By Shabiya Ali Ahlam
Sri Lanka’s export performance continues to remain grim largely due to internal issues and not because of problems with preferential trade agreements the country has entered in to, a top economist in the country said.
While the nation’s inability to boost exports despite having entered into Free Trade Agreements (FTAs) are often blamed on the manner they had been negotiated, University of Colombo Professor in Economic and Pathfinder Research Fellow Sirimal Abeyratne pointed out that the issue
“Although we have entered into bilateral and regional trade agreements, Sri Lanka has failed to perform. Our trade relations are not impressive even after we signed agreements. It is clear that the issues are internal; it is a domestic problem,” Prof. Abeyratne said. “A number of ad-hoc changes are made during the implementation stages of the FTAs and in addition to that we tend to focus more on the non-tradable sectors and expect a boost in
exports,” he added.
The exports as a percentage of GDP that stood at 35 percent in the early 2000s now hovers around 15 percent.
As far as the FTAs Sri Lanka has with India and Pakistan are concerned, he noted that the issues were outside the non-tariff barriers and lies in the
rule of origin.
Implying that the authorities have negotiated the existing FTAs and the upcoming FTA with China via a similar approach, the economist stressed the importance of distinguishing the markets, which share more differences than similarities.
According to Prof. Abeyratne, it is essential to take into account the fact that in India economic growth takes place in the traditional line whereas in China, by integrating itself into the global supply chain.
While trade deficits against individual countries are an area the nation should look to address, what is worrisome is the fact that Sri Lanka’s trade is not improving with its regional peers.India remains the third largest export market for Sri Lanka after USA and UK.
Trade performance for 2014 showed that of the total exports, 5.6 percent was to India, 0.7 percent to Pakistan, 1.7 percent to China, 7.9 percent to the SAARC and 8.8 percent was through the Asia Pacific Trade Agreement (APTA).
When analysing the export performance of products covered by FTAs and those that are not, it is observed that both categories grew at similar rates, although it was expected for the former to perform much higher.
Noting that without the FTAs Sri Lanka still would have performed at the same level due to the unilateral policy reform process, Abeyratne said that the trade agreements had no significant impact on production fragmentation within the South Asian region.
SL-China FTA concerns
As Sri Lanka and China has ended the first round of negotiation for the upcoming Free Trade Agreement, Prof. Abeyratne stressed it was important for the government to reassess some of the proposals.
It was pointed out that while both the nations have negotiated the list of ‘highly sensitive products’, ‘general sensitive products’, and ‘normal products’ to be incorporated into the agreement, the highly imperative ‘rules of origins’ have been left out. While stressing the importance of negotiating properly with regards to this element, Abeyratne warned Sri Lanka must not approach the ‘rules of origin’ in the Sri Lanka- China FTA the same way as it did for its FTA’s with India and Pakistan, where it is 35 percent on FOB value.
“If we apply the same rule to the China-Sri Lanka FTA, we will be in deep trouble. We know that the Chinese development is based largely on the new global supply chain dominated trade pattern in which the domestic value addition is very low.
“If the same domestic rule of origin is applied, a lot of Chinese products will be out and that is an issue we will be faced with,” he warned.
Abeyratne also stressed Sri Lanka listing 3316 products, which is 48 percent of the total range into the highly sensitive product category, is not a practical proposal. China has listed only 824 products (10 percent) in this category. (SAA)