Pakistan and Sri Lanka reassess FTA
Pakistan and Sri Lanka have entered into renewed negotiations to review the Free Trade Agreement (FTA) they signed in 2002, The agreement has been functional since 2005 but has not accomplished the expected increase in trade between the two nations. As such, Pakistan’s Ministry of Finance and Economic Affairs and Sri Lanka’s Ministry of Commerce and Industry have recently exchanged their delegations to revise the Comprehensive Economic Partnership Agreement (CEPA).
Under the FTA, Pakistan is the second largest trading partner of Sri Lanka in the South Asian region. The FTA plan allows the countries duty-free market access for their respective exports. Initially Sri Lanka enjoyed tariff concessions on nearly 206 exports, whereas Pakistan received concessions on 102 products. While the agreement proved to be more beneficial to Sri Lanka, in 2010 both countries agreed to apply duty-free market access to thousands of exports.
Despite a number of concessions offered under the FTA plan, the agreement has fallen short of expectations. Although an increase in trade revenue of nearly $342 million in 2010 from $100 million in 2004 was seen, it is still well below the $2 billion mark expected to be achieved by 2012.
At the 10th session of the Joint Economic Commission (JEC), both countries held talks on issues focusing mainly on improving bilateral trade relations and reviewing the now obsolete Free Trade Agreement.
A number of other agreements were also signed between the two countries and various issues came up for discussion.
The highlights include: • A meeting for Comprehensive Economic
Partnership Agreement (CEPA) to be held in Colombo Sri Lanka in August 2011 to further discuss bilateral trade relations. Promote frequent exchanges of JEC trade delegations to both countries at least once a year. Reassess and relax the existing visa policies to promote individual trade participation by businessmen in both countries. Exchange valuable services between the countries to help set up basic infrastructure. Pakistan offered to provide the necessary services and expertise of its Heavy Mechanical Complex to set up sugar and cement grinding and packing plants in Sri Lanka. Furthermore, the State Bank of Pakistan also promised Sri a credit of nearly $200 million to Sri Lanka. Sri Lanka has also shown interest in sharing with Pakistan the required skills needed to produce various handicrafts, brassware, ceramics, leather and woodwork. In return Sri Lanka has offered to train schools of nurses in various medical fields like cardiology, psychiatry, neurology etc. Both nations also agreed to form a Joint Committee for cooperation to increase the scope of science and technology in the region. The two countries also hope to review the export items on each other ‘No Commission List’ in a bid to reduce the import tariff on them. The items on a ‘No Commission List’ when exported from a country do not enjoy any tariff concessions. Talks over the fate of auto parts export to Pakistan by Sri Lanka, which was previously denied, were also held. Both countries hope to offer privileged market access to a range of export items under various concessions. Currently, Pakistan’s exports to Sri Lanka include woven cotton fabrics, cement,
• basmati rice, potatoes, cumin, pharmaceuticals, tubes and pipes. Whereas the imports from Sri Lanka include rubber, coconut and betel leaves.
The revised provisions of the Comprehensive Economic Partnership Agreement (CEPA) are believed to be much broader in context than the former. CEPA is expected to remove products like broken rice, onions, maize, ceramic sinks and ethyl alcohol from Sri Lanka’s ‘No Commission List’. Similarly, Sri Lanka wants its betel leaf exports to be removed from Pakistan’s ‘No Commission List’ and gain more tariff concessions.
Sri Lanka as the first country to sign an FTA with Pakistan also has similar agreements with India and shares trade revenue of nearly $2.5 billion. Pakistan plans on gaining access to Indian markets through enhancing trade links with Sri Lanka. Currently, India is Pakistan’s largest competitor in many of its key exports to Sri Lanka including cotton fabrics, denim, knitted fabrics, cement, tubes and pipes. The magnitude of Indian exports to Sri Lanka is significantly higher than Pakistan, which fuelled the need to review the trade agreement
President Mahinda Rajapaksa with
President Asif Ali Zardari