SCHOOL OF BUSINESS

MBA AVIATION MANAGEMENT

SUBJECT: AVIATION RULES, LAWS &CARs SUBJECT CODE: MBAV6002

A REPORT ON
“INTERNATIONAL TRADE RELATIONS
BETWEEN SRI LANKA & INDIA”

Submitted By: Submitted To:

Velan Naveen N S Mr. Dinesh Kumar Pandey
20SLAM2020002

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 TABLE OF CONTENTS
SL NO. DESCRIPTION Page no.

1. Historical Background & Prevailing 3

Relationship with These Countries

2. Economical relations 4

3. Financial Relations 6

4. The Pattern of Growth of Trade 9

5. The Pattern of Commercial Aviation Relations 10

6. Limitations Between These Countries 14

7. The Disputes and Violations of Laws & Rules 19

8. The Measures to Enhance the Economic & 20

Trade Between These Countries

REFERNCES 23

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 INDIA-SRI LANKA INTERNATIONAL TRADE RELATIONSHIP

Historical background and prevailing relationship with these countries:

- India and Sri Lanka enjoy a vibrant and growing economic and commercial
partnership, which has witnessed considerable expansion over the years. The
entry into force of the India-Sri Lanka Free Trade Agreement (ISFTA) in
2000 contributed significantly towards the expansion of trade between the
two countries. Economic ties between the two nations also include a
flourishing development partnership that encompasses areas such as
infrastructure, connectivity, transportation, housing, health, livelihood and
rehabilitation, education, and industrial development
- India has traditionally been among Sri Lanka’s largest trade partners and Sri
Lanka remains among the largest trade partners of India in the SAARC. In
2020, India was Sri Lanka’s 2nd largest trading partner with the bilateral
merchandise trade amounting to about USD $ 3.6 billion. Sri Lankan exports
to India have increased substantially since 2000 when ISLFTA came into
force and more than 60% of Sri Lanka’s total exports to India over the past
few years have used the ISFTA benefits. Interestingly, only about 5% of
India’s total exports to Sri Lanka in the past few years have used the ISFTA
provisions, thereby indicating their overall competitiveness in the Sri Lankan
market.
- In addition to being Sri Lanka’s largest trade partner, India is also one of the
largest contributors to Foreign Direct Investment in Sri Lanka. A number of
leading companies from India have invested and established their presence in
Sri Lanka. According to BoI, FDI from India amounted to about US$ 1.7
billion during the period 2005 to 2019. The main investments from India are
in the areas of petroleum retail, tourism & hotel, manufacturing, real estate,
telecommunication, banking and financial services. Similarly, investments by
Sri Lankan companies in India are also surging and taking advantage of
India’s dynamic economy and wider market. Significant examples include
Brandix (about USD 1 billion to set up a garment city in Visakhapatnam),
MAS holdings, Damro, LTL Holdings, and other investments in the freight
servicing and logistics sector.
- Apart from the growth in trade and investment, India has been the largest
source market of tourists visiting Sri Lanka, prior to the pandemic. The total
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 number of tourist arrivals from India to Sri Lanka during January-December

2019 was 355,002 i.e. approximately 18.2% of the total tourist arrivals into
Sri Lanka. Similarly, Sri Lanka is among the top ten sources of tourists
visiting India. In 2019, more than 107,360 tourist visas were issued by the
High Commission of India in Colombo to facilitate travel between India and
Sri Lanka, along with 14,597 Business Visas.
- To enhance connectivity between the two nations India and Sri Lanka entered
into an Open Sky Agreement enabling Sri Lankan Airlines to operate
unlimited number of flights to six Indian airports. Sri Lankan airlines is also
the largest foreign carrier in India and was operating over 100 flights per
week to 14 destinations in India, prior to the pandemic.

