Conference on ten years of ILFTA

A conference to review and critically evaluate the first ten years of implementation of the Indo-Lanka Free Trade Agreement (ILFTA) was held in Colombo recently. The Conference titled Ten Years of the Indo-Lanka Free Trade Agreement was organized by the Institute of Policy Studies of Sri Lanka, the Centre for WTO Studies - India, the India-Sri Lanka Joint Business Council and the Indo-Lanka Chamber of Commerce and Industry.

The objective of this conference was to review the performance of the ILFTA, assess the benefits that have resulted, and also examine the pitfalls in the agreement where improvement is needed.

Expert reviews and informed evaluations of this nature are necessary to improve upon existing trade policy measures such as the ILFTA to ensure that they fulfil their role in contributing to national development objectives. Given the importance of incorporating a wide range of stakeholder views to inform trade policy formulation, the conference provided an opportunity for the private sector, government and academia from both India and Sri Lanka to exchange views on the performance of the ILFTA.

At the same time, the conference created the space for dissemination of research findings on the ILFTA along with expert views and practical experiences of users of the FTA among a wider public audience, thereby contributing to the broader public debate on trade policy issues.

The first day of the conference focused on an ex-post assessment of the ILFTA, reviewing the objectives of the Agreement and the economic outcomes in the first ten years of implementation. One of the key attractions of the agreement for Sri Lanka was to enhance export market diversification, thereby reducing reliance on traditional markets in Europe and the United States and tapping into the fast-growing Indian market.

During the conference it became clear that in the first five years of implementation, whilst exports from Sri Lanka to India had grown over eight fold, this was dominated by a few items, primarily vanaspathi and copper.

As exports of these products came to a halt by 2009, Sri Lanka's exports to India declined. In 2009, Sri Lanka's exports to India were US$ 322 million compared to US$ 56 million in 2000.

Nonetheless, several exporters have succeeded in making inroads into the Indian market including in sectors such as furniture, garments, ships, animal feed, rubber gloves, rubber tyres, food products, and electrical machinery among others.

Furthermore, products such as MAS' Amante label have succeeded in capturing lucrative niches in high end consumer markets in India, and Colombo Dockyards has succeeded in outbidding established Indian firms in major ship repair contracts.

Somi Hazari of FICCI went on to say that the quality of some of the Sri Lankan products has "set new benchmarks in Indian industry".

It was also pointed out that several small-scale exporters, such as strawberry producers, have begun to take advantage of the FTA in more recent months.

At the same time, Indian imports have grown substantially in the first decade of implementation of the ILFTA, but the bulk of these imports do not receive preferential tariffs under the ILFTA since they are in Sri Lanka's negative list. These include products such as crude oil products, vehicles and parts, sugar and metals.

So it was made clear in the conference that while Indian exports to Sri Lanka were growing regardless of the FTA Sri Lankan exports to India, although have been somewhat slow to take off, have made inroads into the Indian market via the FTA as envisaged at the outset of the Agreement.

Whilst recognizing the positive outcomes of the ILFTA, there were several areas where the Agreement has failed to live up to its potential. Many Sri Lankan exporters have found it difficult to compete with local Indian producers due to the state taxes that are not liberalized by the FTA. It was however pointed out by the Deputy High Commissioner for India Vikram Misry, during the conference that, "A proposal for a Goods and Services Tax is in advanced stages of consideration by the Government".