Financial Times

FTA and their benefits to Sri Lanka

By Deeptha Kulathileka
Deputy Director, Department of Commerce

The "Regaining Sri Lanka" policy document of the UNF government has emphasized the importance of pursuing bilateral and regional Free Trade Agreements (FTAs) with identified countries and regions.

The Ministry of Commerce & Consumer Affairs, being the ministry responsible for the conduct of Sri Lanka's foreign trade relations handles the entirety of the process right from the stage of conceptualization, selection and up to the phase of concrete negotiations, conclusion and implementation and monitoring and evaluation of Free Trade Agreements.

In order to realize the policy goals of increased employment, enhanced income levels, higher productivity, increased investment aimed at realizing a 10 percent annual growth rate, will only be possible, if we aggressively seek markets and investment possibilities for our goods and services around the world. The government is prepared to pursue any and all opportunities with any country to expand access into new and existing markets for Sri Lankan goods and services. It will be clearly observed that our rationale and justification for entering into FTAs with a number of countries around the world, is already built into the above objective of the policy document on Regaining Sri Lanka. Therefore, it is the well-considered view that Sri Lanka should vigorously pursue FTAs with a specific set of identified countries, from which Sri Lanka is going to benefit. In terms of our basic rationale for entering into Free Trade Agreements, it has to be mentioned that countries in South East Asia have been quite active in this area and are in the process of entering into a series of bilateral FTAs with countries outside their region. If Sri Lanka did not initiate timely high-level action, Sri Lanka would have lost out to our competitors on valuable market access opportunities for both for goods and services. In our own region, India too is pursuing market opportunities in South East Asia and the Far East through an accelerated programme of Free Trade Agreements.

The basic or the primary stage of regional cooperation is the preferential trading arrangements under which countries consider preferential tariff concessions to the member states of the Agreements mostly on reciprocal basis.

Sri Lanka is a member of two important preferential regional trade agreements namely, the Bangkok Agreement (1975) and the SAARC Preferential Trade Agreement (1993). During the past two years, Sri Lanka has been able to successfully participate at the third round of negotiations under the Bangkok Agreement whose member countries are Bangladesh, India, China, South Korea, Laos and Sri Lanka. The Ministerial meeting of the Bangkok Agreement will be held on April 25 in China. Commerce Ministers of the Bangkok Agreement countries will sign the APTA Agreement. The Bangkok Areement is the only regional trading arrangements where both India and China are members covering a market size of over two billion people.

The APTA when it comes into operation will provide tremendous potential for increased regional cooperation. Under the Third Round of negotiations of the Bangkok Agreement, the Ministry of Commerce and Consumer Affairs has been able to arrange significant tariff concessions on products of export interest to Sri Lanka in the vast Chinese market in additional to markets in other member countries. These products includes black tea, coir fibre, desiccated coconut, cashew nuts, betel nuts, lemon and lime, water melon, flavoured tea, pepper, spice mixtures, copra, coconut oil, rubies, sapphires, precious and semi precious stones, jewellery, etc.

The SAARC Preferential Trade Agreement has completed four rounds of negotiations to date. The Ministry of Commerce and Consumer Affairs participated at each round of negotiations on a regular basis with a view to arranging maximum benefits to the Sri Lankan exporters.

The Framework Agreement of the BIMST-EC FTA which brings together Sri Lanka, Bhutan, India, Myanmar, Nepal and Thailand is a comprehensive agreement, which covers trade in goods, services investments and other areas of cooperation.

With regard to FTA negotiations, the Ministry of Commerce & Consumer Affairs has always ensured that Sri Lanka will not consider any tariff concessions on the import of rice, potatoes, onions, chillies and poultry products for national food security considerations. In short the agricultural sector will not get adversely affected due to the implementation of the tariff reduction commitments under the FTAs that Sri Lanka is negotiating with other countries.

One of the main objectives of entering into FTAs with Pakistan and Egypt is to recapture the market for Sri Lankan tea which Sri Lanka lost to Kenya. Significant tariff concessions that Sri Lanka will get for our tea under these free trade arrangements will be a boost to tea prices at the Colombo auctions. At the same time, in view of the highly volatile situation in the Middle Eastern region, it is highly desirable that Sri Lanka finds additional markets for our tea exports.

The proposed bilateral FTA with Singapore, where two rounds of negotiations have already been completed, is expected to generate increased investments from Singapore to Sri Lanka mainly in the services sector. Sri Lanka signed the Trade & Investment Framework Agreement (TIFA) with the USA in July 2002. Both sides have so far conducted three rounds of fruitful negotiations under the TIFA, which is considered a forerunner to an FTA between the two countries.

The bilateral FTA with USA which is likely to be concluded soon will be a very significant breakthrough in arranging tariff concessions for export of readymade garments from Sri Lanka to the USA.

Special mention has to be made with regard to the Indo-Sri Lanka Free Trade Agreement (ISFTA), which came into force in March 2000. This agreement marks an important milestone in Indo-Lanka Trade/Economic and Political relations. Both countries have demonstrated the highest level of political will and commitment in promoting bilateral trade and economic cooperation. Most of the operational problems that affected the performance of two-way trade under the Agreement were sorted out during the Commerce Ministers meeting held in New Delhi in 2002.

Under the ISFTA not only did the total trade turnover between the two countries reach unprecedented levels (well over Sri Lanka rupees 1 billion in 2003) but also the import coverage ratio and import/export ratio too have recorded a significant increase since 2002. In addition, the ISFTA has been responsible in attracting Indian investment to Sri Lanka in a big way and it is hoped that this trend will continue to maintain.

In June 2002, a Joint Study Group (JSG) was set up to make recommendations on how to take the two economies beyond trade in goods towards greater integration through the conclusion of a Comprehensive Economic Partnership Agreement (CEPA).

The JSG which comprised experts from both countries completed its report and presented it to both governments in October 2003.

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