China Sri Lanka Free Trade Agreement Pdf

China Sri Lanka Free Trade Agreement Pdf

Although Chinese imports have increased significantly, Sri Lankan exports to China remain slow, leading to an ever-widening trade deficit. In 2005, Sri Lanka`s trade deficit with China was only 2.5% of GDP; By 2018, it had risen to 4.4% of GDP, accounting for nearly 40% of the total trade deficit. However, for India, this dynamic indicates that it has not been possible to strengthen trade relations within the South Asian region, a situation from which India does not benefit. In 2015, China became Bangladesh`s largest trading partner, and this is likely to be the case for Sri Lanka in the near future. It is precisely this idea that could convince India to speed up the process of signing the proposed ETCA with Sri Lanka and removing trade barriers in order to boost bilateral trade. That is why discussions have taken place on the extension of the existing free trade agreement and on the signing of a so-called Economic and Technological Cooperation Agreement (ECTA), which would improve the current free trade agreement and involve some liberalisation of certain services. Eleven rounds of trade negotiations on an ETCA between India and Sri Lanka have been concluded. But negotiations were halted due to the political and constitutional crisis in Colombo in October 2018. Since then, the ETCA negotiations have not progressed.

Sri Lanka`s import rate was 36 per cent of GDP in 2005; In the same year, China`s import rate was only 2.6% of GDP. By 2017, the import rate had fallen to 23.8 percent, while china`s import rate had risen to 4.8 percent. This significant increase in Chinese imports also came in the absence of a free trade agreement (FTA) with Sri Lanka. This means that Chinese imports are subject to normal tariffs that could be eliminated under a free trade agreement. In contrast, India has a free trade agreement with Sri Lanka, the Indo-Sri Lanka Free Trade Agreement (ISFTA), which has been in force since 2000. Despite this free trade agreement, India`s import rate for Sri Lanka varies by 5% and has not seen a significant sustained increase since 2005. India, meanwhile, signed its first-ever free trade agreement with Sri Lanka in 1998 (although it entered into force in 2000) and, despite some shortcomings, ISFTA has helped expand trade between two countries. Neither country, however, welcomes the degree of trade integration achieved by the free trade agreement. In 2017, only about 6% of imports from India came from ISFTA (i.e. duty-free access granted by ISFTA), reflecting a significant under-utilization of the free trade agreement.

ISFTA has a number of shortcomings, including the lack of removal of non-tariff barriers (NTBs) for exporters and other tariffs and taxes that are in addition to tariffs. For example, ISFTA does not eliminate all border taxes. Sri Lanka levies two taxes called Cess Levy and Port and Airport Levy (PAL) on a number of imports, and these taxes sometimes crush the duty-free benefit offered by ISFTA.

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