Economical Relations
The juridical framework for the relationship is provided by a Free Trade
Agreement, a Double Taxation Avoidance Agreement, a Bilateral Investment
Protection and Promotion Agreement. Bilateral agreements/MoUs on Air
Services, Small Development Projects, Cooperation in Small Scale Industries
and Cooperation in Tourism and an Agreement on Cooperation in Science and
Technology also exist. A Comprehensive Economic Partnership Agreement
(CEPA) is under negotiation. India-Sri Lanka Free Trade Agreement (ISFTA)
The main framework for bilateral trade has been provided by the India-Sri
Lanka Free Trade Agreement (ISFTA) that was signed in 1998 and entered into
force in March 2000. The basic premise in signing the ISFTA was asymmetries
between the two economies, local socio-economic sensitivities, safeguard
measures to protect domestic interests, and revenue implications so as not to
impact high revenue generating tariff lines in the short term. In a nutshell, India
sought to do more without insisting on strict reciprocity from Sri Lanka. This is
reflected in the respective obligations of the two countries under the ISFTA
where India agreed to open more tariff lines upfront and within a shorter time
span of three years as against smaller and more staggered openings by Sri
Lanka which was provided a longer time of eight years. As a result of ISFTA,
currently 4150 Indian tariff lines have been made zero duty for Sri Lankan
exports to India. Similarly, 3932 tariff lines have been made zero duty for
Indian exports to Sri Lanka. In addition to these steps, India has offered quotas
to Sri Lanka on certain tariff lines (a) 15 million tonnes of Tea (5 tariff lines)
with 50% margin of preference with no port entry restrictions since June 2007;
(b) Textiles, where there is a 25% tariff reduction for 528 Textile items; and (c)
Garments where the 50% margin of preference on 8 million pieces over 233
tariff lines. The Garments quota terms have been further liberalized through a
MoU on October 5, 2007 by which the Government of India has issued a
Custom Notification No. 52/2008 dated 22 April 2008 giving immediate effect
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to the MoU. As a result, India has reduced duty to zero and removed restrictions
on entry ports and sourcing of fabrics from India for 3 million pieces of apparel
products from Sri Lanka. India has also removed port restrictions on the
balance 5 million pieces of apparel products. These 5 million pieces of
garments will be allowed to enter India at zero duty or Margin of Preference of
75% depending on the product category provided that they are manufactured
using Indian made fabrics. India has recently decided to do away with the
condition of ’Indian made fabrics’ and a formal notification is expected soon.
As of now, 1180 tariff lines remain in the Sri Lankan negative list that includes
Agriculture/livestock items, rubber products, paper products, Iron and Steel,
machinery, and electrical items. On the Indian side, there are 429 items in the
negative list, which include garments, plastic products and rubber products etc.

Major Sectors Attracting Sri Lankan Investment in India during 2007-2016

Major Sectors Attracting Indian Investment in Sri Lanka during 2007-2016

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 BILATERAL TRADE
Bilateral Trade Figures (US$ Million)

Percentage of Total Sri Lanka Trade with India

Financial Relations:

SRI LANKAN EXPORTS TO INDIA

Top ten Articles exported to India from Sri Lanka – 2014

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 SRI LANKAN IMPORTS FROM INDIA

Top ten Articles exported to Sri Lanka from India - 2014

India is among the top investors in Sri Lanka with cumulative investments of
over US$ 800 million since 2003. The investments are in the areas of
petroleum, retail, IT, financial services, real estate, telecommunication,
hospitality & tourism, banking and food processing (tea & fruit juices)
vanaspati, copper and other metal industries, tyre, cement, glass manufacturing,
infrastructure development (railway, power, water supply) etc. According to
figures of Board of Investment of Sri Lanka (BOI), During January-June 2015
overall India FDI to Sri Lanka was around US$ 33.05 million out of total
investments of US$ 515.09 million. In 2014 overall India FDI to Sri Lanka was
around US$ 51.8 million. Total FDI received by Sri Lanka during this period is
US$ 1616 million. In 2013 India was amongst the eight largest overall investors
in Sri Lanka with total investments of around US$ 50.52 million. Total FDI
received by Sri Lanka during this period was US$ 1391.41 million. In 2012,
total FDI from India to Sri Lanka was about US$ 160.17 million. India was the
fourth largest investor behind UAE (US$ 213.59 million), Hongkong (US$
200.04 million), China (US$ 184.96 million). Investment from India to Sri
Lanka for the period 2005 to 2014 in tabular and graphical format is given
below:

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 Foreign Direct Investment from India for the period 2005 - 2014

Several Indian companies have planned investments in Sri Lanka, including

ITC Ltd, Tata Housing, Shree Renuka Sugars. Similarly, investments by Sri
Lankan companies in India too are surging as Sri Lankan businesses take
advantage of India’s dynamic economy and large market. Following Indian
companies have made progress in their business venture in Sri Lanka: (i) The
Ground Breaking Ceremony of the Commercial and Residential Complex of the
Slave Island Re-Development Project (Phase-I) took place on May 12, 2014.
An investment agreement was also signed between the Tata Housing and the
Urban Development Authority of Sri Lanka. The project is expected to be
completed in 30-36 months and would create 1500-2000 new employment
opportunities in Sri Lanka. The proposed project aims to improve the existing
standard of families residing in the area. Phase I of the project would provide
536 residential units and about 100 commercial shops within the said area; and
Phase II would be a Mixed Development Project providing Commercial Office
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 Space, Residential Apartments, and Hotels etc. with modern amenities. The
proposed investment is nearly US$ 430 million (including FDI of nearly US$
110 million). (ii) The ground breaking ceremony of the ‘ITC Colombo One’
project took place on November 19, 2014 in Colombo. ITC Ltd who entered Sri
Lanka in 2012 for a US$ 140 million mixed development project would
increase its commitment by a further US$ 160 million considering the country's
economic conditions, to an investment outlay of around US$ 300 million. Many
companies from India, including Ion Exchange, Pratibha Engineering, Kirloskar
Brothers Ltd, J. K. Cement and Parasakti are looking for opportunities in Sri
Lanka in diverse sectors including sanitation, renewable energy and cement.

