Skip to main content

UK and Sri Lanka: Bilateral Trade

Volume 757: debated on Thursday 11 December 2014

Question for Short Debate

Asked by

To ask Her Majesty’s Government what plans they have to encourage more bilateral trade between the United Kingdom and Sri Lanka.

My Lords, I am grateful for the opportunity to bring this important subject before your Lordships’ House. I have been a friend of Sri Lanka for several years and have visited the country on two recent occasions. I have met and spoken to several Sri Lankan government Ministers in London as well as in Sri Lanka, including the President, Mr Mahinda Rajapaksa. I have previously raised issues relating to Sri Lanka in your Lordships’ House. I am a vice-chairman of the All-Party Group on Sri Lanka, and I have supported the Conservative Friends of Sri Lanka. I have also enjoyed a highly successful relationship with the Sri Lankan high commission here in London, in particular with the former high commissioner, Dr Chris Nonis, who has been an outstanding representative of his country. He elevated the stature of Sri Lanka in the United Kingdom.

The observations I have made throughout this time have reinforced my view that Sri Lanka is, and should be, regarded as one of our most important bilateral trading partners. Trading links between the UK and Sri Lanka date back to colonial times. We introduced commercial plantations to Sri Lanka—first coffee, then tea and rubber. Over the years the Sri Lankan export product base has diversified significantly, most notably with articles of apparel and clothing accessories. The UK has increasingly imported a wide variety of items, including electrical equipment, bicycles, jewellery, ceramics and toys. In return, we export to Sri Lanka items such as iron and steel, machinery, paper, beverages, plastics and pharmaceutical products.

Both our political and economic ties have worn extremely well over the past 200 years. Today, Sri Lanka is a major emerging economy in south Asia. It is a market of over 20 million people, but its geographical location means that it can in fact reach a market of over 1.6 billion people. It also serves as a logistical trading and shipment hub for the region. Over the past decade Sri Lanka’s gross domestic product has grown at an overall rate of 6.4%. It grew by an astonishing 7.2% in 2013. Sri Lanka now has one of the fastest growing economies in the region and is expected to grow by 7.5% this year. The Sri Lankan stock market is on target to finish among the top 10 performing stock markets in the world this year. It now has a GDP per capita of $3,200, and the Sri Lankan Government aim to increase this to $4,000 per capita by 2016. In short, Sri Lanka undoubtedly holds massive potential for UK investors.

We must acknowledge that for nearly three decades Sri Lanka was torn apart by a civil war. Thankfully, that came to an end in 2009. The country has since made significant progress, including meeting many international obligations and engaging with the United Nations on post-conflict matters. A commission was established to strengthen the process of reconciliation and the Sri Lankan Government are currently implementing its recommendations. I have been assured that the Government are committed to the realisation of all human rights to prevent further conflict. I believe that now is the time for any Tamil diaspora which left the country to be encouraged to return and be resettled so that it may once again contribute to the well-being of the country. Sri Lanka’s future is undoubtedly looking bright.

Fortunately, we already have a foothold in the country. We are already one of the top five investors in Sri Lanka. The bilateral trade between the two countries has increased by 70% since the turn of the millennium, and we are its number one EU trading partner. In 2013, UK exports to Sri Lanka were valued at £167 million. It should be noted that the balance of trade has risen significantly in favour of Si Lanka in recent years. In the longer term, we must look to address this imbalance. I would be grateful if my noble friend the Minister could clarify what action is being taken to achieve this.

As important as the volume of trade between the UK and Sri Lanka is the strategic significance of the type of trade. We are one of Sri Lanka’s closest business partners for higher education and professional training as well as for partnerships in the technology sector. These are vital skills that will help Sri Lanka to build and strengthen its economy in the long term and anchor the UK as a key partner in trading. There are already more than 100 British companies with operations in Sri Lanka that cross a wide range of sectors. These include HSBC, GlaxoSmithKline and Rolls-Royce. When I visited Sri Lanka, I was able to visit the Brandix factory near Colombo, which makes garments for Marks & Spencer. I found the operations to be very eco-friendly, with excellent working conditions which were commended by all. I have spoken on this point previously in your Lordships’ House. Sri Lanka also has many of its own home-grown success stories. During my trip, I also visited Millennium Information Technologies, a fast growing Sri Lankan company which was acquired by the London Stock Exchange Group in 2009. Its systems power several stock exchanges and depositories around the world.

