Trade Facilitation

Trade Facilitation Initiatives

The WTO member countries in the WTO General Council held on 01 August 2004 unanimously agreed to commence negotiations on WTO Trade Facilitation Agreement (TFA) with a view to clarify and improve trade facilitation related articles in General Agreement on Trade and Tariff (1994) and further expediting the movement, release and clearance of goods, including goods in transit. In addition, the TFA sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.

The TFA will help improve transparency, increase possibilities to participate in global value chains, and reduce the scope for delays and circumvention. The TFA seeks to expedite the movement, release and clearance of goods across borders.

In 2018, the NTFC (National Trade Facilitation Committee) Secretariat was formally established in the premise of MoDSIT through CCEM and Cabinet decisions. From the 2018 budget Rs. 325 million was allocated to the Trade Information Portal (TIP) and National Single Window (NSW) project for the year 2018. In compliance with the Article 1.2 of the TFA, the Department of Commerce of launched the TIP on 20.07.2018. A technical team consulted by the World Bank provided the technical assistance to develop the TIP. Further, another technical team consulted by the World Bank developed a blueprint for the NSW together with Department of Customs and it is now under review by the World Bank. MoDSIT provided the office premises to these technical teams, administrative costs of the NTFC Secretariat including the office space and funded the marketing activities of the TIP out of the project allocations.

Bilateral Trade

The New Trade Policy of the government envisages a more liberal, simple, transparent, and predictable trade regime that would attract more export-oriented FDI, improve trade logistics, and boost firms' abilities to compete in global markets. It also endorses deeper engagements with strategic partners at the bilateral, regional and multilateral level. Such deeper engagement would bring Sri Lanka in to the global value chains, improve and expand export competitiveness and encourage competitive foreign Investors to invest in the country through conducive negotiated terms. After 18 months of negotiations, Sri Lanka – Singapore Free Trade Agreement (SLSFTA) was signed on 23.01.2018 and operationalized with effect from 01.05.2018. SLSFTA is the Sri Lanka's 1st comprehensive free trade agreement and 1st bilateral free trade agreement with the non – sub continent trading partner. Similarly, it is the 1st Free Trade Agreement that Sri Lanka signed after 16 years.

 

  • Sri Lanka – Singapore Free Trade Agreement (SLSFTA)

Objective

To effectively penetrate the over US $ 400 billion worth good and services market, attract the FDIs, introduce international best practices in trade and source the required imports with a high quality and reasonable cost to sustain the economic development.

Outcome

(Doubled) Inward FDIs, goods and services exports to Singapore by 2022.

The key objective of SLSFTA is to attract investment and leverage the trade and investment nexus. By having a comprehensive FTA with Singapore, already an important source of investment into Sri Lanka, it would be possible to provide more transparency and predictability for investments into the country. Investments into Sri Lanka from Singapore can use Sri Lanka as a base for exports into other markets where Sri Lanka already has trade agreements (India, Pakistan), and where Sri Lanka is negotiating new agreements (China and Thailand). Similarly, by entering into a comprehensive FTA with one of the most advanced countries in the region, it also sends a very strong message to the global economy that Sri Lanka is committed to economic reform and meaningful engagement with the global economy.

SLSFTA contains 17 chapters which basically covers the areas of Trade in Goods, Services, Investment Promotion, Sanitary & Phyto – Sanitary (SPS) measures & Technical Barriers to Trade, Trade Remedies & Dispute Settlement, Customs Cooperation & Trade Facilitation, Economic & Technological Cooperation, Government Procurement, E – Commerce and Intellectual Property Rights.

In the area of Trade in Goods, Sri Lanka undertook (“TLP”) to liberalize 80% of its tariff lines in 4 phases over a period of 15 years. As the first phase, Sri Lanka's 50% (3,719) of Tariff Lines were liberalized. However, out of these 3,719 tariff lines, except for a few are already duty free. Consequently, it will not have any impact either on revenue or domestic industries. The rest of the tariff reduction and elimination will be a gradual process i.e. 15% of Tariff Lines (1116 items) from the 1st to 6th year in equal instalments, next 14.3% of Tariff Lines (1064 items) from the 7th to the 12th year in equal instalments and 0.7% (51 items) from the 11th to the 15th year. Under the Rules of Origin criteria, generally, products imported from Singapore will not qualify for tariff concessions unless 35% Value addition or change of Tariff Heading take place at four-digit level in Singapore. The Rules of Origin in the Agreement will therefore not allow goods simply to be exported through Singapore or entroport trade, since minimum value addition or processing has Tariff Lines (1064 items) from the 7th to the 12th year in equal instalments and 0.7% (51 items) from the 11th to the 15th year. Under the Rules of Origin criteria, generally, products imported from Singapore will not qualify for tariff concessions unless 35% Value addition or change of Tariff Heading take place at four-digit level in Singapore. The Rules of Origin in the Agreement will therefore not allow goods simply to be exported through Singapore or entroport trade, since minimum value addition or processing has to necessarily take place in Singapore. Similarly, to effectively address the non – tariff barriers in trade in goods such as standards, SPS measures, cumbersome procedures, this agreement comprises comprehensive chapters on SPS, Technical Barriers to trade and Customs Procedures & Trade Facilitation. Moreover, serious injuries that may cause to domestic industries through the liberalization will be effectively safeguarded through the chapter on trade remedies.