Pattern of growth of Trade

During 2001, Sri Lanka accounted for 1.4 percent of India’s exports, which
amount to US$ 621.5 million. Over the years, exports have increased reaching
US$ 2.6 billion in 2007 and increased by a CAGR of 5.3 percent to US$ 4.1
billion in 2016 in the last ten years. India’s imports from Sri Lanka increased
from US$ 55.0 million in 2001 to US$ 0.4 billion in 2007. Imports have
increased over the years peaking at US$ 0.8 billion during 2015. During 2007
to 2016 imports from Sri Lanka have grown by a CAGR of 4.1 percent. Total
trade peaked during 2014 at US$ 7 billion increasing from US$ 3 billion in
2007. Total trade fell in 2015 and 2016 due to decline in export of mineral fuels,
oils and product of distillation.

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India has maintained a trade surplus with Sri Lanka over the years, which stood
at US$ 3.5 billion in 2016, owing to its size, population and rapidly emerging
economy.

Pattern of Commercial aviation Relations

Civil Aviation
Sri Lanka enjoys a very special relationship with India in the field of civil
aviation. It is the largest foreign airline operator to India. Both sides had a
meeting in New Delhi on 20-21 April, 2011 under the framework of the Air-
Services Agreement signed on 21 December, 1948. It was decided that the
designated airlines of each side shall be entitled to operate 112 flights per week.
In addition to the 112 frequency entitlements, the designated airlines of each
side shall be entitled to operate any number of services with any type of aircraft
with capacity not exceeding that of a B747 to/from points specified in their
respective Route Schedule. During the meeting Indian side shared a revised Air
Services Agreement with the Sri Lankan side. During the 8th Joint Commission
meeting held at New Delhi on 2 January 2013, it was decided that the Civil
Aviation officials from the two sides would meet at the earliest to review the
provisions of the Bilateral Air Services Agreement so as to explore the
possibility of signing a new and upgraded Civil Aviation Agreement. A bilateral
Air Services Talk was held in Colombo on 12-13 September 2013 during which
both sides finalized and initialed the revised Air Services Agreement.

Aircraft, Spacecraft and Parts

Sri Lanka has witnessed more than ten-folds growth in imports of aircraft,
spacecraft and their parts over the past decade, which has increased from US$
20.5 million in 2007 to US$ 298.9 million in 2016. France is the largest source
of Sri Lanka’s imports of this commodity, with a share of 53.5 percent in Sri
Lanka’s imports, followed by UK, which has a share of 40.3 percent in Sri
Lanka’s imports. While India’s global exports of aircraft, spacecraft and their
parts stood at US$ 3 billion in 2016, which indicates high global export
competency of Indian exporters, India’s share in Sri Lanka’s imports of the
commodity continued to remain meagre over the past decade, accounting for a
share of 0.1 percent in 2016. To capture the untapped market for this
commodity in Sri Lanka based on export capabilities of India, the potential
items for exports at 6-digit HS commodity code have been identified and
presented.

Sri Lanka’s Major Sources of Imports of Aircraft, Spacecraft and Parts (HS-88)

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 Aircraft, Spacecraft and Parts (HS-88) -Potential Export Items to Sri Lanka

Limitations Between India & Sri Lanka

India’s ‘Neighbourhood First’ policy towards Sri Lanka had resonated with Sri
Lanka’s ‘India First’ foreign and security policy in 2020. India is Sri Lanka’s
third largest export destination, after the US and UK. More than 60% of Sri
Lanka’s exports enjoy the benefits of the India-Sri Lanka Free Trade
Agreement, which came into effect in March 2000. India is also a major
investor in Sri Lanka. India’s development partnership with Colombo has
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always been demand-driven, with projects covering social infrastructure like

