Negotiating Agreements for Foreign Investments:

Negotiating Agreements for Foreign Investments

By Dr. S.W. Premaratne
Attorney-at-Law

2021/05/1

Foreign Policy decision-maker, of a state, have to take into consideration the prevailing geopolitical environment of the international system, and of the region concerned, at a given time, when there is a foreign policy aspect involved in the decision that has to be taken regarding any issue Omission, or failure to give consideration to this aspect of the issue, can lead to disastrous consequences. Several examples from the recent political history of Sri Lanka can be given to illustrate this point.

Sri Lanka’s conduct of foreign policy, in the 1980s, is a clear example of the serious consequences of ignoring India’s concerns regarding Sri Lanka’s pro-West tilt in its foreign policy. Sri Lanka’s declared policy was non-alignment in maintaining relations with other states, especially the Big Powers in the West and the East. However, the J.R. Jayewardene government, that came to power, in 1977, sought to develop a closer relationship with the Western countries, led by the USA. The nature of the interactions between the diplomats of the USA and Sri Lanka, at the time, had given the impression to India that Sri Lanka was seeking the assistance of the USA for suppressing the Tamil militant movement in Sri Lank, fighting for the rights of the Tamil community.

There were also reasons for India to suspect that there was an understanding between the Sri Lankan Government and the USA to allow the Trincomalee harbour to be used by the USA. It was this perception of India that Sri Lanka was following an anti-India foreign policy, endangering the security of India that motivated India to intervene militarily in the year 1987 to thwart the progress of the Vadamarachchi operation, aimed at militarily defeating the Tamil militant movement.

After aborting the progress of the Vadamarachchi operation, the Indian government proceeded to compel the Sri Lankan Government to sign an Agreement – the Indo-Sri Lanka Accord of July 1987 – to ensure that Sri Lanka respected India’s security concerns and other interests when seeking assistance from outside Powers for Sri Lanka’s economic development or national security.

India’s concerns regarding China’s excessive involvement in Sri Lanka’s development projects

Sri Lanka’s political leaders and diplomats, whenever they get an opportunity, express their affection for their Big Brother, India, and express the need for further strengthening the friendship for the mutual benefit of both countries. India’s perception, however, is that, especially after the change of government in 2005, there is an evolving special relationship between Sri Lanka and China posing a serious threat to the national security of India.

Sri Lanka felt intensely isolated from the international community after adopting Resolution A/HRC/46/L. Rev. 1 against Sri Lanka, at the UNHRC, in Geneva, in March 2021, especially because India also decided to support the core group indirectly by abstaining from voting.

The only consolation for Sri Lanka now is China’s expression of willingness to further strengthen its strategic relationship with Sri Lanka by extending further development assistance to Sri Lanka, within the framework of the Belt end Road Initiative. Subsequent to a telephone conversation between the two leaders, the President of China and the President of Sri Lanka, in a statement issued by the Chinese Embassy in Colombo, on March 30, 2021, it was stated that “China attaches great importance to the development of bilateral ties and stands ready to work with Sri Lanka to determine the strategic direction and achieve steady growth of the relationship. China stands ready to steadily push forward major projects, like the Colombo Port City and the Hambantota Port, and promote high-quality Belt and Road Co-operation, providing robust impetus for Sri Lanka’s post-pandemic economic recovery and sustainable development”.

China projecting Sri Lanka as an intimate partner of the Belt and Road strategy indicates that Sri Lanka is distancing itself from the path of non-alignment and adopting an anti-Western and anti-India approach.

In the matter of obtaining foreign investments for development projects, Sri Lanka has failed to foresee the foreign policy implications of over-reliance on China. The two massive development projects, initiated during the Mahinda Rajapaksa administration, which came to power in 2005, were the Hambantota seaport and the Port City Project in Colombo. The amount of money invested for these two projects, by China, was so massive that Sri Lanka happened to sign an agreement for permitting the management and control of the Hambantota Port by the state-controlled company of China, under a 99-year lease agreement. The Management and control of the Colombo Port City area also have been granted to the Chinese construction company, under a 99-year lease agreement. Not only India but also the USA and other Western countries have expressed serious concern regarding the involvement of China in strategically significant massive development projects in Sri Lanka. India’s perception now is that Sri Lanka is an aircraft carrier of China, stationed in the Indian Ocean, close to India. Hambantota Port is viewed as another pearl in the string of pearls maintained for containing India by China.

