Sri Lanka’s Trade Pacts with India and China will be trade light bristling with exemptions and loopholes, warns economist

An FTA with the US would not only be easier to implement but could help tone up the Sri Lankan system.

Published: 15th September 2016 06:56 PM  |   Last Updated: 15th September 2016 08:24 PM   |  A+A-


COLOMBO: Dr.Razeen Sally, Chairman of the Institute of Policy Studies in Sri Lanka and Associate Professor, Lee Kuan Yew School of Public Policy, National University of Singapore, says that Sri Lanka should proceed with the Economic and Technical Cooperation Agreement (ETCA) with India and have a Free Trade Agreement (FTA) with China, but neither of these will trigger a boom in trade in contrast to FTAs with Singapore and the US.

“The Government should aim to complete the Indo-Lanka Economic and Technical Cooperation Agreement (ECTA) as soon as possible, and be ambitious about market-opening on both sides. That should include non-tariff barriers that impede access, particularly to the Indian market. But India is generally protectionist, and domestic opposition is lowering the Sri Lankan Government’s ambition as well. Hence ECTA will inevitably be partial, with lots of exemptions and loopholes. Like other Indian FTAs, it will be “trade-light” by international standards,” Dr.Sally writes in an article in Colombo’s DailyFT.

On the proposed FTA with China, the economist says: “The Government should complete the China-Lanka FTA. But this will be trade-light, like China’s other FTAs.”

But Sally is sanguine about an FTA with Singapore. “The FTA with Singapore should go wider and deeper than the FTAs with India and China. This will be politically easier to do: Singapore has something close to free trade already; and its exporters pose less of a competitive threat to Sri Lankan producers than Chinese and Indian exporters. Not least, an FTA with Singapore would be a training ground for more ambitious FTAs with the USA and EU.”

An FTA with the US would not only be easier to implement but could help tone up the Sri Lankan system to make it a modern and internationally competitive, he feels.

“An FTA with the US should be Sri Lanka’s top priority because the USA is Sri Lanka’s second biggest export market. It is and will remain the most innovative economy in the world; it is home to the world’s best multinationals who can integrate Sri Lanka into GVCs, particularly in services; and, geopolitically, it would cement an alliance with the world’s only superpower and ‘balancing power’ in Asia, which is also a civilized liberal democracy.”

Going further, he says: “US FTAs, unlike Asian FTAs, are serious: they are comprehensive and deep. They demand substantial liberalization in goods, services, investment and public procurement, underpinned by strong disciplines (also on product standards, intellectual property and subsidies), and enforced by strong dispute-settlement procedures.”

“Unlike FTAs with China, India and other Asian partners, an FTA with the USA would spur domestic market reforms and expand competition in the economy, in addition to gaining extra access to the US market.”

Trans-Pacific Partnership

However, Dr.Sally feels there may not be a need to negotiate a bilateral FTA with the US if Sri Lanka joins the Trans-Pacific Partnership (TPP) of which US is part.

“The US and ten other Asia-Pacific countries have negotiated the TPP, covering 40 percent of the world economy and a third of international trade. This is the most ambitious trade deal since the Uruguay Round Agreements over twenty years ago. Sri Lanka should consider lodging an application to join it.”

“The TPP would obviate bilateral FTAs with other potentially important trading partners such as  Japan, Australia and Malaysia. And it would be a great signal to foreign investors: Sri Lanka would be the first South Asian country in the TPP.”

“The first step is to conclude a Trade and Investment Facilitation Agreement (TIFA) with the USA. But negotiating entry to the TPP – or any FTA with the USA – would be excruciating and could induce a domestic political backlash. So the ground has to be prepared carefully,” he warns.

Advising Sri Lanka to proceed cautiously, D.Sally says that a Trade and FDI Bill should come first. The TPP should only be considered a serious prospect when trade and FDI liberalization is already underway. He also points out that there is also a huge question mark over the TPP, given rising protectionist sentiment in US politics.

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