education, health, housing, access to clean water and sanitation, besides
industrial development. Concessional financing of about $ 2 billion has been
provided to Sri Lanka through various Indian government-supported Lines of
Credit across sectors (for railway connectivity, infrastructure, supply of defence
equipment, security, and counter-terrorism and solar projects, among others).
Foreign direct investment (FDI) from India amounted to around $ 1.7 billion
over the years from 2005 to 2019 and went into retail petroleum, hotels and
tourism, real estate and manufacturing, apart from telecom, banking and
financial services.
However, relations between the two neighbours seem to have plummeted since
the beginning of this year. In February, Sri Lanka backed out from a tripartite
partnership with India and Japan for its East Container Terminal Project at the
Colombo Port, citing domestic issues. Later, the West Coast Terminal was
offered under a public private partnership arrangement to Adani Ports and
Special Economic Zones Ltd.
Last July, the Reserve Bank of India (RBI) had signed a currency-swap
agreement with the Central Bank of Sri Lanka (CBSL) under the Saarc
Currency Swap Framework 2019-22, for withdrawals of up to $400 million.
The CBSL settled the scheduled facility with RBI in February 2021. Even
though the agreement was valid till 13 November 2022, India declined any
further renewal of it in the absence of an International Monetary Fund
programme to address Sri Lanka’s current macroeconomic imbalances.
On 31 August 2021, Sri Lanka declared a state of economic emergency, as it is
running out of foreign exchange reserves for essential imports like food. The
CBSL was the first Asian central bank to increase policy rates after the covid
pandemic in response to rising inflation in August 2021 caused by currency
depreciation. Tourism, a big dollar earner for Sri Lanka, has suffered since the
Easter Sunday terror attacks of 2019, followed by the pandemic. Earnings fell
from $3.6 billion in 2019 to $0.7 billion in 2020, even as FDI inflows halved
from $1.2 billion to $670 million over the same period.
Sri Lanka’s fragile liquidity situation has put it at high risk of debt distress. Its
public debt-to-GDP ratio was at 109.7% in 2020, and its gross financing needs
remain high at 18% of GDP, higher than most of its emerging economy peers.
Following an international sovereign bond settlement of $1 billion in July 2021,
its gross official reserves slipped to $2.8 billion, which is equivalent to just 1.8
months of imports. The external debt-to-GDP ratio stood at 62% in 2020 and is
predominantly owed by its public sector. More than $2.7 billion of foreign
currency debt will be due in the next two years.
As of June 2019, China’s loans to the Sri Lankan public sector amounted to
15% of the central government’s external debt, making China the largest
bilateral creditor to the country. Unable to service its debt, in 2017, Sri Lanka
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lost the unviable Hambantota port to China for a 99-year lease. Nevertheless,
Sri Lanka has increasingly relied on Chinese credit to address its foreign debt
burden. Many loans have been negotiated between Colombo and Chinese
institutions, including a recent syndicated loan for budgetary support of $1.3
billion from China Development Bank and a $1.5 billion currency swap pact
with the People’s Bank of China this March. China’s exports to Sri Lanka
surpassed those of India in 2020 and stood at $3.8 billion (India’s exports were
$3.2 billion). Owing to Sri Lanka’s strategic location at the intersection of
major shipping routes, China has heavily invested in its infrastructure
(estimated at $12 billion between 2006 and 2019). In May, Sri Lanka passed the
Colombo Port City Economic Commission Act, which provides for establishing
a special economic zone around the port and also a new economic commission,
to be funded by China.
Sri Lanka’s economic crisis may further push it to align its policies with
Beijing’s interests. This comes at a time when India is already on a diplomatic
tightrope with Afghanistan and Myanmar. Other South Asian nations like
Bangladesh, Nepal and the Maldives have also been turning to China to finance
large-scale infrastructure projects. Nurturing the Neighbourhood First policy
with Sri Lanka will therefore be important for India, albeit with due caution, to
preserve its strategic interests in the Indian Ocean region. The Colombo port is
crucial for India as it handles 60% of India’s trans-shipment cargo. Regional
platforms like the Bay of Bengal Initiative for Multi-Sectoral Technical and
Economic Cooperation and the Indian Ocean Rim Association could be
leveraged to foster cooperation in common areas of interest like technology-
driven agriculture and marine sector development, IT and communication
infrastructure, renewable energy, and transport and connectivity. Both countries
could also cooperate on enhancing private sector investments to create
economic resilience.

Exclusions and Limitations Between INDIA and SRI LANKA

According to the Exchange Control Provisions applicable for foreign
investments, permission is granted for the issue and transfer of shares in a
company up to 100 percent of the issued capital of such company, to approved
country funds, approved regional funds, corporate bodies incorporated outside
Sri Lanka and individual residents outside Sri Lanka (inclusive of Sri Lankan
residents outside Sri Lanka) subject to certain exclusions, limitations and
conditions.
Exclusions: The above permission is not applicable in respect of shares of a
company proposing to carry on any of the following businesses including pawn
broking, retail trade with a capital of less than US$ 1 million, and coastal fishing.
Limitations:

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 • a) Foreign investments in certain areas are approved only up to 40 percent

of the issued capital of such company or a higher percentage of foreign
investment when approval has been granted by the BOI only up to higher
percentage. This is applicable for production of goods where Sri Lanka's
exports are subject to internationally determined quota restrictions; growing
and non- renewable primary processing of tea, rubber, coconut, cocoa, rice,
sugar and spices; mining and primary processing of non-renewable national
resources; timber based industries using local timber; deep sea fishing;
mass communications; education; freight forwarding; travel agencies, and
shipping agencies.

• b) In respect of the shares of a company carrying on or proposing to carry

on any of the businesses in certain sectors will be granted permission only
up to the percentage of the issued capital of the company for which
percentage either general or special approval has been granted by the
Government of Sri Lanka or any legal or administrative authority set up for
the approval of foreign investment in such businesses. These include
sectors such as air transportation; coastal shipping; large scale mechanized
mining of gems; lotteries; and industrial enterprise in the Second Schedule
of the Industrial Promotion Act, No. 46

of 1990, namely – any industry manufacturing arms, ammunitions, explosives,

military vehicles and equipment, aircraft and other military hardware; any
industry manufacturing poisons, narcotics, alcohols, dangerous drugs and toxic,
hazardous or carcinogenic materials; and any industry producing currency, coins
or security documents.

