Top Chinese academic advises Sri Lanka to consider joining RCEP

• Says it will help Sri Lanka to reap full benefits of China’s BRI 
• RCEP is designed to eliminate 90% of tariffs on goods traded over next 20-year period
• Says compared to other BRI nations, Sri Lanka’s trade with China is not satisfactory
• Recommends Sri Lanka to model its industrial zones after Ireland’s Shannon Free Zone
• Urges to focus on developing a modern logistic system with latest available technologies 

By Nishel Fernando
A leading Chinese academic and free trade zone expert urged Sri Lanka to consider joining the newly formed multilateral trade pact, the Regional Comprehensive Economic Partnership (RCEP), to reap the full benefits of China’s Belt and Road Initiative (BRI). 

While pointing out that Sri Lanka’s bilateral trade with China and the BRI-related contractual projects remain below the potential compared to the other nations participating in the BRI, Huazhong University of Science and Technology Chutian Professor of Economics Bo Chen recommended the government to consider joining the RCEP, noting it would be a good starting point for Sri Lanka to exploit its strategic location in international trade, in order to maximise the benefits from the BRI.

He made these remarks at a recent webinar organised by the Colombo-based think tank Veemansa Initiative. 

Prof. Chen noted that China’s bilateral trade share with Sri Lanka fell to 0.38 percent of China’s overall trade in 2020, after reaching 0.43 percent in 2016. “Compared to the other BRI nations, Sri Lanka’s trade with China is not satisfactory.” 

Led by China, the RCEP signatories include Australia, Brunei, Cambodia, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam.

The RCEP is designed to eliminate 90 percent of the tariffs on goods traded among its signatories over the next 20-year period, once the agreement comes into effect.

The multilateral trade pact is expected to boost trade among the member nations, including cross-border e-commerce, with a far-reaching impact on regional trade facilitation and international economic integration, over the next decade.

Currently, the government is reviewing Sri Lanka’s national trade policy and has suspended all on-going negotiations for international free trade pacts, including the one with China. 
Some Sri Lankan diplomats and government ministers however have hinted on a possible return to negotiations for the proposed free-trade agreement with China, shortly. Meanwhile, Sri Lanka was ranked at the 20th spot, among 64 nations participating in the BRI, in terms of investments in contractual projects from 2010 to 2019, attracting US $ 15 billion worth of investments. 

Sri Lanka’s South Asian neighbours such as Pakistan and Bangladesh were among the top 10 nations that attracted most investments in the BRI projects. “Sri Lanka deserves to have more projects,” Prof. Chen opined.  

As China increasingly is moving to outsource its industrial production activities, China has set up several industrial parks in the BRI nations.

However, Prof. Chen pointed out that Sri Lanka has been only able to attract one industrial park (Hambantota Industrial Zone), which is less than its potential, in comparison with the nations of similar size economies and populations.

Indonesia leads in terms of distribution of China’s industrial parks under the BRI by attracting nine industrial parks, followed by Russia with eight industrial parks, Cambodia with seven industrial parks and Laos and Vietnam with five industrial parks each. 

Although Sri Lanka is not comparable with nations such as Indonesia or Russia, Prof. Chen noted that Sri Lanka is comparable to Laos and Cambodia. 

“Sri Lanka’s attraction in developing manufacturing can be promoted,” he said. 

He advised Sri Lanka to focus on exploring its geo-economic advantages, which include offshore trade and offshore research and development (R&D).

In particular, he advised Sri Lanka to look at a similar model to Ireland’s Shannon Free Zone that established a low tax regime coupled with high market efficiency and became successful in attracting a large number of multinational companies. 

It is believed that the Chinese government commenced its initial special economic zones in 1980s based on the Shannon Free Zone model. 

In addition, Prof. Chen also suggested Sri Lanka to focus on developing a modern logistic system with the latest available technologies.