Trade Policy

Mid-term Strategic Trade Policy Framework

Sri Lanka is pursuing to enhance exports and to increase share in international trade as a means for achieving country’s economic growth, poverty reduction and employment generation.

The external environment for trade is marked with slowing, yet positive growth rate.

2016 marks the fifth consecutive year in which global trade would remain less than 3 per cent. In 2013, world trade growth rate remained 0.5% against the World Trade Organization (WTO) prediction of 2.5% and rose to 2.4% in 2014. The WTO estimated global trade growth at 2.8% for 2015, which is 0.5% lower than its estimate for the year. Despite earlier predictions that the global trade would expand by 3.9% in 2016;the WTO lowered its 2016 growth forecast by 1.1 % to 2.8%.

Slowing of the Chinese economy, worsening financial market volatility and exposure of countries with large foreign debts to sharp exchange rate movements may have contributed to this downward movement.

The domestic environment of Sri Lanka is marked with Restrictive trade policies and negative fiscal balances.

Though being the pioneer in trade liberalization in South Asia, subsequent trade policies, particularly in the last two decades have reversed this trend, reflecting in a marked decline in trade and an unchanged composition of exports. Further, lack of predictability deterred Sri Lankan firms.

Given this context, Sri Lanka is at the doorstep of positive re-engagement with the global economy. Nonetheless, the country is faced with novel opportunities as a South Asian nation and fresh strengths as well as emerging challenges.

Therefore, keeping in view of current trends in global trading environment and the trends in Sri Lanka's exports and development, the Mid-term Strategic Trade Policy Framework has to be formulated.

 

Policy Objectives

Mid-term STPF 2016-20 aims to achieve following targets by 2020.

Enhancement of annual exports

Improve Export Competitiveness

Transition from ‘factor-driven’ economy to private sector led ‘efficiency-driven’ and ‘innovation-driven’ economy

Increase share in regional and international trade

 

Policy Priorities

Competitiveness enhancement

Export competitiveness is a prime concern in the Mid-term STPF 2016-20. The key enablers would be improving trade facilitation to capitalize on Sri Lanka’s unique locational advantages, enhancing ability to attract and retain FDI and achieving better rankings in “Ease of Doing Business” indicator and graduation to “compact” status from “threshold” status under Millennium Challenge Corporation.

Compliance

Reengagement in the world trade necessitates creating an institutional framework which allows Sri Lanka to meet the 21st century trade challenges. The convergence of local & international standards, protection of intellectual property and implementation of effective disputes resolution mechanism would boost investor confidence.

Policy environment

Sequencing policy reforms complements implementation Mid-term STPF 2016-20. As such creating enabling environment in terms of governance, rule of law and democracy, reforming tariff policy to reduce anti-export bias as exports and imports and alignment of sectoral policies with trade policy in a holistic framework are main areas of concern. Also enacting laws to support domestic industries against deliberate trade practices by external parties would reduce risks faced by domestic industries.

Market access

The geostrategic location of Sri Lanka provides a unique opportunity. Entering in to new international markets through bilateral, multilateral and regional FTA and PTA and revitalizing the existing trade arrangements would be modes for global access.

Bilateral Trade

Bilateral Trade with India, China, Pakistan & Singapore – The Process Undertaken

  • The transformational phase in our bilateral relations began last year with the formation of the new government in Sri Lanka.
  • The leaders of India, China and Singapore have reiterated their commitments for deepening and broadening bilateral relations with Sri Lanka through expeditious conclusion of the proposed comprehensive Economic and Technology Cooperation Agreements which forms the basis for broader economic integration framework between each other through prudent and effective bilateral negotiations. We are also invigorating our existing FTA with Pakistan.
  • This will clearly open up new opportunities for the foreign investors to locate in Sri Lanka to access the markets of the 2 fastest growing large economies in the world on a preferential basis.
  • With preferential access to both India and China, Sri Lanka will be well-placed to act as a bridge for investors seeking to penetrate the Chinese market on a preferential basis. The FTA with Pakistan also provides an opportunity for Indian investors to access that market on a preferential basis by locating in Sri Lanka. Intuitively, there must be possibilities to re-direct some of the Indo – Pakistan trade currently transiting through Dubai.
  • Sri Lanka’s Agreements with India, China and Pakistan will give companies located in Sri Lanka preferential access to a market of about 3 billion people. One could argue that this will be our USP. By this time next year, all these negotiations should be completed.
  • In addition, we are confident that the EU GSP+ will be restored in about 6 months. Of course, a separate agreement will now have to be reached with the UK, which is the destination for about 10% of our exports. We anticipate no difficulty in doing so.
  • To realize such aspirations the Ministry of Development Strategies and International Trade  has thus far taken following productive steps to establish the mechanism to manage this process effectively for the best interest of the country with a wider consultation.

