Priority trade and competitiveness reforms for Sri Lanka – Part 2

A recent Policy Note published by the Centre for a Smart Future (CSF) outlined right (8) priority trade and competitiveness reforms for Sri Lanka, in responding to global economic challenges.

- By Anushka Wijesinha and Senith Abeyanayake

In a previous article the first in our three-part series published in this newspaper (16 May), we recapped the key messages from Priority Areas 1 and 2 contained in the Policy Note 'Doubling down on tariff and para-tariff liberalisation' and 'Designing credible trade adjustment support'. In this second article we cover Priority Areas 4, 5, and 6 'Deepening and widening trade partnerships', Enhancing trade negotiation capacity and private-public consultation', and 'Rethinking strategic international engagement'.

Priority Area 4: Deepening and widening trade partnerships

Though Sri Lanka is unique in being the only country to have bilateral free trade agreements (FTAs) with both India and Pakistan (entered into in 2000 and 2005, respectively), it has since been slow at pursuing bilateral and multilateral trade integration. Only in recent years have two new agreements, with Singapore and Thailand, been signed. Even then, there appears to be a regression while the Singapore and Thailand FTAs were comprehensive ones (going beyond goods, to investment and services), more recent attempts seem to be to forge simple goods agreements (for instance, the Indonesia-Sri Lanka Preferential Trade Agreement).

In sharp contrast, Viet Nam and Thailand have accelerated forward with their trade integration both bilaterally, as well as through mega-regional agreements like RCEP and CPTPP (See Figure 1). Sri Lanka's trade partnerships lack both width (number of partners), and depth (level of integration). For comparison, Viet Nam's 16 trade agreements cover more than 60 countries accounting for almost 90 percent of global GDP.

Contemporary trade agreements are deeper and more complex than Sri Lanka's existing bilateral agreements with India, Pakistan, Singapore and Thailand. The focus now should be on agreements like RCEP and CPTPP that pin Sri Lanka down to undertaking deeper and more modern trade and investment reforms.