Sri Lanka could gain more in next phase of trade liberalization: study

Lanka Business Online, Sri Lanka

Sri Lanka could gain more in next phase of trade liberalization: study

15 March 2008

(LBO) - A new study on a south Asian regional trade deal has said Sri Lanka will gain more in the next phase of liberalisation but the island’s private sector representatives have expressed scepticism about the outcome.

The study on the benefits of the South Asia Free Trade Agreement (SAFTA) found that since 1991 the potential for intra-regional trade has increased with an improvement in ’complementarities’ among the three major trading partners, India, Bangladesh, and Sri Lanka.

"This implies that for these countries, the products they export are to a greater extent now being imported by the region as a whole," said the study sponsored by the Asian Development Bank and the United Nations Conference on Trade and Development-India.

It used various models and simulations to assess likely consequences of SAFTA on additional effective market access that member countries may gain.

The preliminary findings were discussed at a seminar in Colombo organised by the Institute of Policy Studies, a think tank, with the aim of formulating policies to ensure greater gains.

The analysis identified restrictions on trade in services like health services, higher education, tourism, telecommunications services and construction services.

"Sri Lanka’s gains in the first phase of liberalisation are almost nil largely because Sri Lanka already has close to free access to the Indian market, and also because least developed countries and developing countries have not committed to substantial liberalisation vis-à-vis Sri Lanka in the first place," the study said.

"Sri Lanka’s gains are more improved in the second phase, when all countries participate fully (and remove their negative lists)."

The second phase of liberalisation is to start in 2013.

But it said that negative employment and output effects are seen for wearing apparel and some agriculture products in the island.

Sri Lankan private sector representatives, however, warned that liberalisation of market access may not take place as planned.

They noted Sri Lanka’s experience with the Indo-Lanka free trade deal where port and quota restrictions on two main exports - tea and garments - were imposed in violation of the spirit of the accord.

They also noted that in SAFTA there was no binding commitment to remove negative lists in which no tariff concessions are given by member countries.

Subhashini Abeysinghe, economist, Ceylon Chamber of Commerce, said the private sector was wondering whether negative lists would actually go and when.

She also noted that agriculture tariffs of most SAFTA member countries remain high as it was politically sensitive.

Even when member countries liberalise sensitive lists, there were likely to be a lot of non-tariff barriers like rules of origin criteria for exports to be given market access, port restrictions and quotas, she said.

Trade deals have negative lists to take contentious issues out of the table. This gives opportunities for trade to open up on new items that previously not traded between the two countries and were not manufactured earlier.

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