Study on China-Sri Lanka Free Trade Agreement

looking increasingly to strengthening economic relations with the Asian region through initiatives
such as Association of Southeast Asian Nations (ASEAN+3), the smaller South Asian nations have
shown signs of strengthening links with the Indian economy 30 . For this reason, economic integration
in South Asia has gained momentum, and SAFTA is likely to become marginal in that process. 31
Trade liberalization under SAFTA:
SAFTA suffers from significant limitations. For example, it has adopted a cautionary approach to
trade liberalization within the South Asian region. 32 Under the Agreement, tariffs are lowered to 0-5
per cent over a 10-year period for least developed countries (LDCs) and seven-year period for non-
LDCs. 33 In the case of Sri Lanka, tariff phase out period is 8-years under SAFTA. 34 The agreement is
expected to be fully implemented by 2016. On the other hand, the phase-out periods for bilateral
FTAs in the region are much shorter than in the case of SAFTA. For example Sri Lanka obtained dutyfree
access to both Indian and Pakistani markets in three years of implementing the ISFTA and PSFTA
respectively, except for the products that are included in the negative list.
Non-Tariff Barriers:
SAFTA has not been able to tackle the issues related to NTBs effectively. Even though SAFTA requires
member countries to notify the Committee of Experts of NTBs and para-tariffs, the Committee can
only make a recommendation on their removal and this recommendation is not a binding
commitment. 35 As a result, a number of NTMs have been in place among SAFTA members even after
implementing the SAFTA; for example India has maintained tariff rate quotas on 14 tariff lines at HS
8-digit level, licences and import restrictions. Moreover, there have been several barriers to trade at
border points in South Asia due to the lack of mutual recognition of standards among members,
especially between India, Bangladesh, Bhutan, Nepal and Pakistan. 36 While Pakistan has been
maintaining technical and safety regulations, Bangladesh has been applying a significant rate of paratariffs
(industrial development surcharges, supplementary duties etc.). Sri Lanka too has been
implementing bans on certain imports from South Asia, such as tea and spices, to protect the quality
of Ceylon tea and spices.
30 Ibid
31 Ibid.
32 Ibid.
33 de Mel, D. (2007), “South Asia: Towards a Viable Free Trade Area”, Briefing Paper no. 5, South Asia Watch on
Trade, Economics and Environment”, Kathmandu, Nepal, available at:
[http://www.ips.lk/research/sa_t_free_trade/SA_towards_a_free_trade_270508.pdf]
34 de Mel, D. (2007), “South Asia: Towards a Viable Free Trade Area”, Briefing Paper no. 5, South Asia Watch on
Trade, Economics and Environment”, Kathmandu, Nepal, available at:
[http://www.ips.lk/research/sa_t_free_trade/SA_towards_a_free_trade_270508.pdf]
35 Ibid.
36 Ibid.
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