Sri Lanka Singapore FTA: Gateway to integrate with advanced economies

Singapore is Sri Lanka’s 20th export destination and eighth trading partner. In terms of trade in goods, Singapore is not a significant export market of Sri Lanka.  But, being an important 

member of the ASEAN with a high trade to GDP ratio (168.5% world’s highest whereas Sri Lanka ratio is 24.7%), the FTA with Singapore will provide Sri Lanka a gateway to larger ASEAN 

market as Singapore has so far signed 21 Free Trade Agreements with 32 trading partners

The following statement was issued by the Ministry of Development Strategies and International Trade yesterday on the Sri Lanka-Singapore FTA

1. Policy

The development policy of the Government aims primarily at maximising the economic benefits through integration in to global economy, attracting Foreign Direct Investments (FDIs) in strategic sectors and improving export competitiveness. 

It is widely understood from the beginning that this requires policy, legal and institutional reforms in line with the today’s global trends. One of the pillars of this strategy is establishing effective partnerships with strategically-selected economies. 

Lack of a clear vision and coherent trade policy that provides benchmarks to govern and guide the administration and conduct of international trade has resulted in the development of ad-hoc and often conflicting rules, regulations and practices that affected adversely on the expansion of trade. Therefore, the Government adopted a new Trade Policy, bringing different elements of trade policy into one platform essentially with reforms connected to increase competitiveness, expand market access and trade facilitation, create macroeconomic balance, bring policy and institutional coherence and adjustment of firms and people.  

The Cabinet approval was granted to the new Trade Policy on the basis that it gives precedence to unilateral reforms, makes trade agreements consistent, gives emphasis to reduce protection rates and reduce their variance and given the challenge of increasing exports rapidly, assures existing barriers to private sector’s adjustment and access to needed inputs are assured and trade policy making institutions are strengthened with competent and sufficient staff.

Accordingly, the Government started negotiations with three key economies, namely Singapore, China and India. Sri Lanka expects to foster freer trade flows and create stronger ties with these trading partners, eliminate para tariffs, promote regional integration, enhance competitiveness and deliver enhanced trading opportunities.

2. Process

The negotiations of the Sri Lanka-Singapore Free Trade Agreement (SLSFTA) commenced in August 2016 after signing of the joint statement of Singapore and Sri Lanka, during the official visit of Sri Lanka’s Prime Minister to Singapore on 18-19 July 2016. Eight rounds of negotiations have been completed and as a result, the agreement has come to the final stage in January 2018.

The Ministry has taken every effort to ensure the process of negotiations to be transparent, inclusive and incorporates the interest of all stakeholders as well as to secure the national interests.

The negotiations were done through a Trade Negotiations Team approved by the Cabinet and it was supported by subcommittees appointed, covering all the areas under the SLSFTA and they provided technical level inputs during the negotiation process. The Sub Committees were comprised of all relevant Government agencies responsible for each subjects.  Further, steps have been taken to have an observer representing private sector to participate in trade negotiations. 

In addition, the Ministry obtained views of various stakeholders such as professional associations, chambers from private sector through consultations and with reference to policy, technical and regulatory aspects, the respective Government agencies were consulted. 

More than 15 consultative meetings with private sector representatives have been conducted since August 2016 and wide range of subjects coming under each area and specifically on the adjusting domestic regulatory framework to secure national interests has been discussed. 

Although there was a policy decision taken by the Government not to take any commitments or any opening in relation to Free Movement of Natural Persons, yet there were concerns expressed by stakeholders that lack of regulatory mechanism domestically would create possible negative effects on domestic labour market.

The United Professional Movement (UPM) assisted the process by submitting a comprehensive proposal on National Policy Framework and National Registration Process identifying the major legal shortcomings in the Sri Lankan legal systems in terms of liberalisation. It included large number amendments to Acts and enactments of new acts in a wider range of areas/subjects. 

However, considering the mandate and the institutional capacity of the Ministry of Development Strategies and International Trade, the consensus was reached to prioritise the amendments to address the concerns in phased out manner through short-term and long term measures. 

The initial study on the domestic regulatory mechanism revealed lacuna in the existing regime and identified that addressing the Immigration and Emigration laws as a requisite in order to have a streamlined transparent process with respect to foreigners coming into Sri Lanka. 

A special team of senior officials from the Attorney General’s Department was appointed for this purpose and consultations were held with the professional associations and chambers, covering wide sphere of sectors on the present regulatory mechanisms in Sri Lanka. 

As a short-term measure, from trade remedies side for the protection of industries’ perspective it was focused on submitting a Safeguard Bill to prevent the companies from the sudden surge in imports due to fluctuation in the world market and the Antidumping & Countervailing Bill to protect local industries from possible unfair trade practices due to dumping (selling at artificially low price) and subsidies given by other countries. These two Bills will be hopefully tabled at Parliament for approval in the next few days. 

