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ASSIGNMENT ON INTERNATIONAL ECONOMIES & TRADE POLICIES

Topic: Free Trade Agreement between INDIA & SRI LANKA

SUBMITTED TO: Prof. Jitendra Kumar Mishra

Submitted by: Mayank Taneja Richa Alagh Ananya Srivastava Rohit Kumar

Introduction
The Prime Minister of the Republic of India and the President of the Democratic Socialist Republic of Sri Lanka signed the Indo-Sri Lanka Free Trade Agreement (ISFTA) in New Delhi on 28th December, 1998. The main objectives of the agreement are: i. ii. iii. Harmonious development of economic relations through expansion of trade Harmonious development and expansion of world trade by removing the barriers of trade Provide fair conditions of competition for trade between the two countries.

Salient Features of the Agreement


i. ii. iii. The agreement does not remove all the tariffs at once. There is a phased out removal of tariffs. Both the countries have negative lists i.e. lists containing items that are not covered under the agreement, to protect national interests. The Rules Of Origin (ROO) criterion (Annexure C as per the Agreement) has been laid down to ensure that there is clarity regarding the origin of the product/item being exported/imported. iv. v. Adequate safety clauses have been inserted to protect domestic and national interests of both countries. (Article VIII as per the Agreement) Review and consultation mechanisms are present to ensure the smooth operation of the Agreement.

Indias commitment for duty concessions


Duty free access to 1351 items 25% tariff reduction for 528 Textile items (all Textile items in Chapters 51, 52, 58, 59, 60, 63 and a majority of Textile items in Chapters 53-56 of the HS code) 429 items in the negative list of India 50% reduction of Tariffs for the remaining 2799 items, by phased out removal up to 100% in 2 stages. Special quota for tea and garments 50% fixed tariff concession for imports of tea from Sri Lanka subject to an annual maximum quota of up to 15 million kg. 50% fixed concession on Garments from Sri Lanka, subject to a maximum annual quota of 8 million pieces, of which 6 million pieces should contain Indian fabric.

Sri Lankas commitment for duty concessions


Duty free access to 319 items (raw materials and machinery for industries) 50% reduction of tariffs for 889 items followed by phased out removal as follows : o Up to 70% at the end of 1st year o Up to 90% at the end of 2nd year o Up to 70% at the end of 3rd year 1180 items on the negative list For the remaining 2724 items, the removal of tariffs will be phased out within 8 years as follows: o Not less than 35% before the end of 3rd year o Not less than 70% before the end of 6th year o Not less than 100% before the end of 8th year

What is the current trend?


Even though the Agreement was signed in 2000, it was fully implemented by India in 2003 and by Sri Lanka in 2008 due to the phased out reduction of tariff clause in the agreement.

After the agreement, Sri Lankas exports have increased rapidly. By 2005, it reached a peak of US$ 566.4 million, a tenfold increase as compared to 2000. India was the 5th largest destination for Sri Lankas exports in 2008. The agreement has facilitated increased diversity and greater value addition in exports from Sri Lanka.

While exports from Sri Lanka peaked in 2005, most of these exports were largely concentrated in two products-Vanaspati and Copper. This poses a problem because these exports arose not due to any distinct comparative advantage that SL held, but due to short-term tariff arbitration by Indian manufacturers investing in Sri Lanka.

Both copper & vanaspathi exports were not seen very favorably in SL as well, since both entailed high import content, limited employment creation & environmental concerns.

The collapse of vanaspathi & copper exports in 2008 led to the substantial decline in total SL exports to India in 2008 to US$ 418 million a 26% fall in export value since the peak in 2005.

What is the future of this agreement?


During the Comprehensive Economic Partnership Agreement (CEPA) held in Colombo from July 9 to July 12, India offered to reduce the number of items on the negative list by about 8o items. Sri Lanka, on the other hand, agreed to remove around 50 items from its list. India had suggested a list of 139 items which it wanted to remove from Sri Lankas negative list while Sri Lanka had suggested a list of 118 items. But a consensus was not reached and the lists were unchanged. Both the countries need to understand each others demand and supply conditions and work together to create a synergistic situation. Another issue which the countries need to look at is the trading in services. Since beginning, Sri Lanka has been apprehensive about opening up its services sector to Indian competition as most of its professional services sectors are unorganized and hence are at risk by Indian services. The major unresolved issue, however, is that of allowing the Indian financial services sector to enter Sri Lanka

References
1. http://commerce.nic.in/ilfta.htm 2. http://www.hcicolombo.org/index.php?option=com_pages&id=76 3. http://www.eximguru.com/hs-codes/Default.aspx 4. http://www.networkideas.org/ideasact/dec09/ppt/Saman_Kelegama.ppt 5. http://www.indianexpress.com/news/india-sri-lanka-to-revise-negativelists/330492/

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