Sri Lanka-Bangladesh Free Trade Agreement

12 Nov, 2003    ·   1210

Anand Kumar comments on the mutual benefits offered by the Sri Lanka-Bangladesh Free Trade Agreement


Bangladesh and Sri Lanka agreed in principle to stitch up a free trade agreement (FTA) in Dhaka on November 2 after a two-day joint secretary level meeting. The modalities of this FTA would be finalized in January 2004 when both sides meet in Colombo. Interestingly, this agreement faced no major difficulty during the negotiation process.

Dhaka and Colombo have a meager bilateral trade, this too tilting in favour of the Island nation. In last few years trade balance between Bangladesh and Sri Lanka has continued to rise against Bangladesh. The balance was however, in favor of Bangladesh in fiscal years 1990-91 to fiscal 1994-95. In 1990-91 Bangladesh exported $10.24 million worth of goods, this came down to $2.07 million in the fiscal 2001-02. On the contrary, import from Sri Lanka was confined from $5.92 million to $11.96 million in the last ten years. In the fiscal year 2001-02, Bangladesh’s imports from Sri Lanka figured US$ 6.12 million while her exports stood at 2.07 million, leaving a gap of US$ 4.05 million. According to the Export Promotion Bureau of Bangladesh, the country exported goods worth $3.75 million in the fiscal year 2002-03 while its imports from Sri Lanka were worth $8 million. 

The major items exported from Bangladesh to Sri Lanka are jute manufactures, jute yarn and twine, textile fabrics, pharmaceuticals, accumulator battery and tobacco. Its major imports are animal or vegetable fats and oils and their cleavage products, prepared edible fats, animal or vegetable waxes, plastic and articles thereof, rubber and articles thereof, textile and textile articles, products of the chemical or allied products, live animals, and animal products. Besides, articles such as stone, plaster, cement, asbestos, mica or similar materials, ceramic products, glass and glassware, machinery and mechanical appliances and electrical equipment were also imported.

The trade gap has been an important issue during the negotiation process. Bangladesh also tried to get concession on the basis of its LDC status. Sri Lankan side responded positively on both these issues. The meeting decided that Dhaka would implement tariff phase-out slowly while Colombo would do the same with a faster pace.

Sri Lanka seems to be inspired by the success of its free trade agreement with India. Before signing FTA with India in 1998, Sri Lankan export to India was US$ 34 million and now her country’s export to India is expected to be over US$ 200 million. During pre-FTA period, only 1,300 tourists from India visited Sri Lanka and in 2003 tourist turnout from India was expected to be over 125,000. Sri Lanka is now exporting many products to the market of South Asia’s largest economy, which it never dreamt of. The leader of three-member Sri Lanka delegation Ms. Manel de Silva who is Director General in Department of Commerce hopes similar benefits for both Bangladesh and Sri Lanka if they sign FTA agreement.

In last two years Sri Lanka has emerged as a new tiger economy due to the economic reforms introduced in the country. The ceasefire with the Liberation Tigers of Tamil Eelam (LTTE) has further helped the process. Its GDP growth is expected to reach 6% this year, up from 4.0% last year and an unprecedented negative 1.5% in 2001. Sri Lanka appears interested in making the most from the opportunity provided by the ceasefire. However, the present political turmoil in the country can seriously hamper the recovery process if the LTTE chooses to return to guerrilla warfare.

Sri Lanka has agreed to consider Bangladesh as a least developed country and simplify the rules of origin for signing a free trade agreement (FTA) with it. It has also agreed for preferential treatment of Bangladeshi goods but wants the details to be worked out and at the same time it does not expect this to be a one-way thing. Both countries have also not yet prepared a negative list of products, which do not enjoy zero tariff facility.

The Sri Lanka Bangladesh FTA is likely to benefit both countries in terms of enhanced trade, investment and services. The booming Sri Lankan economy will get a new huge market and its investors would greatly benefit from Dhaka’s LDC status as it enjoys duty-free access to the markets of the developed world including EU, Canada and Australia. FTA with Colombo would expand business in insurance, banking, shipping and ports leaving a chain effect on the Bangladesh economy. Expansion of international trade opportunities is also likely to support the growth of labour-intensive export industries, promoting employment and income. This pact will also benefit Bangladesh by providing it exposure to this new form of trade practice. It might prove a kind of pilot case for Bangladesh, on the basis of which it can go for trade negotiations with other countries, without having the fear of its market being overwhelmed by foreign goods.

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