A gateway to integrate with advanced economies

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By 2018-01-24

The following is a statement issued by the Ministry of Development Strategies & International Trade regarding the Sri Lanka-Singapore Free Trade Agreement (FTA), which was signed yesterday.

1. Policy
The development policy of the Government aims primarily at maximizing economic benefits through integration into global economy, attracting Foreign Direct Investments (FDIs) in strategic sectors and improving export competitiveness. It is widely understood from the beginning that this requires policy, legal and institutional reforms, in line with today's global trends. One of the pillars of this strategy is establishing effective partnerships with strategically-selected economies.

The lack of a clear vision and coherent trade policy that provide benchmarks to govern and guide the administration and conduct of international trade has resulted in the development of ad-hoc and often conflicting rules, regulations and practices that have adversely affected the expansion of trade. Therefore, the Government adopted a 'New Trade Policy', essentially bringing different elements of trade policy into one platform, with reforms connected to increase competitiveness, expand market access and trade facilitation, create macroeconomic balance, bring policy and institutional coherence and facilitate the adjustment of firms and people.

Cabinet approval was granted to the New Trade Policy on the basis that it gives precedence to unilateral reforms, makes trade agreements consistent, and gives emphasis to reduce protection rates and their variance. Also, given the challenge of increasing exports rapidly, it assures existing barriers to the private sector's adjustment and access to needed inputs are assured, while trade policy making institutions are strengthened with competent and sufficient staff.

Accordingly, the Government started negotiations with three key economies; namely Singapore, China and India. Sri Lanka expects to foster free trade flows and create stronger ties with these trading partners, eliminate para-tariffs, promote regional integration, enhance competitiveness and deliver enhanced trading opportunities.

2. Process
The negotiations for the Sri Lanka-Singapore Free Trade Agreement (SLSFTA) commenced in August 2016, after the signing of the joint statement of Singapore and Sri Lanka, during the official visit of Sri Lanka's Prime Minister to Singapore in July 2016. Eight rounds of negotiation have been completed and, as a result, the agreement has reached the final stage in January 2018.
The Ministry has taken every effort to ensure the process of negotiations is transparent, inclusive, and incorporates the interest of all stakeholders, while securing national interests.

The negotiations were done through a Trade Negotiations Team approved by the Cabinet, supported by the appointment of subcommittees covering all the areas under the SLSFTA that provided technical level inputs during the negotiation process. The subcommittees comprised all relevant Government agencies responsible for each subject. Further, steps have been taken to have an observer representing the private sector to participate in trade negotiations.

In addition, the Ministry obtained views of various stakeholders, such as professional associations and chambers from the private sector, through consultations. With reference to policy, technical and regulatory aspects, the respective Government agencies were consulted. More than 15 consultative meetings with private sector representatives have been conducted since August 2016, discussing a wide range of subjects under each area and specifically on adjusting the domestic regulatory framework to secure national interests.

Although there was a policy decision taken by the Government not to make any commitments or any opening in relation to the Free Movement of Natural Persons, there were still concerns expressed by stakeholders that the lack of a domestic regulatory mechanism would create possible negative effects on the domestic labour market. The United Professional Movement (UPM) assisted the process by submitting a comprehensive proposal on the National Policy Framework and National Registration Process, identifying the major legal shortcomings in the Sri Lankan legal system in terms of liberalization. It included a large number of amendments to Acts and enactments of new acts in a wider range of areas/subjects. However, considering the mandate and the institutional capacity of the Ministry of Development Strategies & International Trade, a consensus was reached to prioritize the amendments to address the concerns in a phased-out manner through short-term and long-term measures.

The initial study on the domestic regulatory mechanism revealed gaps in the existing regime and identified addressing the Immigration and Emigration laws as a requisite to a streamlined, transparent process, with respect to foreigners coming into Sri Lanka. A special team of senior officials from the Attorney General's Department was appointed for this purpose and consultations were held with professional associations and chambers, covering a wide sphere of sectors on the present regulatory mechanisms in Sri Lanka. As a short-term measure, focus was on submitting the Safeguard Bill to protect companies from the sudden surge in imports due to fluctuation in the world market, and the Antidumping & Countervailing Bill to protect local industries from possible unfair trade practices due to dumping (selling at artificially low price) and subsidies given by other countries. Hopefully, these two Bills will be tabled at Parliament for approval in the next few days. In terms of professional services, final clearance is awaited for the new immigration regulations drafted to address the current procedure, which was claimed to be ad-hoc and not transparent. Through the new regulations, it is expected to create a transparent and balanced immigration procedure for foreign workers. However, in the longer term, a complete overhaul of the Immigration Act is to be done hopefully by early next year.

