Colombo is negotiating a trade pact with India separately, but this too is progressing slowly because Sri Lankan companies fear being put in competition by a flood of cheap goods from Indian companies. 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. In 2016, the trade deficit with China accounted for nearly half of the country`s total deficit and increased pressure on the country`s current account deficit, as shown by central bank data. Chinese trade with the island state is booming, even though Indian trade appears to be stalled. We can get a deeper perspective on the import-to-GDP ratio, which is seen as a better indicator of a country`s trade dynamics. Since 2000, Sri Lanka`s import-to-GDP ratio has declined with the export-to-GDP ratio. This indicates a significant decline in trade and a simultaneous movement towards protectionism, which is one of the main causes of the economic problems facing Sri Lanka today. The interesting fact is that Chinese imports into Sri Lanka have increased despite the general decline in international trade and Sri Lanka`s growing protectionist policy. Although Sri Lanka does not currently have a free trade agreement with China, discussions have taken place with a view to signing such a bilateral agreement. Starting in 2014, Sri Lanka and China concluded six rounds of negotiations on the proposed free trade agreement.

Discussions ended in 2017 due to differences of opinion on the degree of trade liberalization under the proposed free trade agreement. China wanted 90 percent of goods to be exempt from tariffs, a scenario Sri Lanka is not comfortable with. In June, however, Sri Lanka`s Ministry of International Trade said talks had taken place during Chinese Vice Minister of Commerce Wang Shouwen`s visit to Sri Lanka with a view to resuming their FTA negotiations. South Asia, led by India, has developed tremendously as part of regional trade integration, with intraregional trade accounting for only 5 per cent of total trade flows. Perhaps the rise of China`s trade relations in South Asia can help change this grim situation. As part of its Belt and Road Initiative, China has invested billions of dollars in building ports, roads and power plants in the Indian Ocean island state, directly on the southern side of India, to improve its trade and other connections in Asia and beyond. COLOMBO (Reuters) – Talks between China and Sri Lanka for a free trade deal have come up against major obstacles, mainly because Beijing will not accept Colombo`s request to review the deal after 10 years, Sri Lanka`s chief negotiator said. Chinese Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing that China attaches great importance to its relations with Sri Lanka and they are willing to continue cooperation in all fields, including trade and economy.

Umesh Moramudali is an economist who focuses on the dynamism of sri Lanka`s public debt and international trade. He currently holds a M.Sc in Economics from the University of Warwick. Sri Lanka has expressed interest in considering a bilateral trade agreement with China. The two countries have now agreed to start a free trade agreement aimed at opening up the huge Chinese market to Sri Lankan producers, producers and exporters. In this context, it is essential that the agreement cover a large number of tariff lines and trade and eliminate non-tariff barriers that may hinder export expansion. Weerasinghe said another point of contention was that China wanted zero tariffs on 90 percent of the goods the two countries sold to the other as soon as an agreement was signed, while Colombo would prefer to start with zero tariffs on only half of the products concerned and gradually expand it over 20 years. . . .

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