The Fishing Wars: Maritime Border Conflicts between Sri Lanka and
India:

There is a battle going on between the southern tip of India and the
northernmost tip of Sri Lanka (‘Palk Bay’). It is not a battle for land or people
but for fish, which are the lifeblood for the fishermen in these coastal villages
of Sri Lanka and India. In between these two coasts, there is treasure in the
form of seafood, due to the rich fishing grounds, blessed by the absence of
strong currents and latitudinal biodiversity.[1]

Background facts related to the Palk Bay dispute.

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Historically, the coastal fishermen from both sides had an unregulated term with
no governing law regarding fishing commercially in the area of Palk Bay.
However, during the mid-1970s, the area was demarcated by the signing of
maritime boundary agreements[2] of 1974 and 1976 between India and Sri
Lanka. This demarcation of ‘Fisheries Line’ vis-à-vis the International Maritime
Boundary Line (IMBL) made it illegal for fishermen from either side to cross
over into each other’s waters to fish.[3] This demarcation was the inception of
what would eventually turn into a violent conflict.

In the 1960s, India was facing a financial crisis and in response, the government
was looking for new ways to stimulate the economy and focused on seafood
exports (‘Pink-Gold Rush’)[4]. The Indian government gave subsidies to
fishermen to buy new boats so that they could harvest a huge number of
prawns, which would feed demand all over the world. As a result, Indian
fishermen from the town ‘Rameswaram’ adopted the process of ‘trawling’, a
process of dropping nylon nets (as opposed to traditional nets) with attached
weights to the bottom of the sea and dragging them along with powerful
motorboats, unlike traditional wind propelled sailing boats, to capture popular
seafood such as prawns.[5] By the end of the 1970s, the Indian fishermen saw
the need for new grounds to fish and began to encroach upon Sri Lankan waters
despite the water-border agreement. While India was cashing in on seafood
products from Sri Lankan waters, Sri Lanka was descending into its internal
ethnic conflicts and the resulting civil war of the early 1980s.

The consequence of the Tamil-war in Sri Lanka.

By the early 1980s, armed rebels were taking over large swaths of land in the
north of Sri Lanka, trying to create a new country for the oppressed Tamil
people, the ethnic minority group that the residents of these fishing villages
identify with. For precautionary purposes, the Sri Lankan Navy had established
security zones which restricted fishing activities, resulting in a decline of
fishing which left Sri Lankan waters open for Indian trawlers to fish freely.
[6] The civil war and the fishing ban in Sri Lanka continued throughout the
1990s and into the early 2000s, leaving leeway to the Indian fishermen to
illegally fish in these waters. Once the war ended and the security zones in Palk
Bay were lifted, it was the belief of the coastal population of Sri Lanka that they
could fish freely again, which would help in boosting a slow economy
dependent on seafood. The Sri Lankan Navy, which was occupied on waging a
war, now directed itself towards Indian fishermen who were poaching in Sri
Lankan waters. The war over the Palk Bay fishing waters had begun.

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 As Sri Lankan fishermen returned to their side of the bay, they faced the
consequences posed by decade-long Indian trawling in the area. Due to their
smaller boats, Sri Lankan fishermen could never compete with the high
speeding motorboats, which was the major issue which initiated the conflict.

The approach of the Indian Government towards the issue.

The Sri Lankan Navy has adopted an inhuman approach, routinely arresting
Indian fishermen and detaining them for years. It was reported that 1,348 Indian
fishermen have been arrested by the Sri Lankan Navy.[7] When the Navy
detains the fishermen, they take their boats which remain impounded for
prolonged periods across various navy bases of Sri Lanka. The Indian
government has done little to resolve this conflict. They have occasionally
stepped in to free a group of detained fishermen, but none of their actions has
led to a concrete solution to the conflict. The Indian government has turned a
blind eye towards the issue as these communities are already neglected and
underserved by their faraway government.[8] Stopping a practice that has
bolstered their economy for years would create more disdain and frustration
among the people. The Navy and the fishermen from both States continue to
spar with each other in these waters, the most affected community in this
situation continues to be these coastal fishermen from Sri Lanka.

A critical analysis from an international law perspective.

There is a question of why Sri Lanka and India, despite being party to the
United Nations Convention of the Law of the Seas (UNCLOS), have not
proceeded to international litigation to resolve several issues.[9] It is established
that the UNCLOS Tribunal has prima facie jurisdiction under Part XV of
UNCLOS[10] as both Sri Lanka and India are States Parties to UNCLOS,
having ratified it, respectively, on 19 July 1994 and 29 June 1995. [11] Despite
this there has been no inclination from either nation towards international
litigation. The probable reason behind this is multidimensional and multifaceted
to say the least. Sri Lanka, being a smaller state in terms of population and
economy, is dependent on India for both for its imports and exports. Sri Lanka
faces the risk of harming the economic relations with India which would have
far greater impact than the isolated cases of the fishermen. Further there are
close proximities in terms of language, religion, customs and literature between
the tamil population of Sri Lanka and India. Any wrong standpoint would have
major impact on the electoral decision making across both the nations and
would be a grave error for political reasons. By promoting the trawler fleets by
the state governments, there has also been a considerable lacking from India in
terms of ensuring compliance to international laws related to preservation of
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marine resources. This would in turn deteriorate the case for India, if it went
before an international forum such as UNCLOS. The rationale behind not
choosing international litigation is a grey area which has no single answer to it,
as there are political, economic and social consequences attached to it as
mentioned above.

