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Text of the address by President Chandrika Bandaranaike Kumaratunga

Text of the address by President Chandrika Bandaranaike Kumaratunga to the Business Forum, on February 9, at the Marriott Hotel, Islamabad.

President Chandrika Bandaranaike Kumaratunga

I am delighted to be present here today and to have the opportunity to address the Pakistani business leaders. I wish to also thank the representatives of various trade and industry chambers from different cities and provinces of Pakistan for their presence here.

Enduring friendship between our two countries provides a backdrop to my visit to Pakistan, which was earlier scheduled for January but had to be postponed because of the tsunami disaster.

During my two-day visit here, I have had extremely fruitful bilateral discussions with H. E. the President and the Hon. Prime Minister of Pakistan. Economic and business relations between the two countries constituted one of the most important aspects of our exchanges.

My friends, today we can make a new beginning in our bilateral economic relations. We signed today a Protocol and exchanged Diplomatic Notes paving the way to operationalise the Free Trade Agreement between our countries.

We can now take our economic relations to a higher plane, thus opening a new vista of trade and investment opportunities for you, the business community in Pakistan, as well as the business community of Sri Lanka.

Although the Framework Agreement on FTA was signed two years ago, the crucial annexes to the FTA, which contain the operational elements of the Agreement were not finalised in spite of many technical level discussions.

It was during Prime Minister Shaukat Aziz's visit to Sri Lanka, who in consultation with President Musharraf gave political guidance and directives to the officials to finalise all annexes concerned, which took place in two months.

The FTA which will enter into force shortly is consistent with our commitment to Multilateral Trade, our collective initiatives within the ambit of the SAARC.

Bilateral and regional trade liberalisation will complement multilateral efforts, as they form the building blocks, rather than stumbling blocks, to trade liberalisation in our region.

I believe, that the regional initiatives such as the SAFTA, when finalised, will co-exist with bilateral trade arrangements such as ours. I have no doubt that the business community would employ the best arrangements to conduct business in a mutually beneficial manner.

The Pakistan-Sri Lanka FTA or PESLFTA in short, which covers trade in goods, is the first important step that we have taken to facilitate expansion of trade between our two countries. This contains a number of positive features, which will create a "win-win" situation for Pakistan and Sri Lanka.

Firstly, Sri Lanka will grant immediately duty free access to 102 tariff lines; Pakistan will reciprocate, granting Sri Lanka duty free access to 206 tariff lines.

Secondly, Sri Lanka will eliminate the customs duty on 4527 tariff lines out of total tariff lines of 5224 at six-digit level, covering around 87% of tariff lines over a period of the next five years.

Pakistan has agreed to eliminate the customs tariff on 4680 tariff lines out of a total of 5224 tariff lines at six-digit level, covering around 90% over a period of three years. It is also important to mention that elimination of customs duty will cover as much as 69% of the actually traded goods between the two countries.

The immediate benefit that could accrue to Sri Lanka from the FTA is that Sri Lanka will be able to enjoy duty free benefits for its exports of natural rubber, almost all coconut products, spices, natural graphite, paper and paper products, copper and aluminium products and so on in the Pakistani market.

Similarly, exports of oranges, chick-peas, cumin seeds, fennel seed, motorcycles and accessories etc. from Pakistan, will enjoy duty free benefits in the Sri Lankan market.

Despite the fact that the domestic sensitivities and revenue concerns do not allow both sides to eliminate tariff on all products in a single stage, our negotiators have done well to keep the respective negative lists to a minimum level possible.

Further, we agreed to grant tariff rate quotas and higher margins of tariff preferences to each other on a number of products that are on the negative lists, but are of vital export interest to us.

The TRQs granted by Pakistan include tea and betel leaves, two product categories, very important to Sri Lanka.

Pakistan has granted TRQs for 10,000 metric tons of tea per annum at zero rate of duty. I may mention this as although Sri Lanka currently exports only about 3000 metric tons of tea, we used to export as much as 70,000 metric tons to the Pakistani market in the 1970s.