Establishment of the “Agency for International Trade” an appointment of a competent and capable General Affairs Committee consisting of following experts of repute.

Dr. Saman Kelegama – Chairman
Director General of Department of Commerce - Member
Director General (Economic Affairs), Ministry of Foreign Affairs - Member
Dr. Ariththa Wickramanayake, Senior Lawyer - Member
Dr. Nihal Samarappuli – Former executive Director of Board of Investment - Member
Mr. Ashroff Omar – MD/CEO of Brandix Ltd. - Member
Chairperson, Export Development Board - Member
Director, Economic and Investment Department, Ministry of Finance - Member
Controller General of Imports and Exports - Member
Dr. Ravi Rathnayake, Former Chief Economist of UNESCAP - Advisor and Invited Member
Mr. K.J. Weerasinghe – Advisor and Invited Member

The Agency for International Trade has met on a weekly basis for the last several months and deliberated on matters pertaining to International Trade and Bilateral Trade Agreements and have developed valuable insights and positions that Sri Lanka should make use during negotiations.

The scope and the basis for negotiations pertaining to the comprehensive trade agreements have been formulated. It is expected that –

Economic & Technology Cooperation Agreement  be signed with India by end 2016

China Sri Lanka FTA to be signed by early 2017

Singapore Sri Lanka FTA will be signed by end of 2016

The country did not have a national policy on international trade. Therefore, formulation of a national policy also needs to be done concurrently. A trade policy framework is being formulated, which focuses on reducing the anti-export bias in our policies. An independent Committee comprising of trade specialists who have both local and international exposure in trade related matters, a researcher, representatives of Central Bank of Sri Lanka, Ministry of Finance and Department of Commerce has been set up to formulate the Policy. It is expected that a finalize the trade policy by end of August 2016.

In the meantime, a productive consultative process has also been initiated with all recognized business and industry chambers and professional associations, inter alia;

Ceylon Chamber of Commerce (CCC)

National Chamber of Commerce of Sri Lanka (NCCSL)

International Chamber of Commerce of Sri Lanka (ICCSL)

National Chamber of Exporters (NCE)

Ceylon National Chamber of Industries (CNCI)

Chamber of Young Lankan Entrepreneurs (COYLE)

United Professionals’ Movement (UPM)

In addition several discussions were held with the Government Medical Officers Association (GMOA) explaining them the details of the ongoing deliberations and inviting them for engagement in the consultative process. Similarly the Bar Association of Sri Lanka and Institute of Charted Accountants of Sri Lanka too have been invited and join the consultative process.

To make the parliamentarians representing various political parties aware on this whole process and obtain their views on the trade agreements, action has been simultaniosly taken to set up a Parliamentary Working Committee.


Sri Lanka - China Investment, Economic and Technology Corporation

China and Sri Lanka issued a joint statement to demonstrate their commitment to enhancing bilateral cooperation in various fields. The Strategic Cooperative Partnership based on sincere mutual assistance and ever-lasting friendship between China and Sri Lanka serves the fundamental interests of both countries and contributes to the development of the two countries and the well-being of their peoples. The two sides said they will remain committed to their friendship to deepen their mutually beneficial cooperation and to extend mutual support in various regional and international forums. Under the framework of 21st Century Maritime Silk Road Initiatives and Sri Lankan Economic Development Strategy, there are great prospects and enormous development potential for both sides to bring the complementary advantages into full play and comprehensively promote investment, economic and technological cooperation.

The two sides reaffirmed their mutual support on issues of common interest and respect for the sovereignty, territorial integrity, stability and development of their countries. The two sides reiterated their adherence to the Five Principle of Peaceful Co-existence and to abide by the basic norms of international law of non-interference in internal affairs of other countries. China supports Sri Lanka's efforts in maintaining national unity, peace and reconciliation and in promoting economic development. Sri Lanka reaffirmed its commitment to the One China Policy and support to the efforts by the Chinese Government to safeguard its national unity. The two sides stressed the importance of maintaining peace and stability in the South China Sea. Sri Lanka calls for the settlement of disputes and differences through constructive dialogue, consultation and cooperation by the parties concerned in accordance with international laws and practices. Sri Lanka also appreciates China's efforts and readiness to promote such dialogue in order to maintain peace and security in the region.