Aside from our historical ties and the strong Sri Lankan economy and business base, there are many other reasons for us to promote and further bilateral trade. English is widely spoken across the country, providing many western countries with an easy means of communication with potential workers. The literacy rate in Sri Lanka now stands at about 92%. The commercial law of Sri Lanka is based primarily on the principles of English commercial law and English statutes, offering many companies a legal framework with which they are already familiar. Sri Lanka is the highest rated country in south Asia in the World Bank’s rankings for ease of doing business. Sri Lanka also has free trade agreements in place with India, Bangladesh and Pakistan. These can reduce import tariffs for some goods into those countries and thus help build the Sri Lankan economy further and allow British products to make their way through the supply chain.

Another key consideration is infrastructure. Following the end of the civil war, Sri Lanka is seeing a rapid and wide spread of infrastructure development. Connectivity is being vastly improved through several major road projects linking urban and rural communities. The Government are also improving and upgrading urban infrastructure facilities and basic services in towns and cities.

However, further modernisation is needed and the opportunities for British businesses are vast. The Sri Lankan Government have launched a major infrastructure initiative, entitled Five Hub Programme, which will provide opportunities for us to be involved. There is also an increasing demand for greater expansion in the leisure and tourism sector, including hotels and retail. This is and will continue to be a key growth area for British investors.

Another key area for further investment is education. The Sri Lankan workforce lacks critical job-specific skills, which could serve to undermine both private sector growth and public infrastructure development in the future. We must expand even further our role in providing and investing in higher education and skills training, helping the Sri Lankan workforce to fill the skills gap and become more responsive to the needs of the global market. In particular, I believe we could do more to build university-to-university contacts and become involved in creating colleges of excellence. There are also calls for greater facilitation of business visas for Sri Lankan entrepreneurs to travel to the UK. I hope that our Government will undertake to look at this. I ask my noble friend the Minister whether that can be considered.

Finally, I commend UK Trade & Investment’s recent trade mission to Sri Lanka, which I understand included representatives of 21 British companies. I look forward to learning more about its findings and hope to see more of these delegations in the future.

The future potential for Sri Lanka is huge, but it will be reached only through continued and expanded bilateral trade with countries such as ours.

My Lords, it is a particular pleasure to join this debate and I thank my noble friend for instigating it. I go back 50 years with Sri Lanka, having worked there in 1963 for the Reckitt and Colman Group as a marketing manager, visiting every conceivable market in the year I was there. When I came back, I wrote a pamphlet in 1967 called Helping the Exporter. It even had to have a reprint, although there are not too many copies left nowadays. Before I came to the House I was a director of one of the major advertising agencies specialising in overseas trade, so I think I have a reasonable heritage to comment on trade between two countries.

The first thing I want to say is that Sri Lanka is very relevant to our country. The population is roughly 30% of the size of our own. I will not cover the same areas as my noble friend, but it is right to re-emphasise that growth since peace in 2009 has been roughly between 6.5% and the 8% at which it is currently running. I congratulate Her Majesty’s Government on the trade mission that was put together at the end of November. I think our high commissioner, who I know is on his last few months there, put together a really good programme, and the feedback from the chamber of commerce in Colombo was very positive. Indeed, I shall quote one sentence from the welcome. Thankfully the high commissioner has put “Ayubowan” which is the traditional welcome in Sri Lanka. He says:

“With a Free Trade Agreement with China to be signed shortly adding to the existing FTAs with Pakistan, India, South Asia and Asia Pacific, Sri Lanka could act as a regional hub to over 3 billion potential customers”.

That is what it is all about.

I also inevitably did some research into, for me, a relatively new area, looking in some depth, not at the political scene, which I think I know backwards, but at the trade and commerce side. An excellent article appeared by a man called Jon Springer of Forbes Asia. He picks out a number of key determinants why Sri Lanka has such good opportunities for the UK to export there.

First, he picks out government stability. It is true that in 2009, once peace was there, there was stability on the ground. Added to that, there is now a railway system all the way to Jaffna. There are new roads, both up to Jaffna and down to the south-west. There is electricity, without permanent cuts, which was the situation for many years and certainly when I worked there. There is good electricity on tap. I would call that a rising peace dividend.