In the area of Trade in Services, the chapter is negotiated on a positive list basis, where Sri Lanka specifies the extent of liberalization, the level of restrictions, and any other conditions for the supply of Singaporean services in the sectors Sri Lanka chooses to make commitments in. In the case of Sri Lanka's offers to Singapore in the Services Chapter, there is no new liberalization beyond what is already available through the prevailing unilateral regime as defined in the exchange control regulations, investment regulations, immigration regulations etc. The primary objective of the chapter is to provide commitment, transparency, and certainty to the level of liberalization in the listed sectors. Considering the Singapore's offers to Sri Lanka; Singapore's commitments cover a range of service sectors than the sectors offered by Sri Lanka and Singapore's offer to Sri Lanka in Trade in Services has significantly more depth and coverage than Sri Lanka's offer to Singapore.

The investment chapter of SLSFTA provides sufficient protection to Singapore investors and to their investments and thereby to attract investments to Sri Lanka. These include Minimum Standard of Treatment, National Treatment, Most Favoured Nation (MFN), Compensation for Losses, Performance Requirements, Senior Management and Board of Directors, Treatment of Information, Expropriation, Transfers and Subrogation. The Chapter also provides the necessary flexibility for the State to regulate investments with a view to achieve national objectives such as subsidies & grants given to domestic investors/investments will not be available to Singapore and Taxation Measures are excluded unless amounts to indirect expropriation. On investor-state dispute settlement process under the FTA contains some deviations incorporated into the legal text when compared to Sri Lanka's existing Bilateral Investment Agreements, with a view to minimize the cost of Arbitration and to protect against any undue favourism towards capital exporters.

Moreover, the Government Procurement chapter is in line with the Governments Procurement Guidelines and covers mostly the provisions on transparency and procedural fairness. In addition, E – Commerce chapter covers the measures maintained by two countries affecting trade by electronic means and would ensure the economic growth and opportunities provided by electronic commerce, promotion of consumer confidence in electronic commerce and avoid the barriers of using E- commerce. Provisions of telecommunication chapter apply to measures affecting trade in telecommunication services and ensure the adaptation of internationally recognized best practices in the field. Also, Institutional, General and Final Provisions Chapter will provide overarching legal framework for implementing the agreement. Under the provisions of this chapter joint committee will be established to ensure the smooth functioning of the agreement. Similarly, this agreement fattens with a comprehensive dispute settlement mechanism to resolve the FTA related disputes.

 

  • India – Sri Lanka Economic & Technology Cooperation Agreement (ETCA)

OBJECTIVE

To effectively penetrate over US $ 400 billion worth good and services market, attract the FDIs and source the required imports from a least cost to sustain the economic development.

OUTCOME

Doubled goods and services exports, FDIs and tourist arrivals from India by 2022.

India is the Sri Lanka's 3rd largest export market and the largest import source. In 2017, India accounts over 21 per cent of Sri Lankan imports and nearly 7 per cent of Sri Lankan exports. Compared to the year 2000 Sri Lankan exports to India have grown over 10 times where at the same period, total exports have only grown 2 times. These achievements were mainly due to the India-Sri Lanka FTA that has now been in operation for over 15 years. Concessions of ISLFTA cover over 80% of Sri Lankan exports to India and around 65% of total Indian imports to Sri Lanka. In addition, it is required to highlight that compared to all other bilateral FTAs that India has signed; India has offered the highest level of tariff liberalization to Sri Lanka through the ISLFTA.

Moreover, the India-Sri Lanka FTA had some spillover benefits for both countries. First, the investment flows between both countries have considerably increased during the last decade. The Indian cumulative investment in Sri Lanka is close to US$ 1 billion while Sri Lankan cumulative investment in India is close to US$ 300 million. Secondly, the services trade between the two countries has been growing over the last decade. For example, India is the largest tourist supplier to Sri Lanka while Sri Lanka is the sixth largest tourist supplier to India.

