<strong>Sri</strong> <strong>Lanka</strong>’s Experience With <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s Page 10 of 88
2.1 Introducti<strong>on</strong> While <strong>Sri</strong> <strong>Lanka</strong> has been actively engaged in all multilateral trade negotiati<strong>on</strong>s and has been undertaking trade reforms in keeping with the WTO’s GATT principles, <strong>Sri</strong> <strong>Lanka</strong> also has been involved in a number of regi<strong>on</strong>al trade liberalizati<strong>on</strong> initiatives. <strong>Sri</strong> <strong>Lanka</strong> participates in two regi<strong>on</strong>al agreements: the South Asian <strong>Free</strong> <strong>Trade</strong> Area (SAFTA) <strong>Agreement</strong> and the Asia-Pacific <strong>Trade</strong> <strong>Agreement</strong> (APTA), and two bilateral agreements: the Indo-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> (ISFTA), and the Pakistan-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> (PSFTA). To penetrate the South Asian markets <strong>Sri</strong> <strong>Lanka</strong> has been moving from regi<strong>on</strong>al to bilateral trade agreements due to the sluggish progress of SAFTA. Provisi<strong>on</strong>s made under the bilateral agreements are much more favourable than the provisi<strong>on</strong>s provided by SAFTA. Both the bilateral agreements have given <strong>Sri</strong> <strong>Lanka</strong> greater market access to India and Pakistan. Moreover, they are much more favourable than the provisi<strong>on</strong>s made under SAFTA. Nevertheless, the trade between <strong>Sri</strong> <strong>Lanka</strong> and India, and <strong>Sri</strong> <strong>Lanka</strong> and Pakistan still occur outside the FTAs due to the restricti<strong>on</strong>s maintained by all three countries. Negative list, restrictive rules of origin criteria and NTMs are some of the measures that hamper <strong>Sri</strong> <strong>Lanka</strong>’s trade with India and Pakistan. Therefore, it is crucial to identify the extent to which trade in <strong>Sri</strong> <strong>Lanka</strong> is deterred by tariff schedules, rules of origin and NTMs. For this reas<strong>on</strong>, the proceeding secti<strong>on</strong>s looks at the provisi<strong>on</strong>s made under SAFTA, ISFTA and PSFTA and the issues faced since the implementati<strong>on</strong> of the respective FTAs. 2.2 SAPTA/SAFTA <strong>Sri</strong> <strong>Lanka</strong> is a member of the South Asian Associati<strong>on</strong> for Regi<strong>on</strong>al Cooperati<strong>on</strong> (SAARC). The seven members (Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and <strong>Sri</strong> <strong>Lanka</strong>) signed the South Asia Preferential Trading <strong>Agreement</strong> (SAPTA) in 1993. The objective of the SAPTA was to promote and sustain mutual trade and ec<strong>on</strong>omic cooperati<strong>on</strong> am<strong>on</strong>g the member countries through the exchange of trade c<strong>on</strong>cessi<strong>on</strong>s. Four rounds of trade liberalisati<strong>on</strong> were completed within SAPTA covering over 5000 tariff sub-headings 26 . Each round c<strong>on</strong>tributed to increased product coverage and deeper tariff c<strong>on</strong>cessi<strong>on</strong>s. However, due to the slow pace of trade liberalizati<strong>on</strong> under the SAPTA, South Asian <strong>Free</strong> <strong>Trade</strong> Area (SAFTA) was signed in 2004 and came into operati<strong>on</strong> in 2006 superseding SAPTA. SAFTA aimed at further enhancing regi<strong>on</strong>al ec<strong>on</strong>omic integrati<strong>on</strong> through promoti<strong>on</strong> of preferential trade. However, the pace of liberalizati<strong>on</strong> under SAFTA has also been slow due to the large size of sensitive lists, prevalence of n<strong>on</strong>-tariff barriers (NTBs), exclusi<strong>on</strong> of services and investments, high transacti<strong>on</strong> costs and the political uncertainties between countries, especially between India and Pakistan. 27 Intra-regi<strong>on</strong>al trade in South Asia was as low as 5 per cent in 2006 at the time of SAFTA coming into effect. The much expected growth in intra-regi<strong>on</strong>al trade has not materialised to date despite the operati<strong>on</strong>alizati<strong>on</strong> of the agreement. 28 With the emergence of India, the dynamics of regi<strong>on</strong>al integrati<strong>on</strong> in South Asia also appears to have changed. 29 With India 26 WTO (2010), “<strong>Trade</strong> Policy Review – <strong>Sri</strong> <strong>Lanka</strong>”, available at http://www.wto.org/english/tratop_e/tpr_e/tp337_e.htm 27 de Mel, D. (2007), “South Asia: Towards a Viable <strong>Free</strong> <strong>Trade</strong> Area”, Briefing Paper no. 5, South Asia Watch <strong>on</strong> <strong>Trade</strong>, Ec<strong>on</strong>omics and Envir<strong>on</strong>ment”, Kathmandu, Nepal, available at: [http://www.ips.lk/research/sa_t_free_trade/SA_towards_a_free_trade_270508.pdf] 28 Ibid. 29 Weerako<strong>on</strong>, D. (2010), “SAFTA: Current Status and Prospects” in Promoting Ec<strong>on</strong>omic Cooperati<strong>on</strong> in South Asia: Bey<strong>on</strong>d SAFTA ed. Sadiq Ahmed, Saman Kelegama & Ejaz Ghani, Sage Publicati<strong>on</strong>s, New Delhi, India. Page 11 of 88
Change language