The National Human Resources Development Council Sri Lanka (NHRDCSL) is the central entity endowed in this respect, while the global National Human Resources Development Council (NHRDC) would also play a major role in relation to foreign employees. The above team is in the process of finalizing the necessary amendments to the Act of NHRDC and handing over the drafted amendments to the NHRDC for further comments. These enactments would provide the required legal background to streamline processes in the labour market, for foreign employees in Sri Lanka in particular, which in turn, will facilitate the Free Trade Agreements once in force.

3. Scope
SLSFTA includes several provisions aimed at reforming Sri Lanka's trade and trade-related policies, or systems that will help in showcasing the trade-friendly framework of the Government internationally. These will provide for the modernization of different systems, anchoring of external investment in the country, and a better, more predictable policy environment. Therefore, SLSFTA will demonstrate Sri Lanka's openness to investments internationally and domestically. This will also help encourage the growth, development and adaptability of Sri Lanka's private sector.

The Sri Lanka-Singapore FTA is a landmark agreement, as it is the first trade agreement that Sri Lanka is signing in over 10 years, and is the first comprehensive agreement for Sri Lanka beyond Trade in Goods. SLSFTA basically covers the areas of Services, Investment, Sanitary and Phyto-Sanitary (SPS) measures, Technical Barriers to Trade (TBT), Trade Remedies and Dispute Settlement, Customs Cooperation and Trade Facilitation, Economic and Technological Cooperation, Government Procurement, and E-Commerce and Intellectual Property Rights as well.

Opening up the services market, absorbing international best practices in the area of trade, and facilitating the process of attracting investments are the major drives for negotiating a Free Trade Agreement with Singapore, which is unilaterally a 99% liberalized goods market. In 2016, bilateral trade volume (goods) stood as high as US$ 1.15 billion, with great potential for further expansion benefitting both countries. In the area of Trade in Goods, Singapore has already applied zero rate of duty to 99% of their tariff lines.

The Singapore-Sri Lanka FTA is part of a broader strategy of looking East to renew our trade relationships in the process of diversifying our markets towards Asia and focusing on plugging into Asian supply chains. This FTA is our first agreement with a Southeast Asian country and we envisage this as a first step towards closer integration with ASEAN, and to potentially be part of the Regional Comprehensive Economic Partnership (RCEP) in the future.Singapore is Sri Lanka's 20th export destination and 8th trading partner. In terms of trade in goods, Singapore is not a significant export market of Sri Lanka. But, being an important member of the ASEAN with a high trade-to-GDP ratio (168.5%; the world's highest, whereas Sri Lanka's ratio is 24.7%), the FTA with Singapore will provide Sri Lanka a gateway to larger ASEAN market, as Singapore has so far signed 21 Free Trade Agreements with 32 trading partners. Currently, Sri Lanka's exports to Singapore are limited to Electrical & Electronic Products, Parts and Machinery, Petroleum Products, Apparel, Food, Feed, and Beverages and Tobacco. There is a greater potential for Sri Lanka to export certain products such as t-shirts, men's & women's suits, jerseys, new pneumatic tyres of rubber,pepper, light-vessels, fire-float, articles of vulcanized rubber and precious stones & semi-precious stones. Both countries will mutually benefit with greater investment from Singapore in these sectors.

Singapore is at present the seventh-largest investor in Sri Lanka, having provided around US$ 658 million in Foreign Direct Investment (FDI) during Q3 2005-2017 through over 119 Singaporean companies operating in Sri Lanka. The sectors which attracted investments include IT, real estate, manufacturing, construction, renewable energy and pharmaceuticals. It is expected that the protection to be given under SLSFTA to investors and to their investments will result in the substantial increase in FDI from Singapore by Sri Lanka offering good potential for Singapore companies looking to tap opportunities in new markets. Sri Lankan companies who have invested more than US$ 120 million in Singapore will also benefit.

Entering a FTA with Singapore, being the most liberalized economy in the region, will deliver a positive note on Sri Lanka, as it demonstrates that both countries are open for business and encourage investments. Partnering with such an economy which is rule-based, globally dynamic and with advanced managerial/institutional competencies will obviously trigger and contribute healthy reforms, which in turn, will move the country to the next level of economic development.




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