It is to build on these positive achievements that the Economic and Technology Cooperation Agreement (ETCA) which was suggested by both governments in 2015. ETCA is intended to draw economic benefits in many aspects as deliberated below. Similarly, ETCA will recognize economic “asymmetry” between the two countries and it to be addressed through provisions of appropriate flexibilities.

Proposed ETCA basically covers the areas of Trade in Goods, Services, Investment Promotion, Sanitary & Phyto – Sanitary (SPS) measures & Technical Barriers to Trade, Trade Remedies & Dispute Settlement, Customs Cooperation & Trade Facilitation, Economic & Technological Cooperation. Currently, 10 rounds of negotiations of ETCA have been successfully concluded.

One of the major objectives of the ETCA is to resolve the implementation issues of ISLFTA. Accordingly, in every ETCA negotiation round, there is a devoted session to discuss ISLFTA implementation related issues. This session includes the discussions on company specific issues, quota and procedural limitations on apparel, Pepper and Wanaspathi, establishment of Structured Grievances Redressal Mechanism to resolve problems faced by exporters in a time bound manner.

Under the Chapter on Trade in Goods, Sri Lanka stated their concern that the commitments (rights and obligations) made under the ISLFTA should not be reversed or compromised, and emphasized the necessity to include transitional provisions in ETCA in respect of rights and obligations accrued under the ISLFTA. Reduction or Elimination of Tariff would be done by reviewing the negative lists of ISLFTA and economic asymmetry principle will be considered during this process. Moreover, in ETCA special attention has been given to the area of non – tariff barriers (NTBs) including Standards, Sanitary and Phyto – sanitary (SPS) measures which have been identified as the current major hindrance of bilateral trade. Accordingly, SPS, Technical Barriers to trade and Customs Procedures & Trade Facilitation chapters of ETCA will introduce measures to effectively cut - off NTBs to increase the bi – lateral trade. In this regard, as a concrete measure, both sides agreed on insertion of a dedicated Guideline framework article for the elements of Mutual Recognition arrangements (MRAs), which will facilitate the both Parties to negotiate MRAs in the future on sectors of exports interests to them to recognize conformity assessment procedures and results being adopted by both Parties.

India is expected to be the fastest growing large economy in the world in the coming years particularly by the expansion of trade in the services. Through ETCA, liberalization of the trade in services will take place in sectors mutually agreed upon while taking account of the considerable asymmetry between the two economies. Currently, both sides have exchanged their initial conditional offers by reserving the right to modify, amend, or completely withdraw offers. As regards Sri Lanka's initial offers, it reflects the consistent policy of the government that Independent Movement of Natural Persons under Mode 04 will not be allowed and thus Sri Lanka has not undertaken any commitment to open any professional categories.

India has taken a policy decision to terminate and renegotiate its existing Bilateral Investment Treaties (BITs) with Sri Lanka in March 2017. Accordingly, investment chapter of the ETCA will fill up this vacuum by promoting investment flows between two countries.

Also included will be a Chapter on Economic and Technological Cooperation, which will seek to increase the benefits of the ETCA through strengthening cooperation in the areas of Agriculture, Education & Higher Education, Tourism, Transport & Aviation, Port Sector, Technical & Vocational Education and Training, Energy, Science, Technology & Research, Space, Meteorology, Information and Communication Technology, Promotion of SMEs and enhancement of their competitiveness.

Similarly, Trade Remedies chapter will introduce effective remedial measures for safeguarding the domestic industries from serious injuries after liberalization. Moreover, Dispute Settlement chapter will provide a consolidated legal framework to resolve the FTA related disputes and implementation of the agreement will be monitored through a joint committee comprise officials of both countries.

 

  • China – Sri Lanka Free Trade Agreement (CSLFTA)

OBJECTIVE

To effectively penetrate the over US $ 2,000 billion worth good and services market, attract the FDIs, introduce international best practices in trade and source the required imports with a high quality and reasonable cost to sustain the economic development.

It was estimated that CSLFTA will generate nearly additional US$ 700 million trade and apparel sector will increase by US$ 400 million after signing of FTA and opportunity to open the new Chinese market for 244 products will provide comparative advantages for Sri Lankan exporters.