India is also concerned over the lack of interest on the part of the Sri Lankan Government to go ahead with the development projects regarding which agreement had been reached with India, during the Sirisena-Wickremasinghe coalition government. In May 2019, a Memorandum of Understanding was signed by the Sri Lanka Ports Authority (SLPA), Japan and India proposing the development of the East Container Terminal jointly, Sri Lanka and Ports Authority retaining 51 percent shares. However, the present Government deviated from that understanding and decided to nominate one Indian investor, Adani Group, disregarding Japan. But, the attempt of the Sri Lankan Government to involve the Indian Company in this project by offering 49 percent of the shares of the ECT was thwarted by the trade union action of the port workers, supported by an influential section of the Buddhist priests and also a section of the ruling alliance. The Sri Lankan government had no alternative but to respond to the demand of the trade unions by getting the Cabinet approval for developing the ECT only by the Colombo Port Authority, without involving India or Japan.

India has also expressed concern over the attitude of the Sri Lankan Government concerning the development and management of the Trincomalee oil tank farm. The lower farm has been managed jointly by the Ceylon Petroleum Corporation (CPC) and the Indian Oil Corporation (IOC) via Lanka IOC Private Limited. The 2003 tripartite agreement signed by the Sri Lankan Government, LIOC and the CPC cover the entire tank farm. India is now concerned about the excessive delay in granting the Sri Lankan Government’s approval for commencing the development of the Upper Tank Farm, comprising 84 tanks.

Another joint venture, regarding which Sri Lanka sought the involvement of India’s Petronet LNG Ltd. Company, and also a Japanese investor, was the proposed liquefied natural gas LNG terminal that was to be set up near Colombo. Although Indian and Japanese Investors had indicated their willingness to join this project, as partners, the Sri Lankan Government has not yet given its final approval for commencing the construction work.

India is also very much concerned over the lack of progress in the reconciliation process initiated after the end of the war. India’s concern in this regard was expressed very effectively and in very clear language in a statement made by the Indian Foreign Minister Jaishankar in the course of a media conference during his two-day visit to Sri Lanka in January, this year. In his statement, the Indian Foreign Minister said: “As we promote peace and wellbeing in the region, India has been strongly committed to the unity stability and territorial integrity of Sri Lanka. Our support for the reconciliation process in Sri Lanka is long-standing as indeed for an inclusive political outlook that encourages ethnic harmony. It is in Sri Lanka’s own interest that the expectations of the Tamil people for equality, justice, peace and dignity, within a united Sri Lanka, are fulfilled. That applies equally to the commitments made by the Sri Lankan Government on meaningful devolution, including the 13th Amendment to the Constitution”.

CHEC Port City Colombo (Pvt) Ltd - Sri Lanka | Press

Sri Lanka should not consider that India’s interest and involvement in the post-war reconciliation process as a case of a foreign country intervening in the internal affairs of Sri Lanka illegally. India is guided by a mindset that there is a moral responsibility on her part to intervene and bring about a final settlement to the conflict in Sri Lanka.

Colombo Port City Economic Commission

Colombo Port City Economic Commission Bill which was challenged in the Supreme Court, purported to establish an Economic Commission for the administration of the Port City, built by a construction company of the Chinese Government, adjacent to the Colombo Port. This Bill seeks to grant extensive powers to an institution called the Colombo Port Economic Commission, whose members will be appointed by the President of Sri Lanka. According to the provisions in the Bill, the supervisory power of the Parliament of Sri Lanka has been excluded, both regarding the manner of exercising the powers granted by the proposed legislation to the Commission and also regarding the selection of persons to be appointed as members of the Commission.

Moreover, regarding the activities that take place within the Colombo Port City area, some institutions of the Government of Sri Lanka are excluded from exercising their authority. Dr. Wijedasa Rajapaksa, in his written submissions submitted to the Supreme Court, in connection with the petition filed challenging the Bill, makes specific reference to the Customs Ordinance. He gives the warning that there may be importation of prohibited substances such as drugs, weapons, etc. He points out that in the event of any violation of International Treaties and Conventions, within the Port City area, it is not the Commission but the Sri Lankan Government that is responsible.

Conclusion

In view of the intense power struggle between China on the one hand and India and other partners of the Quad, led by the USA on the other hand, for dominance in the Indian Ocean area, the Parliament of Sri Lanka passing legislation for permitting such a high degree of autonomy to an administrative authority that can be controlled by the Chinese government will be considered by India as a serious threat to its security. This pro-China foreign policy orientation will also be an obstacle for Sri Lanka to promote friendly relations with democratic countries in the West determined to thwart Chinese domination in the Indian Ocean region.

About editor 2274 Articles
Writer and Journalist living in Canada since 1987. Tamil activist.

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