Chief Negotiator of FTAs shares key insights to exporters

FTAs Chief K.J. Weerasinghe, Advisor to the Ministry of Strategy Development and International Trade, and Chief Negotiator of the Government, related to the Free Trade Agreements (FTA) with Singapore, India and China, on the invitation extended by the National Chamber of Exporters (NCE), addressed the Council of the Chamber at its last meeting, to elucidate the important aspects of these FTAs, and particularly the FTA with Singapore which was signed recently. 

K.J. Weerasinghe is a former Director General of the Department of Commerce and a former Ambassador to the European Union, with substantial expertise and experience in the area of trade, having represented Sri Lanka in many overseas trade destinations. He served as a member of the trade negotiating team of the three FTAs negotiated with Singapore, India, and China from the inception of negotiations, and later replaced Dr. Saman Kelegama as the Head of the Government Negotiating Team, after his demise. 

At the outset Weerasinghe outlined the current position related to the three FTAs. He stated that in regard to the proposed Economic and Technology Co-operation Agreement (ETCA) with India which seeks to expand the coverage of the existing FTA which is currently limited only to Trade in Goods, so far seven rounds of negotiations have been completed while the eighth round will begin shortly. In regard to the FTA with China six rounds of negotiations have been completed. In the case of the FTA with Singapore negotiations commenced in August 2016 and the Agreement was formally signed between the Governments of Sri Lanka and Singapore on 23 January, after eight rounds of negotiations conducted over a period of 16 months. 

Tracing the background to the negotiations of the three FTAs, Weerasinghe stated that currently the main export destinations of Sri Lanka are the USA and EU countries, absorbing well over 50% of total exports. In this background while the country needs to work to sustain and ensure growth in these traditional markets, it is imperative for the country to diversify her markets for long term economic growth, by focusing on economically developed and emerging strong Asian economies, which represents the shifting scenario of international trade. 

Further, although the country recently gained a boost to her exports through the regaining of the GSP Plus facility of the EU countries, it has to be noted that the eligibility of the country for this facility will cease after Sri Lanka gains upper middle income status. Thereafter, even allowing for the procedural grace period that is allowed, Sri Lanka will be able to benefit from the GSP Plus facility only for a maximum of five to six years. In this scenario the country needs to plan well ahead to ensure sustain economic growth, to achieve future expectations of the country. The alternative therefore is to focus on the large and powerful Asian markets and economies of India, China, and ASEAN countries such as Singapore Malaysia, Thailand, and Indonesia, extending to Korea and Japan, etc.

Weerasinghe highlighted the important aspects of the concluded Sri Lanka Singapore Free Trade Agreement (SLSFTA) which are as follows: 

nSingapore being one of the most liberalised and efficient economies in the world, the priority given to and signing of the SLSFTA gives a strong message to the world regarding the liberal orientation of the Sri Lankan economy related to trade and investments and future policy direction related to liberal trade.

nSingapore is not a substantial two way trading partner of Sri Lanka at present. It is the 20th export destination for Sri Lanka with about $ 120 million of exports in 2016, and the third import country with imports of $ 1.3 billion in 2016. However, over half of the import value consists of petroleum and petroleum related products. Nevertheless, the main focus of the SLSFTA is on the investment in manufacturing and Services sectors, and as a gateway for Sri Lanka to exploit the vast opportunities to integrate with ‘Production Value Chains’ of ASEAN countries, and over 30 countries with whom Singapore already has entered into FTAs.

nThe National Trade Policy (NTP) which has received Cabinet approval contains as one of its important elements the use of FTAs for market access given the nexus between Trade and Investments.

nThe current FTA with India covers only Trade in Goods with some reference to trade facilitation, but is not comprehensive to derive optimum benefits. In this sense the SLSFTA recognises the fact that exports cannot be carried out effectively without investments, services, SPS/TBT, customs procedures and trade facilitation, logistics, trade remedies, etc., and it is therefore more comprehensive. These areas are included in the ongoing negotiations in respect of the Trade Agreements with India and China, without specific chapters on telecommunication, e-commerce and government procurement.  

nOn the process of negotiations, negotiations are done by a cabinet approved National Negotiating Team, and all three agreements have specialist committees covering the following:

1.Chapter on Goods – The Committee is chaired by the Director General of Department of Fiscal Policy – Ministry of Finance

2.The Chapter on services – The Committee is chaired by Deshan de Mel, Economic Adviser to the Ministry of Finance.

