Notes on the Sri Lanka - Singapore FTA

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By 2018-01-24

The Ministry of Development Strategies and International Trade issued a press release yesterday following the signing of the Singapore - Sri Lanka FTA yesterday, with notes on the new Agreement and its key messages. We carry below the release in full.

= This is the first bilateral trade agreement that Sri Lanka has forged in over 10 years. It is also the first comprehensive agreement for Sri Lanka, which means it's the first agreement that goes beyond goods, and includes services, investment, economic cooperation, etc.

= To have done our first comprehensive agreement with Singapore - a country regarded as being one of the most open and liberalized economies and having high-quality institutions - is an especially important milestone for Sri Lanka. - It signals the commitment of the government to usher in an era of openness for Sri Lanka, and become a formidable economic Hub in the Indian Ocean.

= This agreement is an important part of the new 'National Trade Policy' launched last year, and is a linchpin in the ongoing trade policy reforms. To complement this, SL is undertaking domestic reforms and initiatives to make Sri Lanka internationally competitive (e.g. Enterprise Sri Lanka, National Export Strategy, Innovation and Entrepreneurship Strategy, Doing Business and trade facilitation reforms, etc.).

= Together, these reforms will boost the creation of more good quality jobs especially for young people, and new trade and biz partnership opportunities. This FTA is part of a broader strategy towards greater engagement with dynamic Asian economies; with eyes on RCEP.

= The Singapore-Sri Lanka FTA is part of a broader strategy of looking East to renew our trade relationships. While we focus on growing and sustaining in our traditional markets of the US and Europe, we have begun to diversify our markets towards Asia and focus on plugging in to Asian supply chains.


= This FTA is our first agreement with a South East Asian country - and we envisage this as a first step towards closer integration with ASEAN, and potentially be part of the RCEP - Regional Comprehensive Economic Partnership - in the future. The key benefit of this FTA is leveraging the trade-investment nexus, and plugging into Asian supply chains.
= There is already interest among Singaporean investors to invest in services and manufacturing - and this FTA can catalyse more. Much potential for diversification of exports through the trade-investment nexus that this agreement encourages, as well as new JV opportunities for Sri Lankan companies.

= The agreement provides a binding commitment and framework on bilateral investment, which we didn't have earlier, and this will encourage investment.

= mportant to understand that not every FTA is meant to "balance trade between the two countries" or "bridge the bilateral trade deficit". SL has trade surpluses with some countries and deficits with other countries. SL would need to sign a suite of FTAs for different purposes - some aimed at boost exports (new/preferential market access) as well as give domestic producers access to lower cost inputs; while some to leverage on the trade-investment nexus rather than narrowly looking only at goods. Scope of the Agreement and Some Key Features.

= Scope is very progressive; it is wider than the proposed China and India agreement - goes beyond to cover telecommunications, financial services, ecommerce, and government procurement. Singapore has recognized that the e-commerce chapter in this FTA is quite a progressive one.

= Sri Lanka is not a member of the Government Procurement (GP) WTO agreement, but as a step towards reform, for the first time SL has included a GP chapter in this agreement. It covers international competitive bidding (excluding national bidding). It also embodies procedural fairness and transparency in procurement. The chapter ensures alignment with national procurement guidelines and does not deviate.

= Goods - on goods (and the tariff liberalization programme - TLP), Singapore is already has 99% of tariff lines zero-rated. But the agreement recognizes that SL has to go step-by-step. So, SL has agreed to liberalize 80% of tariff lines - 50% of lines immediately to zero (around 3,600 lines), 15% over the 1st to 6th year in equal instalments, and 15% over the 6th-12th year.
= Items that remains in SL's negative list are those that are sensitive on revenue and other domestic grounds: Petroleum and related products; Tobacco and related products; Alcohol and spirits.

= Important to note that out of the current approx. US$ 1,000 imports from Singapore, 50-60% are petroleum products.
= Rules Of Origin (ROO) - no ASEAN cumulation is allowed under this FTA. Standard ROO agreed is 35% Value Addition and CTH (change of tariff heading). Additionally there are Product Specific Rules on 2,000 tariff lines and product chemical rules, which are exceptions to the ROO.
= The real focus of this FTA is on investment from Singapore in services and manufacturing - potential for diversification of exports through the trade - investment nexus and new JV opportunities for Sri Lankan companies.
= Investment - The investment chapter will give a strong signal to prospective Singaporean investors - it gives protection to investors, predictability, and transparency. Protection, national treatment - many provisions to attract investors. The agreement provides a binding commitment and framework which we didn't have earlier.

= Services - Both countries did not commit to independent movement of professionals (under Mode 4) in this FTA; so only Modes 1 to 3. SL has undertaken liberalization in some important areas for business - testing labs (this will help SL firms that now have to send samples etc to S'pore); sports and recreation; maritime; environmental services (pollution, waste water, energy efficiency, noise abatement, etc). In services, only Singaporean nationals are recognized.

= Meanwhile, Singapore has gone well beyond SL in services sectors - GATS plus. Just as SL has not done, Singapore has not offered Mode 4 independent professionals movement either, but Sri Lankans can benefit from the services liberalization by Singapore as Mode 4 business visitors and intra corporate transferees.

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