Benefits of FTAs to SAARC Countries with Special Reference to Sri Lanka

1
Benefits of FTAs to SAARC Countries with Special
Reference to Sri Lankas Experience

• Prof. Lakshman R. Watawala

2
Why FTAs?

• 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
Indias 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
6
Pakistans 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
7
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
8
Sri Lankas 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
9
Sri Lankas Experience with FTAs
? Indo Lanka FTA (ISFTA) ? Pakistan Sri Lanka
FTA (PSFTA)
10
Salient Features (1)Sri Lankas FTAs

• 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

11
Salient Features (2) Sri Lankas FTAs

• 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
Pakistans Commitment - PSFTA
Indias Commitment -ISFTA
Total No. of Items 5,224
13
Tariff Structure
Sri Lankas Commitment -ISFTA
Sri Lankas Commitment -PSFTA
(1,220 Items)
(1,225 Items)
(2,779 Items)
Total No. of Items 5,224
14

• Achievements
• Indo Lanka FTA

15
Sri Lanka Trade with India (SLRs.Mn.)
Year Imports Exports Import/Export Ratio Import/Export Ratio Trade Gap
1986 2,221 330 14 1 1,891 1,891
1990 4,730 809 13 1 3,921 3,921
1994 19,569 1,047 15.7 1 18,522 18,522
1998 35,523 2,279 11 1 33,244 33,244
2000 45,477 4,217 11 1 41,260 41,260
2001 53,750 6,266 8.6 1 47,484 47,484
2002 79,847 16,152 4.9 1 63,695 63,695
2003 103,871 23,275 4.5 1 80,596 80,596
2004 136,008 38,580 3.5 1 97,428 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 84,442 136,784 253,000
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Sri Lankas Exports to India - 2006
HS Code Product Description Value of Exports (Rs. mn.) Duty Preference Duty Preference of Exports to India Share of SL in Indian Import Market
HS Code Product Description Value of Exports (Rs. mn.) 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
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 18,992
Total 50,889
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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
18
New Products exported to India (Under the FTA)

• Ayurvedic Products
• Paints
• Food Items
• Car Batteries
• Fibre Products
• Energy Saving Lamps
• Bicycles
• Tyres
• Coconut Milk

• Multiwall Paper Sacks
• Marble Slabs
• Ceramic-ware
• Gems Jewellery
• Ice Cream Machines
• Furniture
• Rubber Products
• Copper Products
• DIMMS (Computer Parts)
• MDF Boards

19
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

20
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
2007 134 28,357 265

21
Top 15 Investor Countries Ranked by FDI 2007
(US Mn.)
S/N Country Value
S/N
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
22
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 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
24

• Achievements
• Pakistan Sri Lanka FTA

25
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
26
Major Sri Lankan Products Export to Pakistan

• Graphite
• Plastics
• Raw Rubber
• Fibre board
• Paper and Paper Boards
• Computers and Parts

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

27
Sri Lankas Exports to Pakistan - 2006
HS Code Product Description Value of Exports (Rs. mn.) Value of Exports (Rs. mn.) Duty Preference Duty Preference of Exports to Pakistan Share of SL in Indian Import Market
HS Code Product Description Value of Exports (Rs. mn.) Value of Exports (Rs. mn.) 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
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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

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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
No. of Projects Investment (Rs. Mn.)
15 1,594
15 1,730
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 Lankas 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 duty preference
• (phasing out to zero duty in 3 yrs)

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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!