The Sri Lanka-Singapore Free Trade Agreement suffers from the traditional faults of Sri Lanka negotiating weaker free trade agreements (FTAs) and the country should look towards unilateral reforms and liberalizations instead of FTAs to get the required boost in exports, Institute of Policy Studies Chairman Professor Razeen Sally opined.
“This is not a very strong FTA. Sri Lanka unfortunately doesn’t do strong FTAs. Singapore does. Singapore has a very strong FTA with the United States and there’s another one on the books with the European Union. Other FTAs are weaker and this is on the spectrum of weaker FTAs,” he said.
Speaking to Mirror Business, the Sri Lankan-born economist, who is an Associate Professor at the National University of Singapore, said that the biggest gain for Sri Lanka from the FTA is a signal to the world that Sri Lanka is ready to begin liberalization and potential interest of Singaporean investors in Sri Lanka.
“On its own, it’s not going to make a big difference. As a signal it’s good. So, it’s better to have this FTA than not to have it. Hopefully it can provide some kind of boost to further liberalization in Sri Lanka,” Prof. Sally said.
Singapore has unilaterally imposed zero duties on 99 percent of imports. Sri Lanka on the other hand is one of the most protected economies in the world, allowing uncompetitive local producers to sell goods and services at higher prices to consumers. Singapore does now allow its industries to be protected in order to build them up to be globally competitive. Sally said while loosening tariff lines via the FTA has to take place from the Sri Lankan side, the transition period is very lengthy.
Sri Lanka will remove duties on 80 percent of tariff lines over a 12-year period. However, immediately, most of the bilateral trade would take place outside the FTA, since fuel imports from Singapore, which amounted to around 60 percent of the nearly US $ 1.2 billion total imports in 2016, are on Sri Lanka’s negative list.
Despite having duty free access to Singapore, Sri Lanka has exported just US $ 114 million in 2016.
The FTA has chapters on services, government procurement and investment but a strong FTA would have liberalized services and government procurement to a higher degree, Prof. Sally said.
“A really strong FTA would remove all tariffs in a shorter time period and it would tackle non-tariff barriers,” he further said.
The FTA would also not allow Sri Lanka to participate in the intricate global value chains present in Southeast Asia by any significant measure, he added.
“I’d say not much. On its own it’s not going to make much difference. What really matters is reforms here. If we have domestic reforms that are open to all comers, that will make a difference and these FTAs would help at the margins, but relying on these FTAs to do the job is not going to work,” he said.
This is a reality check for the Sri Lankan government, which has been caught up in the euphoria of signing the first FTA in over 10 years. The past bilateral FTAs with India and Pakistan did not have the scope of even the Singapore FTA, having only trading in goods.
The Singapore FTA also has greater scope than the upcoming FTA with China and the Economic and Technology Cooperation Agreement with India, according to the government, indicating what Sri Lankans can expect from these two agreements.
However, the Sri Lankan government had started reforms to improve its trade and investment climates as well.