3.The Chapter on Investments – The Committee is chaired by Dr. Nihal Samarappully, Former Executive Director (Research) of the BOI, and includes Dr. Arittha Wickremanayake, member of National Negotiating Team, who is a Legal Specialist.

4.The Chapter on Trade Remedies – The Committee is chaired by Gothami Silva Director of the Department of Commerce.

5.Rules of Origin – Chaired by Dhamapriya, Director DOC.

6. SPS/TBT – Chaired by Dr. Ravi Rathnayake, member of National Negotiating Team

7.Nirmalan Wigneswaran, Senior State Councel and Rajiv Gunathilaka, from the Attorney Generals Department are members of the negotiation team serving in Investment, Services, and on legal Affairs. 

nIn the case of the SLSFTA, in addition to the above there are separate Chapters on Telecommunications, (for which the negotiating team includes the Director of the Telecommunication Regulatory Commission), a Chapter on E-Commerce (for which the Negotiating Committee includes director of the Information and Communication Technology Agency (ICTA), a Chapter on Financial Services, a section on Intellectual Property Rights and for the first time a Chapter on Government Procurements.

nIn regard to the Goods Chapter of the SLSFTA it is to be noted that Singapore being a free and open market, 99% of imports to Singapore is already duty free. Hence, any gains on exports to Singapore will be related to investments, quality of goods, inputs at competitive prices, and degree of competitiveness. Further, in the case of Singapore all the tariff lines are not bound at WTO and therefore can be increased on a future date. However under the Agreement 99 % tariff lines are bound at zero in respect of Sri Lanka, and a commitment has been given to Sri Lanka in this regard. 

Further, under the SSLFTA, Sri Lanka has a negative list of 20% of tariff lines (comprising of around 1,400 tariff lines), the composition of which has been based on revenue implications to the Government, for example; Petroleum products, Hard Liquor, Tobacco etc., as well as protection of local interests such as Agriculture and other products such as footwear, confectionery sensitive local industries. Out of the balance 80% of tariff lines 50% will be zero rated with immediate effect (which are already at zero level), 15% will be zero rated over a six year period from the date of signing of the Agreement in equal instalments, while the balance 15% will be zero rated over a period of 12 years in equal instalments. Further 51 tariff lines will be reduced to zero from 11 to the 15th year. This excludes confectionary, leather and other products of interest to Sri Lanka. 

nIn the case of the Chapter on Government Procurements Only International Competitive Bidding (ICB) are included in the Agreement, while ensuring transparency and clear procedures to ensure healthy competition. National procurements have been specifically excluded to protect the interests of local business. Further the 15% domestic preference accorded to local bidders covering International tenders will be retained for a period of 10 years.

nIn the case of the Trade in Services ,the sectors which have been liberalised under the SLSFTA Agreement by Singapore to create opportunities to the exporters of Services from Sri Lanka to Singapore. In the case of Sri Lanka, limited liberalisation has been undertaken. On Professional services Advisory Services on Architectural Design Services under cross border supply of services has been included, which will facilitate Singaporean investment projects undertaken in Sri Lanka. In this regard it is to be noted such cross border advisory services even happens now to a limited extent, over the internet. 

Sri Lanka has also opened access to testing and laboratory services from Singapore which are considered specialist services which are lacking in Sri Lanka, to ensure recognition of the quality of Sri Lankan products in International markets. 

Sri Lanka has also provided access to other specialised services not provided by the Government on Environmental Services such as sewerage for Industrial parks, waste disposal services for Industrial Parks, cleaning services of exhaust gas and noise abatement services.

 It is to be specifically noted that services related to Mode 4, that is movement of independent professional service providers have been excluded from the Agreement by both countries. However, corporate transferees linked to Mode 3 or investment has been included but will be limited only to Singapore nationals who are managers, executives and specialists. Therefore, access in the services sector will be limited to the other 3 Modes, including project related contractual service providers, Intra Corporate transferees, and cross border service providers related to legal services on International law and third country domestic law excluding Sri Lankan domestic law. 

 nIn the case of investment, which is a main focus under the SLSFTA, Sri Lanka will provide clear legal protection, transparency, and procedures to attract Singaporean investments related to Hi-tech Manufactured Products and Services of interest to Sri Lanka such as Information Technology related services and training, Tourism related investments and services etc. For Singapore the attraction is expected to be use Sri Lanka as a strategic hub to access other large Asian markets; for example, India and China by using the country as a manufacturing base. Further it is also expected to attract Singaporean investments related to Infrastructure Development and Real State.

