Benefits of FTAs to SAARC Countries
with Special Reference to
Sri Lanka’s Experience
Prof. Lakshman R. Watawala
Why FTA’s?
• Win-win for Trading Partners
• Efficiency from Specialization & Competition
• Economies of Scale: Preferential Market Access
• Products Diversification
• FDI Inflows
• Transfer of Technology
• Overall Increase in Welfare
Criteria for Free Trade Agreement Success
• Geographical Proximity
• High Pre – FTA Tariffs
• High Intraregional Trade Levels
• Tade Complementarities
• Low Political Tensions
• Streamlined Market Access
• Low Non-tariff Barriers (NTBs)
Regional / Bilateral Trade
Agreements in Selected SAARC
Countries
India’s Regional / Bilateral Trade Agreements
Agreements in
Operation
Agreements
Signed but
Negotiations
Ongoing
Agreements in
the Pipeline
• India Singapore
FTA
• India Thai FTA
(EHS in operation)
• India Sri Lanka FTA
• South Asian Free
Trade Agreement
(SAFTA)
• India Nepal Trade
Treaty
• Bangkok Agreement
(APTA)
• India Bhutan Trade
Treaty
•India ASEAN CEPA
•BIMSTEC
•India GCC
Framework
Agreement
•Indo Chile PTA
•Indo MERCOSUR
A/g
•India Japan CEPA
•India Mauritius PTA
•India Peru FTA
•India Korea CECA
Possible Future
Agreements
•India EU Trade
Investment
Agreement
•India US FTA in
services
•India Russia CECA
•India Sri Lanka
CEPA
•India China RTA
•India MERCOSUR
SACU
•India, Brazil, S.
Africa
•India Vietnam
•India Australia
Pakistan’s Regional / Bilateral Trade
Agreements
Agreements in
Operation
• South Asian Free
Trade Agreement
(SAFTA)
• Pakistan Malaysia
FTA
• Pakistan China FTA
• Pakistan Sri Lanka
FTA
• Pakistan Malaysia
Early Harvest
Programme
• Pakistan China
Early Harvest
Programme
• Pakistan Iran PTA
Agreements Signed
but Negotiations
Ongoing
•Pakistan USA FTA
•Pakistan Mexico
FTA
•Pakistan
Bangladesh FTA
•Pakistan
Afghanistan FTA
•Pakistan Turkey
FTA
Agreements in the
Pipeline
•Singapore Pakistan
FTA
Possible Future
Agreements
Bangladesh Regional / Bilateral Trade
Agreements FTAs
Agreements in
Operation
• Bangladesh USA GSP
• European Community
Bangladesh
• Asia Pacific Trade
Agreement
• South Asia Free Trade
Agreement (SAFTA)
• Bangladesh Middle
East (Trade preference
system for the
organization of the
Islamic conference
Agreements
Signed but
Negotiations
Ongoing
•BIMSTEC
Agreements in the
Pipeline
Possible Future
Agreements
Sri Lanka’s Regional / Bilateral Trade
Agreements FTAs
Agreements in
Operation
• Indo – Lanka FTA
• EU GSP+
• South Asia Free Trade
Agreement (SAFTA)
• Pakistan Sri Lanka
FTA
• Bangkok Agreement
(APTA)
Agreements
Signed but
Negotiations
Ongoing
•BIMSTEC
Agreements in the
Pipeline
•TIFA (USA & Sri
Lanka)
•India Sri Lanka
CEPA
Possible Future
Agreements
Sri Lanka’s Experience
with FTA’s
● Indo – Lanka FTA (ISFTA)
● Pakistan Sri Lanka FTA (PSFTA)
Salient Features (1)
Sri Lanka’s FTA’s
• Coverage : Only “Goods”
• Negative List Approach : to Protect National Interests
• Phased Elimination of Tariffs
ISFTA
India
PSFTA
: 3 Years
Sri Lanka : 8 Years
Pakistan : 3 Years
Sri Lanka : 5 Years
Salient Features (2)
Sri Lanka’s FTA’s
• Rules of Origin Criteria
– Wholly Produced/Obtained Products
– Non-wholly Produced/Obtained Products
• Domestic Value Addition : Over 35%
(Cumulative ROO : 25% + 10%)
• H.S. Transformation
ISFTA : At 4 - digit level
PSFTA : At 6 - digit level
• “Sufficient Process”
Tariff Structure
India’s Commitment -ISFTA
Textile 25%
Reduction
Tea Quota
(5 Items)
Pakistan’s Commitment - PSFTA
No Concession
506
(235Garments
Items)
Quota
Tariff Rate
Quota
26
(553Items)
Margin of
Preference
5
Neagtive list
(198 Items)
Phasing Out
List
4,481
Zero Duty
(4,233 Items)
Total No. of Items : 5,224
100% Tariff
Concession
206
Tariff Structure
Sri Lanka’s Commitment -ISFTA
Sri Lanka’s Commitment -PSFTA
100% T ariff Concession
Negative List
No Concession
102
695
(1,220 Items)
T ariff Rate Quota
2
Phased out upto
100% in 8 years
Zero Duty
(2,779 Items)
(1,225 Items)
Total No. of Items = 5,224
Phasing Out List
4,425
Achievements
Indo – Lanka FTA
Sri Lanka Trade with India (SLRs.Mn.)
