Historic Indo-Lanka trade pact goes public for the first time

The first ever international Free Trade Agreement entered by Sri Lanka has boosted its exports to its partnering country by no less than 16 times, and overall trade volumes grew by eight fold.

“Since the Indo-Sri Lanka Free Trade Agreement (ISFTA) started operations in 2000, the total bilateral trade between the two countries has increased by a massive 508% to US$ 4.08 billion in 2012, from US$ 672 million in 2001,” Minister of Industry and Commerce of Sri Lanka Rishad Bathiudeen said.

Bathiudeen was addressing the launch event of the ‘Handbook on the India-Sri Lanka Free Trade Agreement’, jointly organised by the High Commission of India in Sri Lanka, the Institute of Policy Studies of Sri Lanka (IPS) and the Indo-Lanka Chamber of Commerce and Industry on at Taj Samudra Hotel, Colombo recently. Many dignitaries, members of diplomatic community, reps from various Chambers, private sector and Government officials were present at the launch. For the first time, this handbook embodies all the details and product items under the ISFTA, in a single publication to be accessible by the general public of both countries.

“According to the World Trade Organisation (WTO), despite the global turmoil, a steady increase in regional and free trade agreements is seen across the world. In fact, Free Trade Agreements (FTAs) and ‘preferential trade agreements’, account for 90% of all regional trade agreements. This shows that FTAs are the way forward. For example, it is now estimated that more than Dollars 15 billion trade will come to the United Kingdom when the FTA between the USA and European Union, which is currently under discussion, becomes a reality,” Bathiudeen said.

He also added: “The ISFTA signed in 1998, was the first FTA, for both Sri Lanka and India, and therefore, there is a sentimental value for both countries about it. And there is no doubt that the key challenge faced by both economies is to leverage the FTA for maximum levels of mutual benefits. Nevertheless, I also stress that a very significant outcome of the ISFTA is the consolidation of centuries of ‘Track Three Diplomacy’ between the two friendly neighbours, historically converging for the first time on an agreed set of parameters, from where the vast trade potentials could be harnessed in the coming century. In fact, the strong contribution by this historic FTA is already evident. Since the FTA started in year 2000, the total bilateral trade between the two countries, has increased by a massive 508% US$ 4.08 billion in 2012, from US$ 672 million in 2001. While we are facing challenges in many export markets our total trade with India in the first three months of 2013 alone stood at US$ 732.24 million.”

Bilateral trade values are signs

Bathiudeen went on to say that: “We believe that these bilateral trade values are signs that, Sri Lanka is well be set to capitalise on India’s growing consumer market which is projected to become the world’s fifth-largest consumer market by 2025, and currently ranks in the second place, just below the leading country Indonesia in the latest, ‘AC Nielsen Global Consumer Confidence Index’ released this month.  The ISFTA thus proved to be a powerful growth driver in our bilateral trade. This growth is in-spite of, the various opinions, and fears expressed, on the trade asymmetry, between both economies. A certain trade asymmetry, still exists and in fact due to such our exporters are still not able to penetrate the Indian markets to the extent desired, and this needs to be addressed. However, I also wish to say that most fears on asymmetry are vastly exaggerated.”  

High Commissioner of India Ashok K. Kantha addressing the event, said: “The Indo-Sri Lanka Free Trade Agreement (ISFTA) is a very commendable job and it has benefited both countries and safeguarded interests of Sri Lanka. Lankan exports to India has multiplied by 16 times after the ISFTA, and overall trade increased by eight times. Seventy per cent of Sri Lanka’s exports to India, now goes through the ISFTA, while only 30% Indian exports to Sri Lanka follow the same path. Therefore, this perception that ‘ISFTA has not brought benefits to Sri Lanka’ should be buried and buried deep, since if we continue to deny (the advantages) we will not do justice to Sri Lankan business community. We have tried to address Sri Lankan exporters’ issues positively and quickly.

“The ISFTA has been a work in progress. We endeavour to raise the issues raised by Sri Lankan friends. For example, we sought to positively respond to the requests of Minister Bathiudeen, to increase Lankan textile quote to eight million pieces from that of three million. But this was not a small or an easy step for India. Our textile industry is very important to a large number of people and there is resistance to such preferential treatment to a country not an LDC (Least Developed Country) and which also has double the per capita income of India. But we took that decision, when we asked our Prime Minister he said: ‘Go ahead Sri Lanka is not a country with which we need not insist on reciprocity. We can have asymmetrical arrangements that will give the requisite comfort to Sri Lankan friends.’

He also added: “We began with that-in that, any trading arrangements with Sri Lanka should give ‘requisite comfort’ to our Sri Lankan friends. That’s a given. Your negotiations with India started with a huge advantage when you started talking to Indian counterparts. Another example is the problem regarding plant quarantine. This issues which involved Fruits, such as dragon fruits from Sri Lanka has now been solved. When Sri Lanka had specific concerns, we try to address these concerns. Before I leave Sri Lanka next week, I like to request both Minister Bathiudeen and Secretary Siriwardena that we should have structured trade dialogue between the two countries which will ensure that issues won’t build up and they are addressed as soon as they arise.”

Speaking of the various dimensions of the ISFTA, Kantha continued: “The ISFTA provides preferential market access but by itself, does not boost trade. For that, we need to move towards greater interests-towards production and supply chains. This was the understanding when our Commerce Minister Anand Sharma came to Sri Lanka in September 2012. We specifically discussed the setting up of a Joint Task Force (JTF) which would look at investment led exports in automotive and pharma sectors. But then, we need to follow up. I am sorry to point out the JTF has not materialised, even though Sri Lankan Government approved it last October. Friends, I suggest that the rest of the world does not wait for us. We have signed Comprehensive Economic Partnership Agreements (CEPAs) with many other countries. I myself was involved in launching CEPA talks with Japan, Korea and Malaysia and all three came to fruition. Therefore, I feel little uncomfortable that there are so many completely baseless apprehensions about a more comprehensive framework in forming business relations with other countries.

“Sri Lanka perhaps needs that framework (CEPA) more than India does. The ISFTA has been positive. But it only covers goods. You have a very significant advantage when it comes to trading in Services. As a country with relatively limited size economy, leveraging a market next door using preferential access both in terms of goods and services is, I believe, a no brainer. So I wonder why this debate about CEPA. Those who understand these issues should speak up. Otherwise this is an opportunity-cost, since Sri Lankan economy’s growth prospects are increasingly linked to the growth trajectories of not only India but Asia and ASEAN too. What we see is that the centre of gravity is shifting. I think it is important for both India and Sri Lanka to take cognisant of this fact. When we (together) set a target of doubling bilateral trade by 2016, it will not happen if it is ‘business as usual’ it only happens when both sides decide to pool their collective efforts and see how we can use synergies for both countries. For example, synergies in maritime ports and aviation SriLankan Airlines used to be the largest carrier to India some time back but today it’s place in India has been taken over by various Gulf based airlines since SriLankan (ignored and) failed to exploit the synergies.”