Sri Lanka needs to link up faster with the growing East Asian economies while maintaining strong links with South Asian countries, say trade experts. Already, South Asia’s economic power house, India, is looking eastward to expand trade. “India’s trade with the East Asian region of ASEAN + 3 (10 ASEAN countries and China, Japan and South Korea) has been growing quite sharply,” said Dr Dushni Weerakoon, the deputy director of the Institute of Policy Studies speaking at the South Asia Economic Summit last week in Colombo.

Between 2000 and 2006, Indian exports to ASEAN+3 countries went from 13.5% to nearly 22%. Imports went from 17.1% to 27%. In August this year India announced plans to sign a free trade agreement with the ASEAN (Association of South East Asian Nations) bloc this December. An ASEAN-India Comprehensive Economic Co-operation agreement (CECA), including goods, services and investments, is anticipated by end of next year.

India is also targeting China, Singapore, South Korea, Thailand, Malaysia, Indonesia and Japan, for bilateral trade initiatives. India is not the only country to adopt a ‘look East Asia’ policy for trade expansion. Although the South Asian region has a free trade agreement – the SAFTA- most other South Asian countries are also targeting trade growth in East Asian markets.

“In addition to India, Pakistan, Bangladesh and the Maldives have seen their share of trade with ASEAN+3 countries improving significantly, while the share with SAARC countries has been stagnating or even declining,” said Dr Weerakoon. The only countries in South Asia that have not expanded trade with East Asia are Sri Lanka and Nepal.

“Available statistics show that Sri Lanka’s trade with East Asia is stagnating and Nepal’s trade with East Asia is declining,” said Dr Weerakoon.

APTA window
Trade experts say Sri Lanka’s production and trading capacities are too small to bring about free trade agreements with large East Asian players like China and ASEAN. So Sri Lanka is advised to look at other entry points into the booming East Asian markets. One option is the Asia Pacific Trade Agreement (APTA).
“We need to focus more on East Asia, but we don’t have the capacity to directly negotiate free trade agreements with them. So the APTA is an alternative route. The APTA is one entry point, because both China and India are in it, and these two countries will grow exponentially over the next few years. So concentrating on the APTA might be a better option than the BIMSTEC,” said Dr Weerakoon.

The APTA, previously known as the Bangkok agreement, was formulated under the guidance of the UNESCAP and was signed in 1975. Originally, the signatories from South Asia were India, Sri Lanka and Bangladesh, and from East Asia, Laos and Korea. The agreement caught dust for a quarter century from 1975 to 2000.

But in 2001 China joined the APTA group. So at this point, two of the world’s largest markets and two of the world’s fastest growing economies, China and India, are inside one trade deal. Trade experts say Sri Lanka should use the APTA to access China.

“There are plans for an APTA free trade area but so far the discussions have been slow. But we need to focus more on looking at the opportunities here,” said Dr Weerakoon.

East-South trade benefits
Sri Lanka already has bilateral free trade agreements with India and Pakistan. Although trade with Pakistan has still not increased significantly, India is now one of Sri Lanka’s major trading partners and investors. However, India looking towards East Asia to expand trade, is not seen as a threat to Sri Lankan trade growth.

“Since signing the FTAs, both India and Pakistan have also been opening up to the rest of the world. So we are anyway seeing erosion of our preferences. So I don’t see us losing out because of India looking East. In fact, we may have greater potential to benefit if India integrates more with East Asia,” said Dr Weerakoon.