The signing of multiple bilateral agreements (June 28th, 1974 and March 23,
1976) to delimit the maritime boundary between Sri Lanka and India in
accordance with the United Nations Convention was expected to provide a
defined maritime zone to the coastal states and peacefully resolve the
overlapping maritime jurisdictions.[12] Usually, maritime boundaries are
governed by the equidistance principle, which connotes that the maritime
boundary of a nation should be a medial line which is equidistant from the
coastal areas of the two neighboring nations.[13] However, a departure from
this was made in the 1974 Boundary Agreement, where a modified equidistant
line approach was made and maritime spaces were allocated to one party at the
expense of others.[14] This was due to the inability to make out an equidistant
position which caused further confusion and disputes instead of settling the
territorial dispute. The lack of an equidistant position along with the leeway
during the war made it difficult for the fishermen to navigate the boundary.
Arguendo, even if we assume that there was sufficient knowledge of the law,
but due to inaction at times and the great yield by the trawler fleets, fishermen
were inclined to indulge into non-compliance.

India could also be held liable for the violation of Article 206 of the UNCLOS,
due to its failure to properly and fully evaluate the potential effect of the SSCP
project on Sri Lankan marine ecosystem. Under Part XII (Article 194 and 204)
of the of the UNCLOS, India had the obligation to adopt a precautionary
approach towards preserving the environment, which is a fundamental principle
in the prevention of pollution of the marine environment. The International
Tribunal for the law of the seas (ITLOS) has held in the South China Sea case,
[15] that approaches which cause substantial pollution or significant change to
the marine environment are grounds for reporting under Article 206. Similar to
the ‘dynamite-propeller’ system used by Chinese fisherman in the South China
sea case where schools of fishes were stunned by the explosives, Indian
fishermen’s use of trawlers fleet is an also harmful change to the marine
environment as it harms the seafloor and thereby the entire ecosystem.

Under Article 123 and 197 of the UNCLOS, there was a duty upon both of the
states to cooperate, provide prior notification, and proceed only after
consultation. India has breached its obligation under the general international
law of UNCLOS by failure to engage with Sri Lanka and respond to Sri
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 Lanka’s approach for consultation and exchange of information.[16] There has

been a lackadaisical approach from the governments of both India and Sri
Lanka, which took decades to form a Joint Work Group on Fisheries (herein,
‘JWG’).

Both India and Sri Lanka have always shown support to the established
framework of laws under UN Conventions regarding maritime disputes, and
they are likely to adhere to a decision taken by an international forum such as
International Tribunal for the Law of the Sea. In this context, international
litigation seems an effective and viable option to draw international attention to
the issue and force the countries to take stringent measures. Given the
consequences on the marine environment and damaging fishing practices, a
ruling which establishes the rights of the nations is a dire need for the welfare
of both the nations and the environment. reported Epidemiology Unit of the
Health Ministry.

Sri Lanka imposes travel restrictions on air passengers arrivals for two weeks

Sri Lanka on Sunday imposed travel restrictions on the number of air

passengers arriving in the country for two weeks due to the COVID-19
pandemic.

"It has been decided to limit the number of passengers that can arrive from one
flight to 75," the Civil Aviation Authority of Sri Lanka said, reported Colombo
Page.

This limitation will be effective from Monday (May 3) morning for a period of
14 days. All airlines have been informed about this decision, according to the
Civil Aviation Authority (CAA).

After two weeks, the situation in the country will be taken into consideration
and a decision will be made whether to lift the restrictions or further tighten, the
CAA said.

According to the existing restrictions, the number of passengers that can be

flown in an aircraft is 75 Sri Lankans and an additional number of foreigners.

However, due to the prevailing dangerous situation, the total number of arrivals
on an aircraft has been limited to 75, reported Colombo Page.

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 Meanwhile, Sri Lanka for the seventh consecutive day set an all-time high for
coronavirus cases on Sunday, reporting over 1800 individuals confirmed
positive for COVID-19 in last 24 hours, taking the total to 111,753 cases,

Violation of Laws and Rules Between India and Sri lanka:

The Central Board of Indirect Taxes and Customs (CBIC) is the national
agency responsible for enforcing and administering customs, central excise,
service tax and narcotics legislation in India. The CBIC is part of the Ministry
of Finance's Department of Revenue.