Sri Lanka - India Economic and Technology Corporation

 

PROPOSED BROADER SCOPE OF FRAMEWORK FOR THE ECONOMIC AND TECHNOLOGY AGREEMENT

1.Preamble

Highlighting the importance of relationship in South Asian Continent.

Importance of Mutual Development.

Recognition of asymmetry.

Need if broader economic cooperation and trade facilitation.

2.Trade in Goods

As a main pillar of relations.

Emphasizing the trade facilitation aspect.

3.Trade in Services

Consistent with GATS

Substantial sectoral coverage in terms of number of sectors, volume of trade and modes of supply.

Provide for substantial removal of existing discriminatory measures and/or prohibition of new or more discriminatory measures in the covered sectors.

4.Investment

Creating facilitative investment environment.

Emphasis on more quality and sustainable investments.

5.Customs Cooperation

6.Standards and Technical Regulations, Sanitary and Phyto-sanitary Measures.

7.Early Harvest Mechanism

Modalities for early implementation.

Review of Non Tariff Measures, Product Specific Rules and Establishing Focal Point for Trade Facilitation, Mutual Recognition Agreement for good and services between concerned agencies.

8.Technology Cooperation

Aiming at executing practical actions on new technology and technology transfers for priority areas.

9.Economic Cooperation

Other wider spectrum of cooperation in various pre-identified economic areas (Tourism, Industry, Infrastructure, Finance, Air-Services, Intellectual property, Trade promotion, Healthcare, Skill development, Audio visual)

10.Dispute Settlement

11.Other institutional and general provisions


Trade and Investment Framework Agreement  with USA

The proposed Trade and Investment Framework Agreement (TIFA) provide strategic framework and principles for dialogue on trade and investment issues between United States and Sri Lanka. This is a forum for both countries to discuss issues of mutual interest with a view to improving cooperation and enhancing opportunities for trade and investment. This will trigger the economic reforms structural changes and competitiveness factors of Sri Lanka for achieving the potential of increased trade and investment and reinforce development strategies accordingly. Sri Lanka has the opportunity to achieve more of its potential and become a much stronger trade and investment partner of the United States. For this purpose, the United States Trade Representative (USTR) and the Government of Sri Lanka propose a Joint Action Plan to increase External Trade and Investment under the aegis of U.S.-Sri Lanka Trade and Investment Framework Agreement (TIFA) Council. The Action Plan envisages leveraging the growing role of external trade and investment in the Sri Lankan economy to boost employment and economic growth, and sets out proposal-specific goals within a 5-year timeline for completion. It recognizes that by increasing aggregate demand, a more competitive Sri Lankan economy will provide much greater export and investment opportunities for U.S. business.

Minister of Development Strategies and International Trade Malik Samarawickrama led Sri Lanka delegation to the 12th US-Sri Lanka Trade and Investment Framework Agreement (TIFA) Council Meeting in Washington which adopted a path breaking Action Plan to boost bilateral trade and investment.

The Council meeting was Co-chaired by United States Trade Representative Michael Forman and Minister of Development Strategies and International Trade Malik Samarawickrama. United States Permanent Representative to the United Nations Ambassador Samantha Power participated as well, encouraging the Sri Lankan government to continue its vital progress on democracy, accountability, and human rights.

Minister Malik Samarawickrama in his Inaugural Statement, among other issues, highlighted that “government is seeking to stabilize the economy and implement a development strategy that is capable of giving our people sustained accelerated growth and a million jobs in the next 5 years.


Sri Lanka - Singapore Trade Agreement

Sri Lanka and Singapore announced that both countries are keen to pursue a modern, comprehensive FTA. Cabinet Committee on Economic Management has approved the commencement of the preparatorywork on the proposed FTA with Singaporeon 11thMay, 2016.

A scoping mission from Singapore arrived in Sri Lankaon 7thJuly 2016for initial discussions with theMinistry of Development Strategies and International Trade/Department of Commerce on the scope and coverage of the proposed FTA.

