FTAs need to bring tangible benefits

Since taking over the Government, President Ranil Wickremesinghe has been highly enthusiastic about enhancing Sri Lanka’s trade integration with the rest of the world. As part of this mission, an application has been submitted to join the Regional Comprehensive Economic Partnership Agreement – a free trade agreement among 15 Asia-Pacific countries that account for 30% of the global GDP – while efforts are underway to sign bilateral Free Trade Agreements (FTA) with few other countries before the end of the year in addition to the FTA signed with Thailand last February.

The policy of the Wickremesinghe administration represents a complete reversal from his predecessor whose administration was dominated by individuals/political parties who were viscerally opposed to free trade. Anti-free trade lobbyists were enthusiastic participants of Gotabaya Rajapaksa’s election campaign, and they occupied influential positions within the policymaking bodies under his presidency. 

Undertaking efforts to enter into FTA/PTAs with the emerging economies in the Asia-Pacific bloc need to be commended as the growth of the global economy in the future will be increasingly driven by the States in the region. Moreover, the country needs to enhance trade with non-traditional export markets as the customary over-reliance on the US and Europe is fraught with risk.

The India-Sri Lanka Free Trade Agreement (ISFTA) was the first bilateral trade pact signed by the island and it came into effect in the year 2000. Despite initial fears of the Indian products swarming the local market, the agreement has benefitted the country’s economy more than its neighbour. Although more than 60% of Sri Lanka’s total exports to India in the past few years have used the ISFTA benefits, only about 5% of India’s exports to Sri Lanka have used the ISFTA provisions during the same period. However, under the current FTA, Sri Lanka is permitted to export only 8 million pieces of ready-made apparel to India without applicable duties, which prevents the largest export industry in the economy to fully realise the benefits from the trade treaty. 

The FTA with Thailand was Sri Lanka’s fourth bilateral FTA. The value of exports from Sri Lanka to Thailand was around $ 47 million in 2023 and the largest export commodity was gem – having earned $ 25 million. The biggest drawback of the deal from the Sri Lankan standpoint is the limited access granted to garments – the leading export commodity. As per the details of the agreement, more than 80% of the apparel products will become eligible to receive duty concessions only after 15 years from now. Any FTA/PTA which does not allow favourable access for tea and apparels to the partner country is not meaningful because around 55% of the merchandise export income is derived from the two commodities.

Since the political change in 2022, the task of negotiating and finalising FTAs is carried out by an ad hoc institution called International Trade Office, which is headed by K.J. Weerasinghe, a retired Director General of the Department of Commerce (DOC). Even during the previous Yahapalana administration, it was Weerasinghe who led the negotiations to sign the FTA with Singapore while in his retirement. Is it only Weerasinghe who has the knowledge and expertise in this country to enter into trade negotiations?

Under this peculiar framework, what is the role of the DOC? The DOC is the mandated Government agency, which is responsible for conducting negotiations to enter into bilateral trade pacts. The institution is composed of a highly erudite set of officers who are recruited from an extremely competitive examination.

The post of Director General of the DOC too has remained vacant for a considerable time now. The DOC does not deserve stepmotherly treatment, and it should not be sidelined to satisfy the agenda of one particular individual. The Government must make use of the technically competent officials in the DOC to finalise trade agreements professionally without relying on the Weerasinghe-centric approach, which would create unwarranted complications.