The role of the CBIC is to:

• Formulate policies on the levy and collection of customs and central

excise duties and service tax.
• Prevent smuggling.
• Administer matters relating to customs, central excise, service tax and
narcotics (among others).
The CBIC replaced the Central Board of Excise and Customs (CBEC) in July
2017.
Additionally, the Directorate of Revenue Intelligence (DRI) is the anti-
smuggling agency of India working under the CBIC. The DRI is responsible
for:
• Detecting and preventing smuggling of contraband, including drug
trafficking and illicit international trade in wildlife and environmentally
sensitive items.
• Combating commercial frauds related to international trade, and the
evasion of customs duty.
The Customs Act 1962 is the main law governing the levy, assessment and
collection of customs duties. The Act also contains provisions on investigation,
search and seizure and the imposition of penalties. Broadly, customs officers
can:
• Inspect any premises, x-ray any person and effect search and seizures
where they have reason to believe that the goods are of a contraband
nature.
• Investigate, interrogate and arrest any person in connection with an
inquiry under the Customs Act 1962.
Violations of customs laws can lead to the confiscation of goods and the
imposition of financial penalties. Penalties can be imposed by officers of and
above the rank of assistant commissioner.

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Enhancing India-Sri Lanka Relationship

Some of the key focus areas and imperatives for strengthening India’s
engagements with Sri Lanka are highlighted below:

Geographical Concentration in Sri Lanka’s Exports to India:

Sri Lankan exporters and businesses exporting to India have kept their
geographical focus too narrow. They concentrate more on expansions into Tamil
Nadu, partially due to strong historical socioeconomic ties between Sri Lanka
and Tamil Nadu. It has been estimated that 40 percent of India’s total trade with
Sri Lanka takes place through Tamil Nadu, as a significant share of Sri Lankan
exports to India enter through Chennai Port. This is at the expense of other
trade-friendly South Indian states including Andhra Pradesh, Karnataka, Kerala,
and Telangana.
Trade through sea route is cheaper compared to other modes of transportation.
Since South India has six major sea ports of India including the Chennai Port,
Ennore Port, and Tuticorin Port in Tamil Nadu, the Visakhapatnam Port in
Andhra Pradesh, the New Mangalore Port in Karnataka, and the Cochin Port in
Kerala, along with other intermediate sea ports, the transshipment of cargos
from Sri Lanka to various ports is easily possible at cheaper rates. An increased
effective cooperation with the other Southern Indian states could pave way for
integrating Sri Lankan manufacturing into various value chains present in the
Indian manufacturing sector. There is immense potential to enhance India’s
trade relations with Sri Lanka, and in the process to correct the trade imbalance
existing between both countries.

Cooperation to Formalize Informal Trade:

Though no official figures are available for recent values of informal trade
between both countries, various reports identify that there exists a large
informal trade taking place between India and Sri Lanka. The unofficial trade is
carried out by both air and sea routes. Air-borne trade takes place mostly
through air passengers and sea-borne takes place in the form of boat trade
through ports. The total informal trade between India and Sri Lanka is
approximately 25-30 percent of the formal bilateral trade between both
countries. Informal imports from India are around 40-45 percent of formal
imports, while informal exports are around 25-30 percent of formal exports24.
Sri Lankan goods including automobile spare parts, construction materials,
cement, spices, electronic items and commodities such as cosmetics, cigarettes,
liquor, and ceramic are mostly involved in this informal trade. Indian goods
include mostly textile products, electrical and mechanical items, apparatus, food
items, electronic items, sports goods, brass items and medicines. According to
Directorate of Revenue Intelligence, India, a lot of gold and silver has also been
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smuggled from Sri Lanka to India. Efforts should be made to formalize this
informal trade by means of trade and tariff liberalization, and relaxing the
stringent government procedures, resulting in enhancement of formal bilateral
trade between India and Sri Lanka. This also involves regular formal
information exchange between both countries.

Setting up a Mechanism for Promoting Indian Investments in Sri Lanka:

Supported by its natural resources, investment incentives, educated work force
and comparatively cheaper wages, Sri Lanka offers huge potential for
investment for Indian investors in a number of sectors including tea, tourism,
tyre manufacturing, manufacturing of vehicles, IT-enabled products and
services, and infrastructure sector, among others. Sri Lanka is a beneficiary
under GSP+ scheme of EU and also has FTAs with India, Iran and Pakistan. Sri
Lanka signed a Comprehensive Economic Partnership Agreement with
Singapore, and is currently negotiating FTA with China. It may not be
necessary that Indian goods for exports are to be manufactured in India itself.
India could leverage upon various FTAs of Sri Lanka and the GSP+ scheme and
invest in Sri Lanka’s potential sectors and products.
The United Kingdom of Great Britain and Northern Ireland's Department for
International Development (DFID) has set up the Supporting India’s Trade
Preferences for Africa (SITA) project with the aim of increasing value of
business transactions between India and five African countries, namely
Ethiopia, Kenya, Rwanda, Tanzania and Uganda. Its goal is to promote exports
from these five East African countries to India through investment and skills
transfer from the Indian side. Currently, Sri Lanka’s exports are concentrated on
a few commodities and countries. The government of India could set up a
similar institutional mechanism/ framework in the lines of SITA project in Sri
Lanka which would increase and diversify exports of Sri Lanka. Export
diversification of Sri Lanka requires targeted intervention, and India could play
a major role in improving the productive and export capacities of the country
through investment, knowledge sharing and technology transfers. This would
also improve capacities of Sri Lankan companies and Trade Support
Institutions. This would further increase the trade between both countries, along
with narrowing Sri Lanka’s huge trade deficit with India. It may be set up in
such a way that it need not be binding for Sri Lanka to export such products
hence developed to India itself, but to any other markets where it has a
comparative advantage. This proposal is also in line with the strategy of
attracting more export-oriented FDI to enable exports which are enshrined in
the Government of Sri Lanka’s Vision 2025.