nIn the case of Para Tariffs, such as Cess, the indicated Policy of the Government is to remove Cess on all imports over the next three years. (The last budget has already removed Cess on 200 items). Accordingly negotiations related to FTAs will be conducted on the premise that Cess and PAL (Port and Airport Levy) will be phased out over the next 5 to 10 years. Whether the phasing out period is to be accelerated will be decided by the Government. The commitment under FTA for removal of CESS and PAL will apply only to tariff liberalisation program and not to the negative list. However, support and assistance for required trade adjustment by local enterprises (which are hitherto protected) to be competitive by the end of the phasing out period is expected to be provided by the State.

nThe Agreement also provides for specific trade remedies and clear dispute settlement mechanisms. Accordingly, Anti-Dumping, Counter-Vailing Duties and Safeguard Measures will be put in place to protect local enterprises. The bills related to Anti-Dumping and Counter-Veiling Measures have been already finalised, and is expected to be presented to Parliament for approval before the end of March. Concurrently, the current lacunae in the Immigration and Emigration act is being look into by the relevant legal specialists to remedy short comings in order to effectively address the movement of people in to the country through a proper regulatory and monitoring mechanism.

nThe Department of Commerce will be entrusted to assess and take necessary remedial action related to local industry with anti-dumping and Counter-Veiling measures during the period of liberalisation. 

nIn regard to Rules of Origin (ROO) requirements, 35% value addition or CTH (4 digit level) is required to establish the country of origin. Further no ASEAN cumulation is allowed. This counters the fears of ASEAN country products entering Sri Lanka through Singapore, since Singapore is basically a trading country. However certain product specific ROOs will apply to both countries in respect of 2000 tariff lines which are exceptions to the ROO.

The inclusion of ‘remanufactured’ products under the preferential products list, requested by Singapore, was basically rejected by Sri Lanka, confining acceptance to only 7 tariff lines. For instance, inclusion of “clutch plates” under remanufactured products, requested by Singapore was not agreed to.

nExplaining the reason for the delay in the formal release of the full SSLFTA including the schedules, Weerasinghe stated that after signing of the Agreement formal communication should be exchanged between the governments of the two countries, through Diplomatic Channels this should be completed before releasing the Agreement to the public. This process is expected to be completed by mid-March. However, the procedural requirements will also enable passing of a vital bill on antidumping, countervailing and safe guards which will be for the benefit of the industry. 

 Before concluding his address, Weerasinghe revealed the current status of the ECTA with India, and the proposed FTA with Bangladesh. 

In regard to the ECTA he stated that it was necessary to clearly understand the nature of the negative lists of both countries, wherein the Indian negative lists including Tariff Quota Items was bigger than the stated 496 tariff lines. In this context in order to facilitate request for removal of items from the Indian negative list, it is necessary that Sri Lankan exporters advice the negotiating team, as to what specific items in the negative list affects Sri Lanka’s exports to India.

 With regard to implementation related issues is concerned a proper institutional mechanism to address grievances will be included in the ETCA which will provide time bound remedies to Sri Lankan exporters.

In regard to food processing industries and the need to enter in to a Mutual Recognition Agreement (MRA) to recognise testing laboratories for certification of processed food products, a pilot project to recognise five existing laboratories for the purpose will be put in place. 

In regard to the proposed FTA with Bangladesh, although Bangladesh wished to complete the feasibility study by end 2017, Sri Lanka expects it to be completed in 2018. This is due to the need to look in to the question on services liberalisation and movement of natural persons. There is a committee working on this issue to frame regulations under the immigration act. The responsibilities of both employers and employees will be clearly defined in the regulation and needed amendments to the immigration and emigration act will be decided upon, before concluding the other FTAs. In this Regard it has to be also noted that, although there is a shortage of workers specially in the construction sector, FTAs not the means to resolve such problem.

During the question and answer session which followed the conclusion of the address; since there are both gains and losses for participating countries in FTAs, clarification was sought regarding the trade adjustment assistance for possible losses for Sri Lanka, especially in the identification of products under the trade liberalisation program. In response it was stated that while experts are working on a Trade Adjustment Programme, the experience of the World Bank indicates that there is limited success on such programs in other countries. However, the assistance of an expert in the field was expected. Nevertheless, the disadvantages that may accrue to a particular industry may not be due to liberalisation alone, but may be due to competitiveness and other technical issues as well. 

It was also pointed out that while Singapore has a well-structured immigration policy, Sri Lanka needs to improve on such policies. It was further pointed out that removal of CESS covering certain products needs to be done carefully. Further proper testing laboratories should be put in place to test certain specialised products coming in from Singapore.