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Indo – Lanka FTA not up to expectations since a decade

The Sunday Times, Sri Lanka

Indo – Lanka FTA not up to expectations since a decade

By Bandula Sirimanna

4 July 2010

Ten years after the implementation of the Free Trade Agreement (FTA) between India and Sri Lanka which came into full existence in March 1, 2000, most heads of Sri Lankan chambers of commerce and industries say that its performance is not up to expectation even after a decade.

Majority of the imports from India were outside the FTA, whilst most of the investments into Sri Lanka were without direct links to the FTA, they stressed. The FTA primarily deals with the modalities of the duty free import of the goods manufactured in Sri Lanka which exempts specified goods imported under the agreement from import duty up to 100%.

There was a clear business opportunity for manufacturers from India to set up a unit in Sri Lanka so that the goods produced in Sri Lanka can be brought to India duty free availing the exemption provided in the FTA. But this area was not properly explored, they alleged.

Tissa Jayaweera, Chairman of International Chamber of Commerce Sri Lanka, told the Business Times that there are unresolved issues in the current Indo-Lanka FTA even after the 10-year duration. Almost 75 % of the imports from India were made outside the FTA. The Sri Lankan exports into India have also declined from around $550 million in 2007 to $ 334 million in 2009, whilst a majority of the investments into Sri Lanka have been made without direct links to the FTA. Whilst Indian goods have flooded the Sri Lankan market the access given to Sri Lankan goods is limited and there is no end to the long list of Non Tariff Barriers that confront these goods, he said.

He added that the delay in the issuing of the Certificate of Origin from Sri Lanka by the Department of Commerce, was a major concern for Indian when clearing goods. The Sri Lankan government should issue this certificate prior to the shipment, from Sri Lanka which arrives within a period of 24 hours, and the goods arrive before the documents. If the Sri Lankan government can work on issuing the Certificate of Origin prior to the shipment it would be of assistance to importers in India, he said.

He noted that India should re-examine the rules of origin criteria as some of these rules are too stringent which even can block Sri Lankan exports. Easing these rules will help Sri Lankan exporters penetrate the Indian jewellery, machinery, agricultural and fisheries markets. Newton Wickremasuriya, Chairman Ceylon National Chamber of Industries (CNCI) was of the view that there were many drawbacks in the implementation of the FTA during the past 10 years and no action has been taken to rectify it by both countries.

Sri Lanka’s industrial sector has not been benefited by the agreement although many people are talking about the entry into the vast Indian market. The Indian tariff and non tariff barriers was a major problem faced by Sri Lankan exporters. India has reduced its overall import tariffs on a number of items since the launch of the FTA. A classic example was the power cable exports from Sri Lanka to India which became a lucrative trade when India increased the duty on copper up to 40%. But when it was brought down to 5% the Sri Lankan power cable exports came to a grinding halt, he said.

Indo-Lanka bilateral trade would have grown even without the FTA as bulk of the trade is on items outside the FTA, he said. He noted that India has also not benefited by the FTA due to some checks and balances imposed by the Sri Lankan side, otherwise by now the local market would have been flooded with cheap Indian goods, he said.

When the Indian manufacturers here were exploiting both Sri Lanka and India by exporting Vanaspathi and Copper to India the country’s monitoring institutions including the Board of Investment (BOI) have failed to take any action against it. Therefore it is essential to strictly monitor the implementation of agreements such as FTA, he stressed. Sri Lanka should move fast to improve its exports to India otherwise it will lose another opportunity of entering this vast market, he concluded.

Expressing optimism on the outcome of the FTA, President of the National Chamber of Commerce of Sri Lanka Lal de Alwis pointed out that Sri Lankan exports to India have largely been new products where Sri Lanka did not traditionally have capacities. Therefore he said the FTA has created new export capacities in Sri Lanka that hitherto did not exist. It has brought precious foreign exchange to the country by helping create this potential.

The FTA has spurred bilateral investments by capitalizing on the opportunities generated by the FTA and availing of the comparative advantages both countries possess. However he noted that Sri Lanka needs to correct the issues exporters have been facing. “The Sri Lankan business community should adopt an aggressive attitude to face the challenges positively when entering the Indian market,” he said.

Taking advantage of the FTA with India

Success story

It is 10 years since the FTA has been in force. How many Sri Lankan companies have benefitted? Some say it is beneficial, others say no benefits. Narrating his company’s success story under the FTA N. Sivakumaran, Managing Director of Industrial Stainless Steel Fabrication Pvt. Ltd (ISF) told the Business Times that the agreement provides a price advantage for some Sri Lankan products when they land in Indian ports by way of concessional import duties.

The soft ice cream machines manufactured by ISF in Sri Lanka is sold in the Indian states of Rajasthan, Uthar Pradesh, Tamil Nadu, in addition to other overseas markets. One way of benefitting from the FTA is to float a market intelligent company in India providing market information to Sri Lankan entrepreneurs with the proposed company being funded by beneficiaries of this information.
He said he been successful in his entry into the Indian market by following this strategy (acquiring market intelligence).