Sri Lanka eyes special preferential trade pact in post-Brexit UK

• Sri Lanka asked to submit detail brief on Brexit concerns 
• UK plans to strengthen bilateral cooperation with Sri Lanka 

By Nishel Fernando 

Sri Lanka plans to formally commence negotiations for a special bilateral preferential trade agreement with United Kingdom (UK) to promote sustainable bilateral trade between the two countries, with a view of preparing itself for a no-deal Brexit scenario, according to government sources. 

The UK government has already given their assurance to Sri Lanka that GSP Plus concessions will continue in the Brexit transitional period, which is expected to last for approximately 21 months following the Brexit. 

However, UK remains confident of reaching a deal with EU that can gain the support of the UK legislature despite several failed attempts in the UK Parliament. Political analysts noted it’s most likely that UK will reach a deal to enter into Custom Union with EU similar to that of EU -Turkey Customs Union.

If UK and EU enter into Custom Union with EU, the beneficiary nations of the EU GSP scheme would not have to enter into separate bilateral agreements with UK to retain the tariff concessions granted to over 7100 products under the programme to the UK market.

Sri Lanka and UK have already engaged in several preliminary level discussions through diplomatic channels on a potential bilateral preferential trade agreement, and the UK government has informed Sri Lankan counterparts that UK’s legislature approval is required for 60 sensitive products in the EU GSP scheme in order to grant the same tariff lines to Sri Lanka in the post-Brexit period in case of a no-deal Brexit. 

In addition, Sri Lanka has also been requested to submit a detail brief with facts and figures outlining its concerns to the UK government. 

Some of Sri Lanka’s government officials opine that Sri Lanka can potentially explore a Free Trade Arrangement (FTA) with UK without any strings to attach it to gain the same or more benefits of the GSP Plus scheme, as opposed to EU’s Plus scheme where Sri Lanka has to fulfil several conditions. 

They also noted that such an agreement could also enable Sri Lankan exports commodities to be more competitive in UK, as EU has granted Most-Favoured Nation (MFN) status to countries such as India, China and Maldives which are competing with Sri Lanka in the EU market. 

However, Sri Lanka’s utilisation of GSP Plus scheme remains weak compared to other countries. Sri Lanka has only utilised 55 percent tariff lines in GSP Plus scheme while Pakistan and Philippines have utilised 96 percent and 73 percent of the tariff lines.  

Thus, analysts point out that Sri Lanka needs to diversify its export basket in order to gain full benefits of the scheme. 

As a positive outcome of Brexit, UK has planned to focus more on Commonwealth countries including Sri Lanka to strengthen its corporation, which has somewhat been neglected during past several decades.  

The UK High Commission in Sri Lanka has already planned to expand its diplomatic staff here.

The Colombo Port City has also been identified as an area of cooperation between two countries, where one could assist Sri Lanka to set-up a transparent and robust legal framework to attract investments to the financial city. 

UK remained to be the second largest single export market to Sri Lanka over past decades and import source market for Sri Lanka tourism contributing to nine percent of overall tourist arrivals to the island nation. 

In terms of apparel exports, Sri Lanka’s largest export commodity, UK is one of two crucial markets for Sri Lanka along with United States.

According to a recent trade surveillance report prepared by RIU in association with the Sri Lankan High Commission in London, Sri Lanka exports nearly US$ 3.0 billion worth of goods to EU and 29 percent of these exports are dominated by the UK, amounting to approximately US$ 1.0 billion in 2018.