My noble friends mentioned the stock market. No wonder Sri Lanka is proud if our stock market is using software from Sri Lanka. I would be jolly proud if that happened. A friend of mine, a Tamil, is a director of one of the major companies, MAS, a major clothing manufacturer exporting all over the world. It exports here to Marks & Spencer and other retailers. I went round not only his factories, but the housing developments for some of their people. They are extremely well done. Yesterday, I went to Human Rights Day in the Foreign Office, where there was talk about the need for the corporate sector to show a proper response to its workers and others for whom it is responsible. In passing, I say to my noble friend that I thought yesterday’s initiative, Human Rights Day, was very good indeed.

John Springer also picked out a comment that I had also seen from Ceylon Asset Management, which, I admit, is at the far end:

“We expect 25% growth in the equity market on average per year for the next five years. If you think about it, that isn’t that much space on 7 to 8% growth in the economy annually. What people don’t realise is that on a per capita basis, Sri Lanka is twice as rich as India”.

I think that is probably blowing a trumpet a bit, but nevertheless, there is positive note there.

Then, of course, next door there is a big brother, but a very much changed big brother. Modi’s India is there with a link for Sri Lanka to be the hub for goods and services on their travels eastward to drop in to the brand new port at Colombo city. There is the additional new port down at Hambantota and the revitalisation of Galle harbour, by kind permission of the Dutch. All that means that this is a real opportunity for growth.

I have been a tourist in Sri Lanka on a number of occasions. I was a tourist in the very early days when if you were on the shore you ate fish curry and if you were up country you ate chicken curry. Today, there are wonderful hotels. I looked at the figures, which are astonishing. This year, it is estimated that there will be 1.6 million tourists and there has been a steady increase in the amount of money that tourists spend.

Sri Lanka is really becoming a middle-income country, although there are obviously poor parts of it; I think I know where they are as well. The real estate market is moving in Colombo and surrounding areas and that is a positive move. Are there risks? Of course, in every commercial world—and I was in it for quite a long time—there are risks. There is one simple thing that Her Majesty’s Government can take on board, which is supported 100%, I am pleased to say, by our high commission. If we want to do more trade with Sri Lanka, we have to speed up the process of issuing visas to those coming on a short-term visit to do business. Although the Foreign Office claims that it is to save money that visas have to be processed in Chennai, that is a nonsense. We even built a building in Colombo to do the processing. It is sitting there idle. What would be the net extra expenditure for a couple of officers to process the proper visas, maybe just for business visitors? That really needs to be looked at. That is my plea to my noble friend on the Front Bench.

There are some other handicaps. I will highlight three. One is the Small Business, Enterprise and Employment Bill going through your Lordships’ House. Parts 7 and 8 and Schedule 3 require that shareholders holding 25% or more, or having some control over a company ownership, have to be kept in a register and that register must be made public. Admittedly, this applies only to UK companies, but I have to tell my noble friend on the Front Bench, as one who has worked and lived in that part of the world, as far as the Middle East and south-east Asia are concerned, nobody wants to have their public or any other public look at a register. That leaves them open to creative journalism and, I am sorry to say, one or two creative NGOs. There is ample provision to check on fraud, money-laundering and other provisions. However, I think my noble friend will have to pass on a message to his noble friends that that will cause a huge problem for trade.

I am sure there are those in the Chamber who wonder why I have not even mentioned politics. I have to mention it on a couple of issues, though. Here in the UK there is a challenge from the part of the Tamil diaspora that just pours out propaganda. I must get one or two things a week, telling me that dreadful things are happening every day, and, more importantly, that Eelam is still on the agenda—that is, the independence of the north and possibly the east. Frankly, that does not help anybody. What I find so disappointing about the Tamil diaspora is that the amount of money and investment that is going into the Jaffna region is so tiny that it is almost embarrassing to record how low it is.

Add to that the news we had yesterday or the day before about torture in Guantanamo Bay. There are allegations of torture in Sri Lanka. On my last visit, I did my level best to check with all the independent authorities whether there was any evidence of torture, particularly the ICRC, which said that there was none. However, we keep getting the odd report, without substantiated evidence, that there is torture. We need to take all those with a pinch of salt.