The most significant outcome of the official visit to Singapore by Hon. Prime Minister was the commencement of negotiations of Free Trade Agreement between the two countries. Singapore Minister for Trade and Industry, S.Iswaran and the Minister of Development Strategies and International Trade signed a joint statement to officially launch the negotiations

Sri Lanka WTO Commitments on Services

  1. In April 1994, Sri Lanka made specific commitments under Tourism and Travel Related Services covering two sub sector namely hotel lodging services and travel agency and tour operating services (Ref. WTO document GATS/SC/79 of 16th April 1994). In terms of Sri Lanka’s commitments under these two sectors on travel and lodging services while Mode 1 (cross boarder supply), Mode 2 (consumption abroad) remain unbound or not committed on Mode 3 (Commercial presence) we have stated there will be no restrictions other than horizontal measures specified in the schedule and under Mode 4 (Movement of Natural Persons) and that Commitments are subject to provisions of labour, immigration & emigration, customs laws. As regards travel agency and tour operations services under Mode 1, there are no restrictions and Mode 2 remain unbound or with no commitment. On Mode 3 & 4, we have stated there no restrictions except what is specified under horizontal measures. Horizontal measures means that these measures will apply across the board to all covered or committed sectors.

  2. In addition to the above specific commitments, made in April, 1997 Sri Lanka made specific commitments on Communication Services which included telecommunication services covering international basis voice, mobile cellular services, wireless loop, public payphone, Radio paging data communication and satellite based services. These commitments were made and the schedule was prepared in close consultations with Sri Lanka Telecom Regulatory Commission and with their approval. However it should be noted that most of these commitments are now outdated since they were made 1997 and honored many years back (Ref WTO documents) number GATS/SC/79/suppl.l 11th April 1997 details)

  3. Sri Lanka also made specific commitments in February 1998 on Financial Services which covered direct insurance both life & non – life, reinsurance, banking & other financial services. With regard to insurance new establishments are subject to license approved by Government of Sri Lanka and foreign equity participation determined as per horizontal section of Commitments. Banking and other financial services were subject to general conditions specified by the Central Bank of Sri Lanka and are subject to all prudential requirements/regulations of the Central Bank of Sri Lanka of Sri Lanka. The commitments on financial services were prepared in close consultation with Central Bank of Sri Lanka and with their approval (Ref WTO document GATS/SC/79/suppl.2 of 26th February 1998 for details).

  4. It should be noted that in terms of WTO classification on services (Ref WTO document number MTN.GNS/W/120) there are over 150 services sub –sectors which includes Business services (professional services such as legal services, accounting, architectural, engineering, medical, computer related services, real estate services, other business services such as Advertising), communication services (Postal, Courier services, Telecommunication, Audio & Visual services), Construction related engineering services, distribution services, education services, environmental services, financial services, health related and social services, tourism and travel related services, recreational, cultural and sporting services, transport services (maritime, internal waterways, air transport, road transport and services related transport such as cargo handling, storage and warehouse, freight transport) etc.

    It should be stated that although there are a large number of services sectors, our commitments are limited to Hotel & Lodging services, Travel Agency and Tour operating services, specified telecommunication and financial services and Sri Lanka has not undertaken any additional commitments in the WTO on services liberalization.

  5. With regard to Horizontal Commitment (that is Sri Lanka listing as measures that apply across the board) there is a misconception that under horizontal measures Sri Lanka has opened all services sectors expect a few reserved areas for Sri Lankans. Under the horizontal measures Sri Lanka has listed then GCEC law of 1978, and applicable regulations of the BOI. Further Sri Lanka has stated in terms of the BOI regulations foreigners could invest other than areas reserved for citizens of Sri Lanka namely money lending, pawn brokering, retail trade with capital less than US $ 1 million and coastal fishing. Furthermore, 40% foreign equity is allowed in all other areas and more than 40% and up to 100% equity will be decided case by case basis. Mentioning of these horizontal measures in the schedule of commitments under the WTO has been interpreted that Sri Lanka has committed all sectors other than above mentioned reserved sectors forcitizens of Sri Lanka which is not the case.

    It should be mentioned that the First Colum under the Horizontal Commitments in the schedule it is specifically mentioned that the Horizontal Commitments or measures apply only to all sectors included in the schedule. Therefore, if a specific sector is not included in the schedule that the Horizontal Measures will not apply to those sectors; Sri Lanka has undertaken commitments only in Hotel and lodging services and Travel Agency and Tour operating Services. Therefore, Horizontal Measures will apply only to these sectors. These Horizontal Measures do not apply to Telecommunication and Financial services as they were submitted separately, and those schedules contain general conditions in case of financial services and specific conditions in case communication services. There are no separate Horizontal Measures mentioned in these schedules either.

  6. Since, Sri Lanka has submitted schedules of specific service commitment as mentioned above in 1994, it is recognized that there may be technical errors in the schedule of commitments. The Department of Commerce is undertaking submission of corrections to these commitments in consultation with WTO, which are termed as “rectification of Schedules”. However , those rectification will not have a major difference since Horizontal Measures cover only sectors that are covered in the schedule.