China FTA this year to give Sri Lanka greater market access

COLOMBO (EconomyNext) – A planned free trade deal to be signed this year with China this year will give Sri Lankan exporters greater access to the world’s second largest economy, and bring economic benefits, a top official said.

“The critical milestone this year will be the announcement of the FTA with China," Treasury Secretary Punchi Banda Jayasundera said.

"This agreement is not for commodities trade like rice and rubber; it is for tourism, foreign investment and larger market access to Sri Lankan exporters,”

China is currently Sri Lanka’s largest lender.

A proposed comprehensive economic partnership agreement (CEPA) with India was put in cold storage bu the current administration as political and economic relations with China warmed.

The deal would have expanded the current FTA on trade in goods to cover services, investments and movement of people.

Lobbying by influential industry and professional groups who were concerned that greater links with India will improve economic freedoms of the people which could make it harder for them to sell their goods and services particularly to the less wealthy led to the shelving of the deal in 2008.

Interest was revived again in 2010 by both sides but nothing happened.

“We have deeper trade and economic ties with India,” Jayasundera said, addressing the launch of a monetary policy road map for 2015 by the central bank.

“The highest number of tourists is from India and the highest number of foreign investments is also from India,” the Treasury Secretary said.





“We are well integrated with the global economy," Jayasundera said. "We are integrated with the Middle East. We have strong links with the US and Europe who are the biggest markets for our exports. The FTA with China will put Sri Lanka in a stronger position,”

Sri Lanka has seen an increase in trade protection with the power of rent-seeking businesses lobbies expanding in recent years, critics say.

Trade between the two countries amounted to 3.6 billion US dollars in 2013 with Sri Lankan exports amounting to a mere 121.6 million US dollars.

But cheaper Chinese imports have already raised the living standards of people buy reducing the amount they have to spend on a particular good.

The left over additional money could be used to buy additional goods or services, giving opportunities for other businesses to produce and sell goods or services to them.

While exports can give earnings and salaries to workers in export sectors – which are globally competitive by definition – domestic trade restrictions can undermine their living standards by reducting the amount of goods and services they can buy with their money.

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