There are also claims that there is religious intimidation. I say to my noble friend that there is not. There is diversity of faith there. Certainly the Sri Lankan Government are not stirring it up one way or the other. Should we not reflect that mosques were burned down in Luton, Bletchley and Birmingham? We do not know who perpetrated that situation but we know that it is wrong. I believe that the Government in Sri Lanka will be equally keen to find out who is responsible there.

Overhanging it all is the OHCHR situation in Geneva, which, frankly, is not recognised by the Sri Lankan Government. Perhaps more importantly, it is not recognised by a number of Commonwealth countries, including India and Australia. We will have to see how objective it is, but sadly the UN does not have a great history of objectivity in what has happened in Sri Lanka.

I conclude by saying that we have a new high commissioner going from here to Sri Lanka. I hope that he will have really good knowledge of commercial matters and will deal with that with energy. Sri Lanka has a presidential election on 8 January. I do not know who will win; I wish whoever does all possible success. I know those elections, as does the Opposition Whip; I am sure it will be a fair and full election. I thank those who have enabled me to take part in this excellent debate.

My Lords, I start by congratulating the noble Lord, Lord Sheikh, on securing the debate. I thank him and the noble Lord, Lord Naseby, for their speeches. The only regret is that the debate was listed, as it probably had to be, at the end of a long list of debates on the last Thursday sitting before Christmas.

The United Kingdom is proud of being a trading nation. It is important that, in general, the Government encourage and help British exporters. In a former life I was the Minister for DESO, which is now part of UKTI. I hope that I did my bit to assist at home and, especially, abroad. British trade means more economic activity at home; British exports mean more and better jobs for workers in this country. I congratulate the Minister on having one of the best jobs in government.

That is my starting point, but it is always vital to connect the general truth that trade is good with the real world as we find it. Defence exports in particular are, rightly, closely looked at. My first question to the Minister is this: why was more than £8 million-worth of arms—including shotguns, assault rifles and ammunition—granted licences for export to Sri Lanka in the first six months of 2014, as set out in data from BIS, and as reported in the Observer on 8 November? I ask the Minister—if he can help me—what criteria were used in deciding that this was a suitable transaction.

In economic terms Sri Lanka enjoys good annual growth, as we have heard. Since the end of the civil war, by and large trade has increased in both exports and imports between Sri Lanka and both the European Union and the United Kingdom. Of course, I welcome the expansion of trade and welcome the proposals in this debate by the two speakers who have already made their contributions. Obviously, tourism is an immediately attractive product—hardly surprisingly, given the beauty of the country. I can beat the noble Lord, Lord Naseby: I was in Sri Lanka before he ever stepped on to that island. When I was a boy living in Chennai and then Madras, my mother took me to Ceylon, as it was then, before the noble Lord ever went there as a young adult. Of course, those we must be envious of today are those lucky fellow countrymen of ours who were there to see England win the fifth one-day match, held over two days near Kandy. More seriously, it is in other areas of possible trade that, no doubt, progress can be made. The higher education and technology fields, where there seem to be considerable opportunities, are of great interest.

Sri Lanka enjoys preferential access to the EU market under the generalised scheme of preferences. However, the generalised scheme of preferences-plus status was temporarily withdrawn in 2010 and remains withdrawn. As I understand it, 36% of Sri Lanka’s exports go to the European Union: it is its largest market. Why did the withdrawal of the “plus” status happen in the first place, and why does it remain withdrawn today, nearly four and a half years later? The answer of course—although it may be uncomfortable to say so—is in Sri Lanka’s response to the legitimate concerns of the rest of the world about the behaviour of its Government and its military towards minority groups both during and after the end of its terrible civil war. Sri Lanka’s Government—again, I am afraid to say so—appear to have done all within their powers to block any effort to discover what went on and what may still be going on. The frustration of world opinion about this blockage has resulted in the setting up of an inquiry by the United Nations Human Rights Council, instigated by the United Kingdom, among others, under the auspices of OHCHR, which was referred to in passing by the noble Lord, Lord Naseby. The Sri Lankan Government have just gone on blocking: there is no access for the investigative team and a reported threat by the Minister for Mass Media in Sri Lanka that legal action may well be taken against those who testify before the Commission, if they breach the terms of the Sri Lankan constitution. This attitude has led to the respected House of Commons Foreign Affairs Committee, under all parties and under the chairmanship of a very distinguished Conservative Member of Parliament, to the following conclusion, in paragraph 37 of its recent report:

“Given the time that has passed since the launch of the international inquiry, and the constraints placed on the OHCHR team, we believe that the Government should be ready to consider all possible options, including sanctions, to convince Sri Lanka to allow access. We recommend that the Government negotiates with its EU partners to remove GSP status from Sri Lanka, if the Government of Sri Lanka does not allow the OHCHR investigating team into the country and uphold the right of human right defenders to engage with the UN human rights system”.

