Highlights of Sri Lanka-Singapore FTA

Singapore Prime Minister Lee Hsien Loong and Sri Lanka President Maithripala Sirisena witness the signing of the free trade agreement by Singapore Trade Minister S. Ishwaran and Sri Lanka Development Strategies and International Trade Minister Malik Samarawickrama 

On January 23, 2018, Sri Lanka marked a significant watershed in the development of its economy when it signed a free trade agreement (FTA) with Singapore after 18 months of negotiations between the trade negotiation teams of both countries.

It was a ‘giant leap’ in terms of implementation and laying down of a marker that the government of Sri Lanka is moving into a new era of international trade. Three Singapore companies also sealed deals with Sri Lankan partners at a business forum held the day after the signing of the FTA. 

There were four agreements signed for new projects across food, aquaculture, hospitality and infrastructure. Singapore SME Food Studio will set up and operate premium food courts in some Sri Lankan malls, while aquaculture business Ark Holdings will build and operate a crab farm.
Although the main thrust of FTAs is to reduce or eliminate trade barriers and increase trade, the recently signed Sri Lanka Singapore Free Trade Agreement (SLSFTA) has a larger message as it signals to the world that Sri Lanka is open for business, including investments. The two island nations are also the ideal hubs – Sri Lanka for South Asia and Singapore for Southeast Asia.

A key factor in the success of negotiating trade agreements is an understanding of the underlying needs and constraints of the other side and working to develop mechanisms to meet those needs. The complexity of trade procedures and market access rules do not necessarily have to be a hindrance but can instead be viewed as opportunities for innovative solutions.

The agreement will enter into force on the first day of the second month, following the date which parties exchange written notification certifying that they have completed their respective applicable legal requirements and procedures for the entry into force of this agreement. The domestic process will be completed within about four weeks’ time.

Key features of SLSFTA
1. Wider scope: The SLSFTA is comprehensive in scope in that it covers goods, services, investments, sanitary/phytosanitary (SPS)/technical barriers to trade (TBT), rules of origin (ROO), intellectual property rights, customs procedure and trade facilitation, government procurement, competition, trade remedies, economic and technical cooperation, transparency provisions, dispute settlement and general and final provisions while it includes chapters on telecommunications, e-commerce and financial services annex.

2. Tariff liberalization with relatively long adjustment period: Sri Lanka agreed to eliminate the customs duty of 80 percent out of 7,042 tariff lines keeping 20 percent in the negative list, which will not be subjected to reduction or elimination. In terms of tariff reduction modality, Sri Lanka will remove customs duty on 50 percent of tariff lines ‘currently duty free’ on entry into force, 15 percent from one to six-years and another 15 percent from seven to 12 years. Furthermore, revenue-sensitive items such as petroleum products, cigarettes, alcohol beverages and spirits will be in the negative list. While Sri Lanka will include many agricultural products and domestic industry-sensitive items in the negative list, 50 lines, which include steel products, paint products, spare parts, plastic products, electronics products, printed books and cosmetic items, will be phased out only from 11 to 15 years. The ‘CESS and PAL’ will be eliminated over a period of five years starting from fifth to the 10th year. 

3. Determine products of Singapore origin: All goods under the agreement have to fulfil general ROO of 35 percent domestic value addition (DVA) or a change of tariff headings (CTH at 4 digit HS level). For some export products, specific process rules will apply. The ROO is pivotal to prevent market access provided through and tariff liberalization programme is not misused and only goods originating in Singapore with sufficient value addition or processing will qualify for duty concession.

4. Limited service liberalization: Trade in services is negotiated on a positive list basis, where Sri Lanka specifies the extent of liberalization, the level of restrictions and any other conditions for the supply of Singaporean services in the sectors Sri Lanka chooses to make commitments in. In the case of Sri Lanka’s offers to Singapore in the services chapter, there is no new liberalization beyond what is already available through the prevailing unilateral regime as defined in the exchange control regulations, investment regulations, immigration regulations, etc. The primary objective of the chapter is to provide commitment, transparency and certainty to the level of liberalization in the listed sectors. Sri Lanka has made no commitments in the independent movement of natural persons or Mode 4. However, business visitors are allowed entry for a period of up to 30 days, subject to immigration requirements. This would facilitate business visits to develop trade and investment linkages between the two countries. Entry is also permitted for intra-corporate transferees – where a Singaporean company with an investment in a committed service sector in Sri Lanka will be allowed to send senior management and specialised skilled workers to support that investment on a temporary basis. These categories will be limited to managers, executives and specialists, who have advanced knowledge and expertise in the said subject area. The initial period of temporary entry will be up to two years, which can be extended up to a maximum stay of five years in total. 