I am certain that the duty free quota of 10,000 metric tons granted by Pakistan will enable the tea trade in Sri Lanka to make a fresh start once again to enter the Pakistani market in a significant manner. The Pakistani consumer will now be able to enjoy a good cup of Ceylon tea.

Irrespective of the fact that the current import duty is 150 Pakistani rupees per kilo, Pakistan has granted a TRQ of 1,200 metric tons per annum for betel leaves at a preferential margin of 35%. This will help enhance the level of income of the betel growers in the rural areas in Sri Lanka.

Pakistan has also granted TRQs for 3 million pieces of apparel products, covering a total of 20 categories where there is market potential without restrictions regarding country of origin of fabrics.

These apparel categories will also qualify for 35% preferential tariff margin. In addition, ceramic tiles and tableware will enjoy 20% of preferential tariff margin.

On the other hand, Sri Lanka granted to Pakistan TRQs for 6,000 metric tons of long-grade Basmati rice and 1,000 metric tons of potatoes per annum on duty free basis. Pakistan will also be able to promote their tangerine or KENU apples, in the Sri Lankan market as we have granted them duty free access under the FTA.

Although the tariff concessions that will be exchanged under the FTA will be of significance, I would wish to mention another important aspect of the PSLFTA; that is the rules of origin. Elimination of tariff itself will not lead to expansion of trade, unless we apply flexible rules of origin to the products that we trade.

In this context, I am pleased that both countries have agreed to a 35% domestic value addition and change of tariff heading at 6 digit level, which will provide flexibility for Sri Lanka and Pakistan entrepreneurs to source their inputs from 3rd world countries and export manufactured-products to each other. This is a much more flexible provision compared to most of the other agreements.

It is my belief that the PSLFTA will lead to trade-led investment between the two countries. As we move to eliminating tariffs, the FTA will create an enabling environment for our entrepreneurs to form strategic alliances for their mutual benefit. It is true that the current PSLFTA covers only the goods sector.

Trade however, should encompass activity in the spheres of goods and services. As services make a significant contribution to the GDP of our economies, services liberalization will contribute to enhance activity in the goods sector.

We must, therefore, expand the scope of the FTA to encapsulate liberalisation of the services sector. It is for this reason that in the Protocol we have signed, we have provision to identify specific service sectors that will contribute to expansion of trade and the development of economic relations between our countries.

We have provided for both sides to meet every six months, for the purpose of identifying specific service sectors and conclude such negotiations expeditiously.

Furthermore, we have also recognised the need to adopt specific measures to promote investments and stimulate the flow of capital between our economies.

We also envisage investment agencies in the two countries, to consult each other on a regular basis to work out modalities for direct private sector cooperation, with a view to identifying sectors with investment potential.

You would have earlier in the afternoon, heard from our Chairman/Board of Investment about the investment climate in Sri Lanka.

Sri Lanka was the first country in South Asia to adopt open economic policies in the late 1970s. With nearly 30 years of experience in dealing with this subject, we have a significantly investor-friendly environment and I would encourage you to look for opportunities and potential areas for cooperation which could bring you benefits.

It is our vision that the scope of PSLFTA should be broadened and deepened in order for it to move towards a Comprehensive Economic Partnership Agreement - CEPA. We have taken a number of positive steps in that direction and our vision for a CEPA will become a reality in the not so distant future.

The Free Trade Agrement that we negotiate is for the benefit of the business community as they remove barriers to trade and provide legal framework for them to conduct and expand businesses.

It is you the entrepreneurs, who should work in partnership with the public sector to translate opportunities created by the FTA into tangible business transactions. I propose that the business communities both in Pakistan and Sri Lanka, avail themselves of the opportunities that will open up soon within the PSLFTA.

As I said before, I find Sri Lanka-Pakistan economic cooperation performance a surprising under achievement given our close bilateral ties and political will to cooperate.

The FTA should therefore serve as the launching pad for an era of vibrant business activity between our two economies, building upon the solid bilateral, historic and political relations we enjoy.

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