What is Her Majesty’s Government’s view on that recommendation? I ask again whether it was wise for a licence to be granted for the arms exports from the United Kingdom in 2014.

We have heard about the presidential elections due on 8 January next, which the world hopes will be fair and, of course, non-violent. However, the Financial Times argued in June that the growing tensions between the Sri Lankan Buddhist majority Singhalese population and the minority Muslim population are likely to affect the country’s business climate. Muslims in Sri Lanka are among that country’s most successful commercial operators; surely it is in Sri Lanka’s economic and human interest to ensure that its minority population is treated with respect and equality. That surely means assisting and not blocking the OHCHR commission, so that if wrong has been done it can be admitted and properly dealt with; and if it has not been done, that can be independently verified. Only in that way can the country move forward. I look forward very much to hearing what the Minister has to say.

My Lords, I thank my noble friend Lord Sheikh for initiating this important debate and for his wider contribution to the relationship between Sri Lanka and the UK. I have to admit that I was concerned this morning when I came in and saw the annunciator saying that the final QSD today was on the subject of trade with Syria. It is a relief for all of us that this was incorrect. I also thank the other noble Lords for their contribution to this debate. We may have been lacking something in quantity, but it has been more than made up for in quality. I wish to ask my noble friend Lord Naseby whether he will give me a copy of his guide to exporting. It would be interesting for our team to see what, if anything, has changed since it was written.

Trade is important not only to the prosperity of the UK but to Sri Lanka and its people. However, the UK’s commitment to free trade goes hand in hand with our commitment to human rights. That point has been made volubly. I appreciate that there are divergent views on this issue. Let me set out the Government’s position. The UK co-sponsored the United Nations Human Rights Council resolution in March this year. This resolution requested that Sri Lanka make progress on human rights and reconciliation. As my noble friend Lord Naseby mentioned, it also mandated the Office of the High Commissioner for Human Rights to undertake an investigation into alleged violations of international law by both sides of Sri Lanka’s conflict.

To echo the comments of the noble Lord, Lord Bach, we continue to urge Sri Lanka to co-operate and ensure the protection of those providing evidence to the investigation, and to implement the recommendation of its own internal commission on resettlement and rehabilitation. Sri Lankan presidential elections have been called for next month. We have encouraged the Government of Sri Lanka to invite international observers so that the elections can be fairly assessed. We understand that Sri Lanka’s Election Commission has invited the Commonwealth and the South Asia Association for Regional Cooperation to observe. We welcome these moves.

I want to pick up on a couple of points made by the noble Lord, Lord Bach. The first was on the subject of arms. As he will know from his history, the British Government have a rigorous policy of assessing all export licences to each country, including Sri Lanka, very much on a case-by-case basis. We seek not to export equipment where we assess that there is a clear risk that it might be used for internal repression, would provoke or prolong conflict within a country, or would be used aggressively against another country. The equipment concerned included antennae for military transport, carbon fibre tows, some software to do with internet access, and things such as sporting cartridges. On these cases, which we reviewed carefully, we decided that export licences could be granted. It is also something that we will keep under review, as we do with all countries.

The noble Lord, Lord Bach, also raised the recommendations of the Foreign Affairs Committee. The UK Government’s position on this is that it is premature to do anything more prior to the UN reporting on the matter, and we are expecting the UN’s report in March 2015. When we receive it, it will be appropriate for the Government to take a view of which, if any, of those recommendations should be taken up.

