Reconciliation Commission as a base for its own position.

What next?

As the EU supports international inquiry into human rights situation, which is strongly rejected by the Sri Lankan authorities, the relations between the EU and Sri Lanka are in the turning point. Depending on actions and decisions taken by both sides there are three general scenarios for future evolution of the relations possible at the moment.

Three Scenarios: “Myanmar scenario”

Under this scenario, the EU would increase pressure on Sri Lanka over human rights records to eventually impose a strict sanctions regime, as it was done in the 1990s towards Myanmar.

This could include of set of sanctions including individual, economic sanctions, arms embargo, etc. This could do harm to Sri Lankan economy but in the long way would further diminish the EU influences in the country and feed anti-Western rhetoric in the island nation.

This scenario is highly unlikely today, as it could be possible only if there would be a grave deterioration of domestic situation in Sri Lanka.

Three Scenarios: Status Quo

Under second scenario both sides will uphold and reinforce their current positions which will lead to further gradual deterioration of political and economic cooperation. The EU will keep pressuring Sri Lanka to agree on international investigation which will be rejected by the Sri Lankan government. This is the most probably scenario as it does not require to introduce any changes in their respective policies.
Three Scenarios: Re-engagement

Finally, the most optimistic scenario, although less likely is re-engagement.This would require scaling down of criticism of Sri Lankan authorities by the EU, less focus on human rights issues and offer more incentives and support for Sri Lanka in dealing with the most pressing challenges.

The GOSL would implement LLRC recommendations, address the grievances of the Tamil community, implement 13th Amendment to the Constitution, and address other concerns over democratic standards and the rule of law.

This would open the way for more comprehensive cooperation between European partners and Sri Lanka. It could lead to reinstating of GSP+ preferences, more development assistance, inflow of new European investments and boosting trade.

Conclusions
To conclude, I would argue that:

1.    The end of the long civil war in 2009 has created new opportunities for peace and development in Sri Lanka, but these opportunities could not have been realized by the Western countries because political tensions over human rights issues. Therefore, the EU could not have contributed more to growth of Sri Lanka to build on the peace dividend as long as its views of Sri Lanka are dominated by the human rights concerns.

2.    As a result of recent disagreements, the role of the EU as economic, development and political partner has declined. It has been already replaced by China as a major donor, investor and political partner, and there are rising role of India, Russia and other emerging powers.

3.    The EU is still a very important partner for Sri Lanka but is not indispensable.

From the EU perspective, Sri Lanka is not crucial economic partner. As long as the EU is not an Asian security player, strategic importance of Sri Lanka will bear a limited importance for the EU. However, it has also no interest to further intensify pressure on Sri Lanka and risk total alienation of the country, especially in light of great game in the Indian Ocean between China and India.

All these means that among three presented scenarios, one can assume that continuation of status quo, is the most likely.

The EU has no important strategic interests to turn a blind eye on human rights issues, which form a backbone of the European external policies. However, the EU will continue to look at Sri Lanka from a human rights perspective, what does not augur well for official relations.

Conclusions (2)

Under current circumstances it seems that the relations will remain tense, undermining economic and strategic cooperation. Is there any other solution possible?

I am not here to advise the Sri Lanka the best policy, but can give some thought on the EU approach. To check and reverse the current downward trend in the relations, the EU mayneed to develop a broader perspective on Sri Lanka, going beyond the human rights. The EU can search for a new multifaceted strategy. While preparing one several principlescan be given due attention:

-    Be modest. European states can show more modesty and understanding in its assessment of Sri Lanka’s civil war as its own experiences of interventions in Afghanistan and Iraq exposed to them many challenges of the counter-terrorism operations.

-    Be consistent. The EU must be ready to address the accusations of double standards and hypocrisy in foreign relations and reassure its policy on Sri Lanka is not very different from its assessment of other similar conflicts: like Pakistan’s offensive against Taliban in Waziristan; Israel intervention in Gaza or Ukraine government offensive against separatists in the West of the country, to name just a few.

-    Be patient. It is important to recognize that changes cannot be done overnight and they need time. One needs to appreciate achievements and progress made already by the Sri Lankan government in rehabilitation and reconciliation:

-    Preparation of Lessons Learnt and Reconciliation Commission report of (16 December 2011); and National Action Plan for the implementation of LLRC (25 July 2013)

-    Progress in resettlement of IDPs, reconstruction and rehabilitation of Northern Province, demining, reintegration of child soldiers, etc.

-    Free and fair elections to Northern Provincial Council, 21 September 2013 and progress in the devolution of administrative power.

-    Cooperation with Human Rights Commissioner and other bodies in recent years

-    After all, the LTTE was a “terrorist organization”.

-    Be open. Europe needs to continue dialogue with Sri Lankan partners at every possible levels – official, parliamentarians, academicians and experts, NGOs to better understand the other side’s concerns and expectations. There is great need for rebuilding more mutual trust and confidence in these relations.

-    Be supportive. The EU may offer more “carrots” and less “sticks”. Should support Sri Lanka-led and Sri Lankan-owned reconciliation process.
 
-    Be partners. We cannot forget that, in the end the EU and Sri Lanka share the same aim – of stable, peaceful, tolerant and unified and prosperous country, where all ethnicities have equal rights and opportunities to realize their aspirations.Although the EU and Sri Lanka may differ now regarding the best ways to achieve this aim – they at least want to go in the same direction. Only this would allow both partners to realize potential of their relationship.

Thank you.