Lanka Business Online | 04 April 2007

Sri Lanka-Nepal free trade deal could trigger trade, but also potential for opening services

April 4, 2007 (LBO) — A proposed free-trade deal between Nepal and Sri Lanka could boost trade but analysts say there is more potential for service liberalization.

Trade between the two countries is slim at the moment at just 371 million rupees in Sri Lankan exports last year and seven million rupees in imports, compared to billions of rupees in trade between Sri Lanka and other South Asian neighbours.

There are also issues of connectivity hampering trade between land-locked Nepal and Sri Lanka.

“We are working towards a free trade agreement with Nepal,” G L Peiris, Sri Lanka’s export development and international trade minister said Wednesday at a conference on trade in services in South Asia.

Nepal is keen on an agreement, Saman Kelegama, Executive Director of think tank, the Institute of Policy Studies, says, prompting the move to negotiate an FTA.

Though the deal is not expected to be as significant as the India-Sri Lanka and Pakistan-Sri Lanka free trade deals, a Nepal agreement could have other benefits.

“There isn’t a large amount of trade at the moment. But the thing with these trade deals is that it may trigger unilateral liberalization in other sectors,” Kelegama said.

Potential areas could be in aviation, allowing direct flights between the countries. Currently, Sri Lankans have to fly via Bangkok or New Delhi to Kathmandu.

There is also the potential to increase tourism especially Buddhist pilgrim traffic between the countries, packaging it with ongoing tours to India, Kelegama says.

Travel and tourism accounts for over 60 percent of Nepal’s total service exports, though India, Maldives and Pakistan are Sri Lanka’s top regional tourism markets.

Sri Lanka is also in the process of expanding its existing free trade deal with India, to open up service sectors like finance, tourism, health, education and other professions.

In a recent round of talks held in Colombo, India also agreed to open up all its ports to Sri Lankan exports of apparel and tea and deepened concessions on Sri Lanka’s garment exports.

India and Sri Lanka are hoping to reach some agreement by June this year. A Sri Lanka-Bangladesh trade agreement is also in the works.

Countries in the South Asian region export similar types of goods - textiles and apparel being significant as well as commodities like tea.

Despite the interest in inking bilateral deals with each other, intra-regional trade is still just five percent of total trade by the seven south asian countries, or just three billion dollars.