Cooperation in Capacity Development:

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 An area of cooperation between India and Sri Lanka could be investing in

capacity development. Sri Lankan exports generally lack innovation, and
therefore need to increase R&D spending to be more competitive. According to
the World Bank, there are significant barriers holding back private creativity to
realize the economic potential of Sri Lanka’s relatively educated labor force.
India could assist Sri Lanka in its efforts to increase R&D. Apart from
investment, Indian institutions could share their expertise in the fields of export
capability creation in the country, institutional strengthening and export
development in the form of technical assistance and sharing of expertise
through site visits. For instance, in the recent past Exim India has undertaken a
consultancy assignment commissioned by the Commonwealth Secretariat to
assist the Sri Lanka Export Credit Insurance Corporation to review its operating
policies and suggest new products while recommending measures to enhance
the overall export financing framework in Sri Lanka, and to create a framework
for operationalising these recommendations.

Cooperation in SME Development:

For economic growth to be inclusive, it is imperative to bring the SME sector
into the Sri Lanka’s mainstream trade, so that the gains from trade go where
they could make the biggest difference. SMEs are vital as a vehicle to create
jobs and therefore ensure more participation of the poor in economic
development. SMEs in Sri Lanka account for 90 percent of the total number of
enterprises, 45 percent of the total employment and contributes to 52 percent of
the GDP of the country25. The National Policy Framework for Small and
Medium Enterprise (SME) Development 2016 of Sri Lanka recognizes the
importance of cluster development. Under this cluster development approach,
the entire value chain from input supply to processing and export will be
supported and promoted. India could share its expertise on cluster development
to the SMEs in Sri Lanka through various programmes.

Reference:
Potential for Enhancing India’s Trade with Pakistan: A Brief Analysis, June 2015
Potential for Enhancing India’s Trade with China: An Update, August 2015
Potential for Enhancing India’s Trade with Russia: A Brief Analysis, August 2015
Enhancing India’s Trade Relations with LAC: Focus on Select Countries, October 2015
Turkey: A Study of India’s Trade and Investment Potential, October 2015
Enhancing India’s Trade Relations with Africa: A Brief Analysis, October 2015
Indian Leather Industry: Perspective and Strategies, November 2015
Make in India for the World: Realizing Export Potential of Railways, December 2015
Export from West Bengal: Potential and Strategy, January 2016
Act East: Enhancing India’s Engagements with Cambodia, Lao PDR, Myanmar, Vietnam (CLMV), January
2016
Focus Africa: Enhancing India’s Engagements with Southern African Development Community (SADC),
March 2016
India’s Service Sector - An Analysis, March 2016
Defence Equipment Industry: Achieving Self-Reliance and Promoting Exports, March 2016
International Solar Alliance: Nurturing Possibilities, March 2016
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India-Africa Healthcare Cooperation: Way Forward, May 2016 Paper No. 55 Sustainable Investment
Opportunities in Africa: Prospects for BRICS, October 2016
Intra-BRICS Trade: An Indian Perspective, October 2016
Enhancing India’s Ties with Middle East and North Africa (MENA), October 2016
Enhancing India’s Trade Relations with Latin America and the Caribbean (LAC) Region: Focus on Select
Countries, November 2016
The Indian Automotive Industry: An International Trade Perspective, February 2017
India’s Investments in Select East African Countries: Prospects and Opportunities, March 2017
International Trade in Processed Food: An Indian Perspective, March 2017
Machinery Sector in India: Exploring Options for Neutralizing Trade Deficit , March 2017
Feed Africa : Achieving Progress through Partnership, May 2017
Water, Sanitation and Healthcare in Africa: Enhancing Facility, Enabling Growth, May 2017
Integrate Africa: A Multidimensional Perspective, May 2017 P
Manufacturing in Africa: A Roadmap for Sustainable Growth, May 2017
Power Sector in Africa: Prospect and Potential, May 2017
ndian Investments in East Africa: Recent Trends and Prospects, November 2017
Trade in Environmental Goods: A Perspective, December 2017
Oil Price and International Trade in Petroleum Crude and Products: An Indian Perspective, January 2018
Revitalising Trade Finance: Development Banks and Export Credit Agencies at the Vanguard February 2018
Connecting Africa: Role of Transport Infrastructure, March 2018
Pharmaceutical Industry: Regulatory Landscape and Opportunities for Indian Exporters, March 2018

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