I turn to the subject of trade. The UK has strong family, historic, and—particularly today, even if I am a Scotsman—sporting ties. Of course, both countries are members of the Commonwealth. We have a strong commercial relationship. In Colombo, the Council for Business with Britain actually boasts 151 members across a wide range of sectors. Britain is Sri Lanka’s largest export market in the EU and the EU is itself the largest market for Sri Lankan goods. In 2013, bilateral trade was more than £1 billion. While my noble friend Lord Sheikh pointed out that this was weighed heavily in Sri Lanka’s favour, we have started to see some change. Last year, Britain saw an increase of 14% in goods and exports to Sri Lanka. Commercial contracts worth $3 billion to Britain were signed in 2013, as a result of the order by Sri Lankan Airlines for 13 Airbus aircraft with—I am delighted to say—Rolls-Royce engines. There are therefore, in a number of areas, positive signs of improved British performance.

We are Sri Lanka’s leading business partner—as was mentioned by a number of noble Lords—in the field of higher education and professional training. Some 28 British universities offer access to their qualifications through local education providers in Sri Lanka. A further two universities are currently considering establishing their first satellite campuses in Sri Lanka. It also hosts—and this hurts me, as a member of the Institute of Chartered Accountants—the largest number of Chartered Institute of Management Accountant members outside of the UK anywhere in the world.

The British Council has been operating in Sri Lanka since 1950. More than 200 staff deliver services across the country, including teaching English to more than 12,000 students a year at the British Council teaching centres. However, there are more opportunities—that has been made very clear by all the speakers in the debate—and more that we can do and are doing to help UK exports. As my noble friends Lord Sheikh and Lord Naseby commented, UKTI held a recent trade mission entitled, “Putting British Business on the Front Foot”. That was just at the end of November. During the three-day event, delegates from 21 British companies met potential Sri Lankan business partners from all parts of the country. They were briefed on new business opportunities and they heard from British companies. It is always very important to hear from British companies actually operating in Sri Lanka so that they understand the position on the ground. UKTI Colombo has already been able to assist with new business worth £15 million as a result of this trade mission and a further £17 million deal is now close to finalisation. In addition, a major British company is now considering entering the Sri Lankan market, and we very much welcome that.

Sri Lanka is actually the highest rated country in south Asia in the World Bank’s ease of doing business index. That is good, but we think that there are opportunities to improve the position still further. It can be done through a number of things. First, there should be a reduction in unnecessary red tape, albeit that that is true across much of the UK and Europe. There could also be improvements to security of contracts, protection from what is apparently arbitrary decision-making, and better transparency and governance. We are encouraging the Government of Sri Lanka to take steps to make it easier for British companies to do business there and to reduce the barriers to foreign investment. We believe that Sri Lanka and Britain can also build further trade relationships through the Commonwealth by utilising the expertise and drive found in organisations such as the new Commonwealth Enterprise and Investment Council, which I am delighted to say is being partially funded by this Government.

The Government will also look to hold further trade missions to Sri Lanka so that companies can understand the scale of the opportunities, as they are indeed immense not only within the country itself, but also as a regional hub. We will encourage exporters to look beyond the standard markets of the EU and the US and try to support them both across the UK through our regional trade advisers and on the ground in Sri Lanka through the high commission and UKTI. Finance and credit insurance are also important issues for exporters, particularly in countries like Sri Lanka. Last year, UK Export Finance provided almost £100 million of support to Sri Lanka. It has the further capacity and desire to support business with Sri Lanka going forward.

My noble friends Lord Sheikh and Lord Naseby raised the perennial issue of visas. While I appreciate that the perception of visas is an issue, some 99% of business visas were issued in under 15 days. For business people coming here, there is also an option for a five-day visa. We will continue to listen as issues arise, but with visas it is always important to separate issues of policy from those of process and perception in order to try to establish what exactly the issue is. However, we absolutely will listen if there are issues on a day-to-day basis going forward.

It is important to make the point that UK companies should not let some of the real difficulties of doing business in Sri Lanka blind them to what are also real opportunities, but they should also not let those opportunities blind them to the difficulties. UKTI is here to help them with both.

In conclusion, the Government want to build an even stronger bilateral trade relationship with Sri Lanka in exports, in imports and in investment. At the same time, we will continue to urge Sri Lanka to make progress on the important matters of human rights and reconciliation. In that way, and together with trade, Sri Lanka can secure long-lasting peace and prosperity for all the people of that country. I know that that is what all noble Lords most definitely wish to see.