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FTA with Nepal at initial stage

The Island, Sri Lanka

FTA with Nepal at initial stage

By Devan Daniel

7 February 2009

The President of the Sri Lanka Nepal Business Council of the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) said that Nepal had approached Sri Lanka about entering into a free trade agreement.

"The Nepalese are keen on entering into a FTA with us and preliminary discussions have already been held," Jagath Savanadasa, who is also the Senior Consultant (Economic Affairs) of the FCCISL, told the Island Financial Review.

"We have neglected our relationship with Nepal and now that the two countries have signed an Air Service Agreement which is expected to allow 14 direct flights a week, there is an opportunity for both countries to benefit from closer ties that can now be established," he said.

SriLankan Airlines is the designated airline under the Air Service Agreement, however it may be a while before flights can commence.

"Our schedule is full for the rest of the winter season so we may not be able to introduce flights to Nepal for the next couple of months," Chairman SriLankan Airlines, Manoj Gunawardena, told the Island Financial Review.

Ever since SAARC was born decades ago on a vision to connect the people of the South Asian region, very little has happened in terms of what the regional grouping was expected to bring. The mobility of the citizens is just one example.

While the connectivity between capital cities through direct flights is limited, the region also suffers from fragmentation where over land transport too goes through many problems and is much to be desired.

During the first South Asia Economic Summit in Sri Lanka last year, some of the senior and most respected technocrats expressed pessimism if not disillusionment about the SAARC process, although many still have hope for an integrated region which will bring its people better opportunities.

Even in trade, the South Asia Free Trade Agreement is virtually non-existent.

According to the IMF, Direction of Trade Statistics, Yearbook 2007, India’s trade with SAARC amounted to 2.8 percent in 2006, its trade with East Asia amounted to 24.9 percent.

With the exception of Nepal; Pakistan, Bangladesh, Maldives and Sri Lanka had more trade with the East Asian region than with SAARC. And this tends to demonstrate Nepal’s dependence on the region being a land logged country.

In 2006, Sri Lanka’s trade with SAARC amounted to 19 percent while trade with East Asia amounted to 22.1 percent.

Sri Lanka has two FTAs with India and Pakistan. The FTA with India was to be extended to include services and investments with the signing of a comprehensive economic partnership agreement last year.

Bitter experiences of the FTA where non- tariff barriers proved a major obstacle to some Sri Lankan excursions into India, coupled with fear of the vast Indian economy, put the fate of the agreement on hold when leaders of both countries gave into pressure from disgruntled industrialists.

Savanadasa believes the Air Service Agreement with Nepal would allow investors, tourists and traders of both countries to establish people to people links which will enable both countries to discover new markets and new opportunities.

"The Nepalese have an appreciation for Sri Lankan food and as the Sri Lankan Ambassador to Nepal once told me, there is great potential for Sri Lankan restaurants in Nepal," he said.

Mini-hydro power producers too have an opportunity to set up operations in the water rich country of Nepal.

"Nepal’s cost factor is much lower than in Sri Lanka and there is potential for industries to set up operations there," Savanadasa said.

"Now that the political climate in Nepal is stabilizing and Sri Lanka’s war almost seeing the end, there is no longer any deterrent in attracting investors. The futures of both countries seems promising," he said.

Also, the relaxed visa application policy of Nepal where authorization to enter the country is granted in a single day is according to Savanadasa, a step in the right direction.

"Soon we should be able to adopt an open air policy for the entire region," he said.

And this is a must, if SAARC is to become what it was meant to be; an integrated region.

Tourism and education are the other sectors Savanadasa feels both countries can gain form each other.

"When direct flights to Nepal were suspended almost 10 years ago, Buddhist pilgrimages to Lumbini in Nepal was affected as flights had to be routed through Bangkok or India. If direct flights resume, it would bring down the cost of the pilgrimage considerably which will give many more a chance to visit the sacred site," Savanadasa said.

"We have done very little to create partnerships with our neighbours to promote tourism. This is something that needs urgent attention," he said.