COLOMBO (EconomyNext) – A senior Sri Lankan trade official has urged India to remove impediments in the existing free trade deal such as quota restrictions to give companies more confidence in doing business in the subcontinent.
“Because of bad experience there’s a lack of confidence among the business community,” said R D S Kumararatne, Director General of Commerce.
“Only a few are confident of trying to enter the Indian market. They prefer traditional European or American markets,” he told the third Indo Ceylon Economic Dialogue forum.
Sri Lankan companies trying to enter the Indian market under the Indo-Lanka Free Trade Agreement (FTA) have complained of difficulties such as red tape and other restrictions.
The difficulties have led to opposition to a proposed Comprehensive Economic Partnership Arrangement (CEPA) to replace the FTA signed in 1998 and deepen and broaden the economic ties.
“We have to change this mindset as India is our best economic partner,” Kumararatne told the forum organized by the Federation of Chambers of Commerce and Industry of Sri Lanka and PHD Chamber of Commerce and Industry, based in New Delhi, India.
“We have to sell this message. To do so we need to address all those impediments encountered by the business community.”
He referred in particular to quota restrictions in the FTA on Sri Lankan apparel and tea, the island’s top exports.
“Export of apparel and tea are subject to quota under the FTA. So how do we get the benefit of the FTA?”
Kumararatne said India had been kind enough to raise the apparel quota to eight million pieces from five million and acknowledged it was a “very sensitive product to India” given its own apparel industry.
“But even a medium sized factory makes over eight million pieces. So they might wonder whether it is worth the effort to enter the Indian market when you have this kind of restriction.”
Black pepper exports were also subject to quota restrictions as a result of which Sri Lankan exporters had voluntarily decided not to use the FTA but still exported pepper to India for making value added products.
Kumararatne said rules of origin used under the FTA that required 35 percent value addition plus a change of tariff heading at four-digit level were other difficulties that need to be addressed.