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. WatawalaProf. 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

Possible Future

Agreements

• 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

•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

Agreements Signed but

Negotiations Ongoing

Agreements in the Pipeline

Possible Future Agreements

• 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

•Pakistan USA FTA

•Pakistan Mexico FTA

•Pakistan Bangladesh FTA

•Pakistan Afghanistan FTA

•Pakistan Turkey FTA

•Singapore Pakistan FTA

Bangladesh Regional / Bilateral Trade Agreements FTAs

Agreements in Operation

Agreements Signed but

Negotiations Ongoing

Agreements in the Pipeline

Possible Future Agreements

• 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

•BIMSTEC

Sri Lanka’s Regional / Bilateral Trade Agreements FTAs

Agreements in Operation

Agreements Signed but

Negotiations Ongoing

Agreements in the Pipeline

Possible Future Agreements

• Indo – Lanka FTA• EU GSP+• South Asia Free

Trade Agreement (SAFTA)

• Pakistan Sri Lanka FTA

• Bangkok Agreement (APTA)

•BIMSTEC •TIFA (USA & Sri Lanka)

•India Sri Lanka CEPA

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 PSFTA

India : 3 Years Pakistan : 3 Years

Sri Lanka : 8 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

Zero Duty

Textile 25% Reduction

Tea QuotaGarments

Quota

Neagtive list

(553Items)

(5 Items)(235 Items)

(198 Items)

(4,233 Items)

Total No. of Items : 5,224

Pakistan’s Commitment - PSFTA

Tariff Rate Quota

26

Margin of Preference

5

100% Tariff Concession

206

Phasing Out List 4,481

No Concession 506

India’s Commitment -ISFTA

Tariff Structure

Phased out upto 100% in 8 years

Zero Duty

Negative List

Total No. of Items = 5,224

(1,220 Items)

(1,225 Items)(2,779 Items)

100% Tariff Concession102

Tariff Rate Quota 2

No Concession695

Phasing Out List 4,425

Sri Lanka’s Commitment -ISFTA Sri Lanka’s Commitment -PSFTA

Achievements Indo – Lanka FTA

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

Year Imports Exports Import/Export Ratio

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 97,428200520062007

140,642187,673308,000

56,20050,88955,000

2.5 : 13.7 : 15.6 : 1

84,442136,784253,000

HS Code

Product Description Value of Exports

(Rs. mn.)

Duty Preference % of Exports to India

Share of SL in Indian Import Market

MFN FTA

1516 Vegetable Oil (Vanaspathi) 8,208 100% 0 99% 27%7403 Refine copper & copper

alloys5,053 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%

090411

Pepper 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%

294190

Antibiotics 751 7.5% 0 100% 7%

7404 Copper waste & scraps 550 5% 0 95% 2%Other 18,992Total 50,889

Sri Lanka’s Exports to India - Sri Lanka’s Exports to India - 20062006

Sri Lanka Exports to India2005 - 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 Some Indian Companies Operating in Sri Lankain 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 InvestmentCum. US $ Mn.

2000 34 1.162 11

2001 37 3,499 322002 59 7,373 692003 75 10,298 962004 99 16,936 1572005 102 23,194 2162006 105 24,097 224

2007 134 28,357 265

Top 15 Investor CountriesTop 15 Investor Countries Ranked by FDI – 2007 (US$ Mn.)Ranked by FDI – 2007 (US$ Mn.)

S/NCountry Value

01 Malaysia 232.7102 UK 95.8703 Japan 48.7804 India 42.8805 Hong Kong 36.0406 Sweden 31.4507 Netherlands 28.6308 USA 26.3809 Singapore 19.9910 Italy 18.2411 UAE 16.0212 Belgium 13.8813 China 10.7314 Korea Rep. 10.6415 Germany 8.38

Indian InvestmentsIndo - Lanka FTA

Products

• Metal Products

• Wire/Cables

• Rubber Products/Tyres

• Edible Oil

• Furniture• Marbles

and Granites

• Ceramics/Glass

• Electrical/ Electronics

Investments (Last 7 year period)No. of Projects (started) 134

FDI USD 265 mn.Employment

6,300Other Products

1%

Services70%

Textiles, Wearing Apparel

& Leather Products

2% Fabricated Metal & Machenary

12%

Food, Beverages & Tobacco

13%

Chemicals, Petroleum,

Coal,Rubber & plastics

2%

Sectoral Breakdown of Indian Investments

(As at end 2005)

● 1995- 2000: Large scale projects- Domestic market orientedCement Bagging Terminal - Gujarat Ambuja, L & TConstruction Materials - Ramco - roofing sheets

- Bhuwalka, GTB - steel profiles

- Asian Paints - paints

Investment Flows from IndiaInvestment Flows from India A Historical PerspectiveA Historical Perspective

● Pre - ISFTA and Post - ISFTA1980- 1990 US$ 3.4 mn 04 units

1990- 2000 US$ 94 mn 25 units2000- 2007 US$ 265 mn 134 units

● 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

● 2000 onwards – Export Oriented Projects & Domestic – (Lanka IOC petroleum)

Achievements Pakistan – Sri Lanka FTA

Trade between Sri Lanka and Pakistan

Year Exports Imports Ratio

2000 30 72 1 : 2.42001 24 73 1 : 32002 29 66 1 : 2.32003 36 71 1 : 22004 39 108 1 : 2.82005 43 115 1 : 2.8

20062007

5858.5

147178

1 : 2.5 1 : 3.0

(USD Mn)

Major Sri Lankan Products Export to Pakistan

• Coconut• Tea• Spices• Copra• Betel leaves• Coconut Oil• Coconut Fibre

• Graphite

• Plastics

• Raw Rubber

• Fibre board

• Paper and Paper

Boards

• Computers and Parts

Sri Lanka’s Exports to Sri Lanka’s Exports to Pakistan - 2006Pakistan - 2006

HS Code

Product Description Value of

Exports(Rs. mn.)

Duty Preference

% of Exports

to Pakista

n

Share of SL in

Indian Import Market

MFN FTA

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 1,782Total 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 InvestmentsPakistan - Sri Lanka FTA

No. of Projects

Investment (Rs. Mn.)

15 1,594

15 1,730

Before FTA(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!