Fixing FTAs

Sri Lankan and Pakistani officials are to shortly sit down to iron out hurdles in the Free Trade Agreement (FTA) signed between the two countries a decade ago and find ways to improve declining trade between the neighbours. However the bottlenecks of the SL-Pakistan FTA have common resonance across other agreements signed between South Asian neighbours.

Sri Lanka’s first-ever FTA was with India, which is also its largest trade partner though the advantage clearly lies with the sub-continent. For many years the Indian government has been encouraging an expansion of the FTA to a Comprehensive Economic Partnership Agreement (CEPA) but has little interest from local businessmen who fear the much larger Indian economy will engulf local industries. Pakistan has decided to take a different path from India by preferring to fix the shortcomings of the existing FTA including business visas, increasing awareness and appointing officials to deal with provisional problems.

Taking on the challenge of increasing bilateral trade, Pakistan Commerce Minister Khurram Dastgir Khan was in Colombo last week to outline ambitious plans to widen the scope of the existing FTA by increasing joint ventures, tourism and trimming red tape ahead of Prime Minister Nawaz Sharif’s visit in January.  

Following extensive talks with Prime Minister Ranil Wickremesinghe, the Pakistani Commerce Minister said special focus would be given to appointing an official to iron out practical trade issues connected to the FTA and create awareness of its opportunities among Small and Medium Enterprises (SMEs). But the main focus will be to “widen and deepen” the scope of the existing FTA. According to the Sri Lanka-Pakistan Business Council, imports from Pakistan to Sri Lanka fell year-on-year by $ 100 million to $ 279 million in 2014. Sri Lankan exports also stagnated at $ 74 million.

Officials from both sides have expressed dismay over current trade levels between the two South Asian allies. The decade-long Free Trade Agreement (FTA) between the two countries is responsible for 70% of trade. The second phase of the FTA will focus on encouraging joint ventures in agro-food processing, pharmaceuticals, consumer goods, particularly attracting Pakistani investment in sugar and cement. But it will not be expanded into a Comprehensive Economic Partnership Agreement (CEPA) as envisioned by India, making the negotiation process, in Khan’s view, easier. The Minister insisted both sides should have clear and consistent investment policies to improve trade.

Special attention will also be paid to increasing the efficiency of the existing FTA and ironing out bureaucratic hurdles, an effort that will be all the more significant if bilateral FTAs are to keep their place against larger multilateral trade agreements shaping the global economy.

Local policy makers are already eyeing the Trans-Pacific Partnership (TPP) for Sri Lanka and insist it is relevant because as much as 25% of Sri Lanka’s exports are sent to the US India has already become a part of TPP and other regional partnerships such as the South Asian Free Trade Agreement (SAFTA) is edging out bilateral trade treaties.

If FTAs between two trade partners are to not just endure but also grow, then there has to be greater impetus by the relevant Governments and officials involved to make it flexible and relevant to changing economic circumstances or watch it be overtaken by new groups in the economic order.