Proposed CSLFTA basically covers the areas of Trade in Goods, Services, Investment Promotion, Sanitary & Phyto – Sanitary (SPS) measures & Technical Barriers to Trade, Trade Remedies & Dispute Settlement, Customs Cooperation & Trade Facilitation and Economic & Technological Cooperation

In the area of Trade in Goods, China has already applied zero rate of duty to 75% of their tariff lines, but there are number of tariff lines subject to application of CESS duty. The wish list of Sri Lanka to China consists of 462 tariff lines; included all major exports to China. It accounts for more than 65% of Sri Lanka's export to China. Chinese position is 90% both in terms of tariff lines of 6888 and trade volume by both parties and only 10% of tariff lines will not be subject to tariff reduction. However, Sri Lanka has proposed to have 70% liberalization over the period of 10 years and agreeable to reach 90% by 20th year. Acceptance of Chinese side is yet to be obtained.

In the area of Trade in Services, the most of textual discussions have been concluded and both sides have exchanged the initial offer lists which are further opened for discussions. Sri Lanka submitted their initial offers for services liberalization based on the request made by China. This covers computer services related to installation of computer hardware, Financial Services, Rental Services of sea going vessels with operator, Repair services of other transport equipment, Cargo handling incidental to Maritime Services, Storage Warehouse Services, Construction related services, Advertising Services, Technical Testing and analysis services, Hotel and Restaurant Services, Sport event promotion and Recreation and Park Beach Services subject to various rules and regulations pertaining in relevant sectors. In terms of Professional Services, Sri Lanka indicated difficulties in making commitments on China's request for Professional Services and Real Estate Services Sector.

Investment chapter of CSLFTA, will provide a more liberal regime and protection to Chinese investments and predictable environment and Sri Lanka will provide a liberal investment regime for Chinese investment and encourage the joint ventures with buy – back arrangements. These investments may get the benefits of proposed CSLFTA which would sharpen the competitiveness of these investments by reducing cost of intermediate inputs. There is comprehensive coverage to bilateral investments and further strengthen the coverage given by the existing bilateral investment treaty and Sri Lanka has already taken steps to create a Special Export Processing Zone (SEPZ) in Hambantota for Chinese investment also facilitate more Chinese companies to invest this zone.

 

  • Sri Lanka – Thailand Free Trade Agreement (SLTFTA)

OBJECTIVES

Enhance trade and economic relations between Sri Lanka and Thailand though preferential market access for goods, services, investment and other areas to be mutually agreed. Further promote and facilitate trade and investment flows between Thailand and Sri Lanka

EXPECTED OUTCOMES

Tripling the current bilateral trade value to USD 1.5 Billion by 2020.

The proposed Sri Lanka – Thailand Free Trade Agreement (SLTFTA) will enhance trade and economic relations between Sri Lanka and Thailand through preferential market access for goods, services, investment, and other areas to be mutually agreed. This would promote and facilitate trade and investment flows between Thailand and Sri Lanka. The SLTFTA target to triple the current bilateral trade value to USD 1.5 billion by 2020 recognizing economic potentials and complementary economic structures, with which both sides could develop through advanced economic cooperation in a number of sectors.

During the visit of Hon. Deputy Prime Minister of Thailand to Sri Lanka in March 2016, it was agreed to embark on a bilateral Free Trade Agreement (FTA) between Sri Lanka and Thailand. Accordingly, the Ministry of Foreign Affairs submitted a Cabinet Memorandum on 05.07.2017, recommending to initiate an FTA negotiation process with Sri Lanka and Thailand. As per the directives of the Cabinet, Ministry of Development Strategies and International Trade submitted a paper to the Cabinet Committee on Economic Management (CCEM) regarding the commencement of SLTFTA negotiation. The Cabinet on 16.01.2018 granted its concurrence to the CCEM decision to commence the negotiation. The Scoping Session to agree on the architecture and scope of the agreement was held during the 16th- 17th May 2018 in Colombo. The Parties have jointly developed and agreed to the scoping document which outlines objectives, principles, scope, and elaboration of scope, structure, and logistical arrangements for consideration of the negotiators. Cabinet approval was granted on 03.07.2018 for the Scope of the proposed SLTFTA between the Democratic Socialist Republic of Sri Lanka and the Government of the Kingdom of Thailand.

