Sri Lanka inking a preferential trade agreement (PTA) with Bangladesh should have no strings attached tariff as a key feature to ensure its success, a paper by the researchers at the economic think tank Institute of Policy Studies (IPS) suggested.
As the two nations are gearing up to eventually enter into a free trade agreement (FTA) to increase trade flows, the IPS researchers stressed the need for Sri Lank and Bangladesh to get concessions for products manufactured with a comparative advantage and capacity for expansion.
The majority among such products identified were intermediate products, showing the significance of tariff cuts from a value chain perspective, the paper authored by IPS Research Economist Dr. Asanka Wijesinghe and IPS Research Assistant Chathurrdhika Yogarajah highlighted.
According to them, the complete elimination of tariffs would boost bilateral exports by as much as 30-60 percent. However, the existing regional agreements do not positively impact global value chain participation.
“Complex rules of origins and long sensitive lists may explain the trivial gains from regional integration. Higher tariffs are negatively affecting the global value chain participation. Hence, non-string attached tariff eliminations should be the key feature of a trade deal between the two countries,” said Dr. Wijesinghe.
The decision to enter into a PTA was mutually taken during a discussion between Prime Minister Mahinda Rajapaksa and Bangladesh Prime Minister Sheikh Hasina.
While the primary objective of the dialogue between the two leaders was to strengthen economic relationship, it was agreed that the initial focus would be on exploring the option of entering into a preferential trade agreement with a short list of good.
Earlier this month, the Cabinet of Ministers gave their blessings to the trade minister to negotiate a PTA with Bangladesh.
Sri Lanka and Bangladesh act as stakeholder member countries of the SAARC Preferential Trading Arrangement (SAPTA), South Asian Free Trade Area (SAFTA), Global System of Trade Preference (GSTP), Asia-Pacific Trade Agreement (APTA) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC).
Despite the two countries falling under a number of regional trade agreements, trade movements are at minimum levels.
The bilateral trade peaked to around US $ 170 million between the two countries in 2018, with Sri Lanka exporting US $ 133 million worth of goods to Bangladesh while importing US $ 37 million worth of goods from Bangladesh.