Expanding supply capacity vital to gain from FTAs

Lanka should strengthen negotiating strategy in future agreements, economists say:

Channa KASTURISINGHE

AGREEMENTS: As the Sri Lankan and Indian governments discuss the speedy implementation of the Comprehensive Economic Partnership Agreement (CEPA) economists highlighted the urgent need for Sri Lanka to address critical supply-related constraints to benefit from bilateral and regional trade agreements.

Sri Lanka should strengthen its negotiating strategy and analytical capacity before entering into trade agreements and expand its domestic supply capacity to gain maximum benefit from them, said Upali Wickramasinghe, Professor of Economics, University of Sri Jayawardenepura.

Sri Lanka and India signed the existing Free Trade Agreement in 1998 making it operational since March 2000 and some economists have seen it as a success story in South Asian economic integration.

Now the two countries plan further to develop it to a CEPA to include free trade in services and to strengthen investments. Discussing the speedy establishment of the CEPA would be one of the objectives of the on-going visit of President Mahinda Rajapakse to India.

Prof. Wickramasinghe said although the FTA has changed the nature of the trade and investment relationship between the two countries in a significant way, it is an open question whether the benefits are shared between them in a fair manner.

"Following the FTA, India has now become the largest supplier of Sri Lanka. At the same time India, which was only the 22nd largest buyer of Sri Lankan goods in early 1990s has become the 3rd largest buyer. At the same time, the trade gap between the two countries has widened in an unprecedented manner," he said.

He also said that in 2005, bilateral trade amounted to 2.39 billion US dollars with Indian exports amounting to 1.8 billion US Dollars and Sri Lankan exports amounting to 566 million US Dollars.

"India, which was the 21st destination for Sri Lankan exports in 1998 became the third largest destination in 2005. India is the largest source of imports to Sri Lanka and supplied 20.7 percent of our import requirement last year," Prof. Wickramasinghe said.

He was addressing a meeting on Free Trade Agreements and Sri Lanka's Trade Initiatives organized by the European Union Sri Lanka Trade Development Project in Colombo on Friday.

Prof. Wickramasinghe who is also a consultant of the International Trade Centre, UNCTAD-WTO said that South Asia needs to address critical supply related constraints to benefit from the existing liberal trading environment in the world.

He pointed out that policy makers have mostly overlooked the primacy of reforming the domestic markets and strengthening supply capacities.

"Successful competition in the international market depends on the ability of firms to produce goods and services required by the importing countries in the quality and quantity at competitive prices.

It is also important to ensure the availability of efficient mechanisms for these products and services to reach international markets in time.

Therefore, the domestic policy environment is as important as the external trading environment. Unfortunately, most South Asian countries have given prominence to the external trading environments on the false belief that the opening up foreign markets will allow them to export to these markets and achieve economic development," he said.