Exports
Import/Export
Ratio
Year
Imports
Trade Gap
1986
2,221
330
14
:1
1,891
1990
4,730
809
13
:1
3,921
1994
19,569
1,047
15.7 : 1
18,522
1998
35,523
2,279
11
:1
33,244
2000
45,477
4,217
11
:1
41,260
2001
53,750
6,266
8.6 : 1
47,484
2002
79,847
16,152
4.9 : 1
63,695
2003
103,871
23,275
4.5 : 1
80,596
2004
136,008
38,580
3.5 : 1
97,428
2005
2006
2007
140,642
187,673
308,000
56,200
50,889
55,000
2.5 : 1
3.7 : 1
5.6 : 1
84,442
136,784
253,000
Sri Lanka’s Exports to India - 2006
HS
Code
Product Description
Value of
Exports
(Rs. mn.)
Duty Preference
MFN
FTA
% of
Exports to
India
Share of SL in
Indian Import
Market
1516 Vegetable Oil (Vanaspathi)
8,208
100%
0
99%
27%
7403 Refine copper & copper alloys
5,053
5%
0
97%
74%
7413 Stranded wire, cables of copper
3,997
10%
0
100%
89%
8544 Insulated wire, cable and electric
conductors
3,414
7.5%
0
92%
14%
7605 Alluminium wire
2,575
5%
0
100%
52%
1517 Margarine
2,394
100%
0
99%
18%
1,363
70%
0
82%
60%
4707 Waste and scrap of paper
1,320
10%
0
100%
5%
0907 Cloves
1,182
35%
0
89%
42%
7408 Copper wire
1,090
5%
0
100%
9%
751
7.5%
0
100%
7%
550
5%
0
95%
2%
090411 Pepper
294190 Antibiotics
7404 Copper waste & scraps
Other
18,992
Total
50,889
Sri Lanka Exports to India
2005 - 2007
Product
US $
US $
US $
2005
2006
2007
Vanaspathi
122.6
79.0
144.8
Copper & Copper
based products
155.1
103.0
27.9
New Products exported to India
(Under the FTA)
•
•
•
•
•
•
•
•
•
Multiwall Paper Sacks
Marble Slabs
Ceramic-ware
Gems & Jewellery
Ice Cream Machines
Furniture
Rubber Products
Copper Products
DIMMS (Computer
Parts)
• MDF Boards
• Ayurvedic Products
• Paints
• Food Items
• Car Batteries
• Fibre Products
• Energy Saving Lamps
• Bicycles
• Tyres
• Coconut Milk
Some Indian Companies Operating
in Sri Lanka
•
•
•
•
•
•
•
•
•
•
•
Taj Group
•
CEAT
•
Gujrat Ambuja
•
Larsen & Turbro
•
Apollo
•
Cosco Polymers
•
Numeric Technologies •
Polycab Cables
•
Ruchi Soya
•
IOC
•
Bharath AirTel
Gujrat Glass
Asian Paints
Ramco Group
Motherson Sumi
Western Refrigeration
VSNL Lanka
Tata Tea
GTB Steel
Bhuwalka Steel
Life Insurance Corp. India
Investment flows from India
2005-2007
Year
No. of
Projects
Realized
Investment Cum.
Rs Mn
Realized
Investment
Cum. US $ Mn.
2000
34
1.162
11
2001
37
3,499
32
2002
59
7,373
69
2003
75
10,298
96
2004
99
16,936
157
2005
102
23,194
216
2006
105
24,097
224
•
Top 15 Investor Countries
Ranked by FDI – 2007 (US$ Mn.)
Country
S/N
Value
01
Malaysia
232.71
02
UK
95.87
03
Japan
48.78
04
India
42.88
05
Hong Kong
36.04
06
Sweden
31.45
07
Netherlands
28.63
08
USA
26.38
09
Singapore
19.99
10
Italy
18.24
11
UAE
16.02
12
Belgium
13.88
13
China
10.73
14
Korea Rep.
10.64
15
Germany
8.38
Indian Investments
Indo - Lanka FTA
Sectoral Breakdown of
Indian Investments
Investments (Last 7 year period)
No. of Projects (started)
(As at end 2005)
Textiles,
Wearing Apparel
& Leather
Products
2%
Services
70%
Other Products
1%
Chemicals,
Petroleum,
Coal,Rubber &
plastics
2%
134
FDI
USD 265 mn.