5. Wider coverage of Singapore’s offer: Considering Singapore’s offers to Sri Lanka in trade in services, Singapore has made commitments in a number of service sectors which are of export interest to Sri Lanka including professional services – accounting and audit, architectural services, engineering services, medical services (Modes 2 and 3), legal advisory services (Modes 2 and 3), computer and related services, tourism services – hotels and restaurants, travel agency, tour guiding, maritime services – freight transportation, shipping agency, maritime auxiliary services, ship brokering services, construction and related services. Singapore’s commitments cover a range of service sectors than the sectors offered by Sri Lanka and Singapore’s offer to Sri Lanka in trade in services has significantly more depth and coverage than Sri Lanka’s offer to Singapore.

6. A clear process to settle disputes: The investment chapter provides sufficient protection to Singapore investors and to their investments and thereby to attract investments to Sri Lanka. These include minimum standard of treatment, national treatment, MFN, compensation for losses, performance requirements, senior management and board of directors, treatment of information, expropriation, transfers and subrogation.  The chapter also provides the necessary flexibility for the state to regulate investments with a view to achieve national objectives such as subsidies and grants given to domestic investors/investments will not be available to Singapore and taxation measures are excluded unless amounts to indirect expropriation. On investor-state dispute settlement process under the FTA contains some deviations were incorporated into the legal text when compared to our existing bilateral investment agreements, with a view to minimize the cost of arbitration and to protect against any undue favouritism towards capital exporters.

7. Ensuring that public procurement markets are transparent and open to international competition: The government procurement chapter in the SLSFTA is in line with the national procurement guidelines and covers mostly the provisions on transparency and procedural fairness. The chapter:
a) Is limited only to international competitive bidding (ICB) and excludes national competitive bidding (NCB) 
b) Excludes procurement made under grants, development assistance and PPP. Further, procurement is made for commercial sale also excluded.

c) Is limited to a few selected central government entities and  few SoEs while excluding sub central level entities.
d) Includes provisions for Sri Lanka to continue to grant price preference to domestic suppliers for a period of 10 years. 
e) Threshold levels have been identified and provisions of this chapter be applicable only to procurements over those thresholds.
8. Trade facilitation tools: Recognizing the importance of customs and trade facilitation matters in the evolving global trading environment, chapters include provisions to facilitate reduced business costs in cross-border trading and red tape around customs processing, competition law and technical and quarantine standards. Also for companies to have better effective access to each other’s markets, it requires a basic set of common rules to provide for a level playing field and prevent abuses. Given the importance of adequate protection and enforcement of intellectual property rights, a chapter on intellectual property right is included. 

9. Trade remedies: With the provisions on anti-dumping subsidies and countervailing measures and global safeguards reaffirm both parties’ rights and obligations under the World Trade Organisation (WTO) agreement, the bilateral safeguard measures, provide provision to increase customs duties, during the tariffs liberalisation programme, if increased imports from Singapore cause or threaten to cause serious injury. Insofar as the agreement is concerned, provision has also been made for the protection of local producers/entrepreneurs by incorporating a chapter on trade remedies and a commitment to ensure observance of principles of transparency and competition. These will be supplemented internally with laws on anti-dumping, countervailing duties and a regime to prevent anti-competitive practices.

10. Review implementation: Also under the institutional, general and final provisions chapter, provision has been made for instituting a joint committee to further enhance trade relations between the parties and in terms of Article on Amendments, it provides for any amendments to be done subject to the prescribed procedure. The first meeting of the joint committee will be held within one year after the entry into force of this agreement. Thereafter, the joint committee will meet every two years which can consider ways for review, if any.