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Benefits of FTAs to SAARC Countries with Special Reference to Sri Lanka’s Experience

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

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Benefits of FTAs to SAARC Countries with Special Reference to Sri Lanka’s Experience

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  1. Benefits of FTAs to SAARC Countries with Special Reference to Sri Lanka’s Experience Prof. Lakshman R. Watawala

  2. 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

  3. 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)

  4. Regional / Bilateral Trade Agreements in Selected SAARC Countries

  5. India’s Regional / Bilateral Trade Agreements

  6. Pakistan’s Regional / Bilateral Trade Agreements

  7. Bangladesh Regional / Bilateral Trade Agreements FTAs

  8. Sri Lanka’s Regional / Bilateral Trade Agreements FTAs

  9. Sri Lanka’s Experience with FTA’s ● Indo – Lanka FTA (ISFTA) ● Pakistan Sri Lanka FTA (PSFTA)

  10. Salient Features (1)Sri Lanka’s FTA’s • Coverage : Only “Goods” • Negative List Approach : to Protect National Interests • Phased Elimination of Tariffs ISFTAPSFTA India : 3 YearsPakistan : 3 Years Sri Lanka : 8 YearsSri Lanka : 5 Years

  11. 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”

  12. Tariff Structure India’s Commitment -ISFTA Pakistan’s Commitment - PSFTA Total No. of Items : 5,224

  13. Tariff Structure Sri Lanka’s Commitment -ISFTA Sri Lanka’s Commitment -PSFTA (1,220 Items) (2,779 Items) (1,225 Items) Total No. of Items = 5,224

  14. Achievements Indo – Lanka FTA

  15. Sri Lanka Trade with India (SLRs.Mn.)

  16. Sri Lanka’s Exports to India - 2006

  17. Sri Lanka Exports to India2005 - 2007

  18. 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 New Products exported to India (Under the FTA)

  19. 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 Some Indian Companies Operating in Sri Lanka

  20. Investment flows from India 2005-2007

  21. Top 15 Investor CountriesRanked by FDI – 2007 (US$ Mn.)

  22. Metal Products • Wire/Cables • Rubber Products/ • Tyres • Edible Oil • Furniture • Marbles and Granites • Ceramics/ Glass • Electrical/ Electronics Indian InvestmentsIndo - Lanka FTA Sectoral Breakdown of Indian Investments(As at end 2005) Investments (Last 7 year period) • No. of Projects (started) 134 • FDI USD 265 mn. • Employment 6,300 Products

  23. Investment Flows from IndiaA 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

  24. Achievements Pakistan – Sri Lanka FTA

  25. Trade between Sri Lanka and Pakistan (USD Mn)

  26. Coconut Tea Spices Copra Betel leaves Coconut Oil Coconut Fibre Graphite Plastics Raw Rubber Fibre board Paper and Paper Boards Computers and Parts Major Sri Lankan Products Export to Pakistan

  27. Sri Lanka’s Exports to Pakistan - 2006

  28. 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.

  29. 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

  30. 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

  31. Pakistan InvestmentsPakistan - Sri Lanka FTA Before FTA (end of 2004) After FTA (2005 – 2007)

  32. 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

  33. Highlights of Sri Lanka’s Trade Agreements

  34. 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 dutypreference (phasing out to zero duty in 3 yrs)

  35. 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

  36. 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.

  37. 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

  38. Looking Beyond FTA • Comprehensive Economic Partnership Agreement (CEPA) • Further liberalization of Trade • Services including Professional services • Investment liberalization

  39. THANK YOU!

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