Employment
6,300
Products
Fabricated Metal
& Machenary
12%
Food, Beverages
& Tobacco
13%
•
Metal
•
Furniture
Products
•
Marbles and
•
Wire/Cables
•
Rubber
Products/
Tyres
•
Edible Oil
Granites
•
Ceramics/
Glass
•
Electrical/
Electronics
Investment Flows from India
A Historical Perspective
● 1978- 1995 – Domestic-market oriented Units/Enterprises
Manufacturing : CEAT & Ashok Leyland & LMT
Services
: Taj Hotels , IMRB (market research)
Advantages
: Tariff protection in Sri Lanka
Similarities in both markets
Domestic demand
● 1995- 2000: Large scale projects- Domestic market oriented
Cement Bagging Terminal
- Gujarat Ambuja, L & T
Construction Materials
- Ramco
- roofing sheets
- Bhuwalka, GTB - steel profiles
- Asian Paints
- paints
● 2000 onwards – Export Oriented Projects &
Domestic – (Lanka IOC petroleum)
● Pre - ISFTA and Post - ISFTA
1980- 1990
US$ 3.4 mn
04 units
1990- 2000
US$ 94 mn
25 units
2000- 2007
US$ 265 mn
134 units
Achievements
Pakistan – Sri Lanka FTA
Trade between Sri Lanka and Pakistan
(USD Mn)
Year
Exports
Imports
Ratio
2000
30
72
1 : 2.4
2001
24
73
1:3
2002
29
66
1 : 2.3
2003
36
71
1:2
2004
39
108
1 : 2.8
2005
43
115
1 : 2.8
2006
2007
58
58.5
147
178
1 : 2.5
1 : 3.0
Major Sri Lankan Products Export to Pakistan
• Coconut
• Graphite
• Tea
• Plastics
• Spices
• Raw Rubber
• Copra
• Betel leaves
• Fibre board
• Coconut Oil
• Paper and Paper Boards
• Coconut Fibre
• Computers and Parts
Sri Lanka’s Exports to Pakistan - 2006
HS
Code
Product Description
Value of
Exports
(Rs. mn.)
Duty Preference
MFN
FTA
% of
Exports to
Pakistan
Share of SL
in Indian
Import
Market
4001 Natural Rubber
2,043
5%
3.3%
24%
30%
1203 Copra
1,322
10%
0%
100%
99%
‘0902 Tea
847
20%
0%
2%
4%
‘0801 Desiccated Coconut
763
5%
0%
23%
64%
8908 Vessels Structures
324
25%
16.5%
100%
20%
4411 Fibre Boards
300
10%
6.6%
60%
11%
Other
1,782
Total
7,381
Pakistan Exports to Sri Lanka
•
•
•
•
Textile Fabrics – Zero tariff
Pharmaceuticals – Zero tariff
Machinery
Agricultural Items Rice, Potato, Fruits (apples,
mandarins) etc.
• 6000 MT Basmathi rice
• Industrial products – PVC, Carbon etc.
Tariff Rate Quota and Margin of
Preference for Sri Lanka exports to
Pakistan
• 10,000 MT of Tea duty free
• Duty for Betel leaves is Rs 150 per Kg. SL
granted quota of 1200 MT per annum.
Currently revised to 20% MOP
• 200,000 pcs apparel products of 21 categories
granted 20% duty preference
• Ceramic exports granted 20% duty preference
but not for porcelain tableware
Trade with India
• Conduit for Indo Pakistan Trade
• Now take place via Singapore or Dubai
• Pakistan Investors could start operations in Sri
Lanka to trade with India using ISFTA
• Sri Lanka can acquire Hub Status in South
Asia
Pakistan Investments
Pakistan - Sri Lanka FTA
Before FTA
No. of
Projects
Investment (Rs. Mn.)
15
1,594
15
1,730
(end of 2004)
After FTA
(2005 – 2007)
Opportunities for Investment
• Need for Textile Fabric Industry in Sri Lanka
for Garment Industry
• Sri Lanka assist to improve the garment
manufacturing techniques
• Gem and jewellery trade
• Tea bagging industry
• Super market operation in Pakistan
• Generous Tax Incentives
Highlights of Sri Lanka’s Trade
Agreements
Special Tariff Preferences for
Sri Lankan Products
• Indo-Lanka FTA
 4,232 products (zero duty)
• Sri Lanka-Pakistan FTA
 206 products (zero duty)
 4,480 products – 34% immediate duty preference
(phasing out to zero duty in 3 yrs)
Impact on FDI
• Indian industries which took take advantage of high
duty in India will gradually lose advantage as seen in
the Vanaspathi industry
• Environmental controls, value addition and minimum
pricing formula for copper and copper products has
resulted in the closure of this industry
• Opportunities –
• Coal power plant in Trincomalee
• Industrial and IT parks
• Education - Teaching of English, BPO & IT industry.
• Fabric Industry for Garments
Impact on FDI
• Sri Lankan investors have invested and
looking at opportunities in the
• Hotel and Tourism sector
• Industrial Park for Garments and Fabric,
• Garment factories,
• Retail trade and supermarkets.
Lessons Learnt
• Need Political will
• Size of country does not matter
• Success achieved by giving Preferential treatment
to smaller countries
• Comparative advantage activates dormant
complementarities
• Promote air travel sectors and tourism
• Non Tariff Barriers could be a hindrance
• No advantage given for products having genuine
comparative advantage due to protection
• Closer co-operation in Trade and Promotion of non
FTA Goods
Looking Beyond FTA
• Comprehensive Economic Partnership
Agreement (CEPA)
• Further liberalization of Trade
• Services including Professional services
• Investment liberalization
THANK YOU!