In terms of professional services, the final clearance is awaited for the new immigration regulations drafted to address the current procedure which was claimed to be ad-hoc and not transparent. Through the new regulations it is expected to create a transparent and balanced immigration procedure for foreign workers. However, in the longer term, a complete overhaul of the Immigration Act is to be done hopefully by early next year.

The National Human Resources Development Council Sri Lanka (NHRDCSL), which is the central entity endowed with National Human Resources Development Council (NHRDC), too would play a major role in relation to foreign employees. 

The above team is in the process of finalising the necessary amendments to the Act of NHRDC and handed over the drafted amendments to the NHRDC for further comments. These enactments would provide required legal background to streamline the processes in labour market, foreign employees in Sri Lanka in particular, which in turn facilitate the operationalisation of Free Trade Agreements, once these are in force. 

3. Scope 

The SLSFTA includes several provisions aiming at reforming of Sri Lanka’s trade and trade-related policies or systems that will help in showcasing the trade-friendly framework of the government internationally. These will provide for modernisation of different systems, anchoring of external investment in the country, and better and more predictable policy environment. Therefore, SLSFTA is a way to demonstrate Sri Lanka’s openness to investments internationally and domestically. This will also help to encourage the growth, development and nimbleness of Sri Lanka’s private sector.

The Sri Lanka-Singapore FTA is a landmark agreement as it is the first trade agreement that Sri Lanka is signing in over 10 years and it is the first comprehensive agreement for Sri Lanka beyond trade in goods. SLSFTA basically covers the areas of services, investment, Sanitary and Phyto-Sanitary (SPS) measures and Technical Barriers to Trade (TBT), trade remedies and dispute settlement, Customs cooperation and trade facilitation, economic and technological cooperation, Government procurement, e-commerce and Intellectual Property Rights as well. 

Opening up the services market, absorbing the international best practices in the area of trade and facilitating the process of attracting investments are the major drives for negotiating a free trade agreement with Singapore which is unilaterally 99% liberalised goods market. 

In 2016, bilateral trade volume (goods) stood as high as $ 1.15 billion and there is a great potential for further expansion benefitting both countries. In the area of trade in goods, Singapore has already applied zero rate of duty to 99% of their tariff lines.

The Singapore-Sri Lanka FTA is part of a broader strategy of looking East to renew our trade relationships in the process of diversifying our markets towards Asia and focus on plugging into Asian supply chains. This FTA is our first agreement with a South East Asian country – and we envisage this as a first step towards closer integration with ASEAN, and potentially be part of the RCEP – Regional Comprehensive Economic Partnership in the future.

Singapore is Sri Lanka’s 20th export destination and eighth trading partner. In terms of trade in goods, Singapore is not a significant export market of Sri Lanka.  But, being an important member of the ASEAN with a high trade to GDP ratio (168.5% world’s highest whereas Sri Lanka ratio is 24.7%), the FTA with Singapore will provide Sri Lanka a gateway to larger ASEAN market as Singapore has so far signed 21 Free Trade Agreements with 32 trading partners. 

Currently Sri Lanka’s exports to Singapore are limited to electrical and electronic products, parts and machinery, petroleum products, apparel, food, feed, beverages, and tobacco. There is a greater potential for Sri Lanka to export certain products such as t-shirts, men’s and women’s suits, jerseys, new pneumatic tyres of rubber, men’s suits, pepper, light-vessels, fire-float, articles of vulcanised rubber, and precious stones and semi-precious stones. Both countries will mutually benefit with greater investment from Singapore in these sectors. 

Singapore is at present the seventh largest investor of Sri Lanka having invested (FDI) around $ 658 m during 2005-2017 3Q, through over 119 Singaporean companies operating in Sri Lanka. The sectors which attracted investments include IT, real estate, manufacturing, construction, renewable energy and pharmaceuticals. 

It is expected that the protection to be given under SLSFTA to investors and to their investments will result in substantial increase in FDI from Singapore by Sri Lanka offering good potential for Singapore companies looking to tap opportunities in new markets. It would result in the opportunities in Sri Lanka to Singapore companies and international companies based in Singapore. Sri Lankan companies which have invested more than $ 120 m in Singapore will also benefit.

Entering into a FTA with Singapore, being the most liberalised economy in the region, will give a positive note on Sri Lanka as it demonstrates that both countries are open for business and encourage investments. Partnering with such an economy which is rule-based, globally dynamic and with advanced managerial/institutional competencies will obviously trigger and contribute healthy reforms which in turn will move the country to the next level of economic development.