The 1st Round of Negotiations of the SLTFTA was held in Colombo on 13th July 2018, following the launch of FTA negotiations on 12th July 2018 by Heads of States of the both countries, during the visit of Hon. Prime Minister of Thailand. During the 1st Round of Negotiations, both sides agreed on the structure of the SLTFTA, establishment of nine Working Groups & scope of the Working Groups, and work plan for the SLTFTA meetings. Negotiations of SLTFTA was held on 19–21 September 2018 in Bangkok, Thailand. During the 2nd Round, all Working Groups (Trade in Goods, Rules of Origin, Sanitary and Phytosanitary (SPS) Measures, Trade Remedies, Trade in Services, Investment, Legal and Institutional Issues) held discussions.

Prior to commencement of the negotiations, consultations were held with representatives of Trade Chambers, Product Associations, Advisory Committees of the Ministry of Industry and Commerce with the participation of officials of Department of Commerce, Department of Trade and Investment of Ministry of Finance, Export Development Board and others. This process of consultation will continue during the entire negotiation process.

A feasibility study of prospective Free Trade Agreement with Thailand was undertaken by the Department of Economics, University of Colombo in September 2017. Further, while giving approval to conduct negotiations of SLTFTA, as per the observations of H.E. the President and in those of the Minister of Finance & Mass Media, directions were given by the Cabinet of Ministers for a more focused study on the benefits Sri Lanka can obtain through this FTA by experts along with the Department of Commerce. Accordingly, in parallel to the negotiations, a further study being conducted to study the benefits of this FTA to the economy and to obtain recommendations on various scenarios that can be used to maximize the benefits to the country. The recommendations of the study team are expected to be submitted in early 2019, and will be submitted to the Cabinet of Ministers.

  • Malaysia – Sri Lanka Proposed Free Trade Agreement (MSLFTA)

Bilateral trade between Sri Lanka and Malaysia exceeded US$ 549.2 million by 2015 and even though, it is continuously growing so far, trade flows have been persistently asymmetric and there is a trade deficit towards to the Sri Lankan way. Sri Lanka has been running a considerable trade deficit since commencement of bilateral trade ties. As of 2015, the trade deficit was US$ 472.79 approximately. Furthermore, Malaysia is in the 6th largest source of imports and accounts for 2.70% of aggregate inflows for Sri Lanka as of 2015.

A significant proportion of Sri Lanka's export to Malaysia comes from the Apparel, Rubber and Plantation Sectors with each contributing 25%, 21% and 10% of aggregate bilateral trade respectively as per data in 2015. In addition to that, imports from Malaysia consists of product from a wide range of sectors. Palm oil and its fractions with a value of US$ 77.5million, accounted for 15% of total bilateral imports which this satisfying 70% of domestic demands. Tropical Lumber, Portland Cement, Animal/Vegetable Facts are another some of the key import commodities by 2015.

However, to truly maximize the benefits of the bilateral trade relationship, Sri Lankan producers need to be significantly increased the quantity and value of exports to Malaysia.

Enough opportunities as well as constraints to progress still exists.

Therefore, conducting of joint feasibility study is required to assess the feasibility of the proposed FTA between these two countries as well as to identify the possible areas of cooperation, if any FTA to be negotiated.

In order to strengthen and enhance the bilateral trade and the economic relations, the Scooping Paper on Economic Partnership was received from Malaysia on 17th November 2016.

  • Sri Lanka has sent the leer to Malaysia on 29.01.2018 mentioning the concurrence to hold joint feasibility study in order to find the possibility to start FTA negotiations.
  • SL side need to formulate the Joint Feasibility Study Team to commence study.


  • Bangladesh – Sri Lanka Free Trade Agreement (BSLFTA)

Bilateral trade between Sri Lanka and Bangladesh exceeded US$ 141 million by 2016 and it is continuously growing so far and as a result of this, there is a trade surplus in favour of Sri Lankan way. The rapid growth of trade has been accompanied by a change in the composition of export commodities.

In addition, further noted that existing other agreements namely Asia Pacific Trade Agreement (APTA) and South Asian Free Trade Agreements (SAFTA) of which the both partner countries are underutilized even though the both agreements have extended significant coverage of tariff reduction. Therefore, conducting of joint feasibility study is required to assess the feasibility of the proposed FTA between these two countries as well as to identify the possible areas of cooperation, if any FTA to be negotiated.

In order to strengthen and enhance the bilateral trade and the economic relations, the Memorandum of Understanding (MoU) on Economic Partnership was signed between Sri Lanka and Bangladesh on 14th July 2017, in Dhaka Bangladesh.

  • Both sides started the Joint Feasibility Study (JFS) based on agreed Table of Content (TOC).
  • Procurement procedure on purchase of Data analysis model (GTAP) is completed and purchased that software.
  • The JFS will be completed within February 2019.
  • JFS report will be submitted by early March 2019.

 

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