Sri Lanka would need to sign a suite of FTAs for different purposes: Malik

Development Strategies and International Trade Minister Malik Samarawickrama

Following is the speech delivered by Development Strategies and International Trade Minister Malik Samarawickrama at the Singapore-Sri Lanka FTA Outreach Seminar on July 10, 2018.

The signing of the Singapore-Sri Lanka Free Trade Agreement between Singapore and Sri Lanka in January this year has unlocked a new era for both our countries.  Let me start by thanking Minister Iswaran, who was an outstanding colleague in this process. We worked together as equal partners, right throughout and he helped us get over many issues that came up from time to time. I also want to thank the two negotiating teams for all their hard work – Singapore’s team led by Francis Chong and Sri Lanka’s team led first by the late Dr. Saman Kelegama and subsequently by Karunathilaka Weerasinghe.

The Singapore-Sri Lanka Free Trade Agreement is a landmark agreement for Sri Lanka. It signals to the world that the country is moving to a new era in international trade and investment.

This is the first bilateral trade agreement that Sri Lanka has forged in over 10 years. It is also the first comprehensive agreement for Sri Lanka, which means it is the first agreement that goes beyond goods and includes services, investment, economic cooperation, etc.

To have done our first comprehensive agreement with Singapore – a country regarded as being one of the most open and liberalized economies and having high-quality institutions – is an especially important milestone for Sri Lanka.

It signals the commitment of the government to usher in an era of openness for Sri Lanka and become a formidable economic hub in the 
Indian Ocean.

This agreement is an important part of the new ‘National Trade Policy’ launched last year and is a linchpin in the on-going trade policy reforms. To compliment this, Sri Lanka is undertaking domestic reforms and initiatives to make Sri Lanka internationally competitive (e.g. Enterprise Sri Lanka, National Export Strategy, Innovation and Entrepreneurship Strategy, Doing Business and Trade Facilitation Reforms, etc.)

Together, these reforms will boost the creation of more good quality jobs especially for young people and new trade and biz partnership opportunities.

The Singapore-Sri Lanka FTA is part of a broader strategy of looking East to renew our trade relationships. While we focus on growing and sustaining in our traditional markets of the US and Europe, we have begun to diversify our markets towards Asia and focus on plugging into Asian supply chains.

This FTA is our first agreement with a Southeast Asian country and we envisage this as a first step towards closer integration with Asian and potentially be part of the Regional Comprehensive Economic Partnership (RCEP) in the future.

The key benefit of this FTA is leveraging the trade-investment nexus and plugging into Asian supply chains.

There is already interest among Singaporean investors to invest in services and manufacturing and this FTA can catalyze more. Much potential for diversification of exports through the trade-investment nexus that this agreement encourages, as well as new joint venture opportunities for Sri Lankan companies. The agreement provides a binding commitment and framework on bilateral investments, which we did not have earlier and this will encourage investment.

It is important to understand that not every FTA is meant to “balance trade between the two countries” or “bridge the bilateral trade deficit”. Sri Lanka has trade surpluses with some countries and deficits with other countries.  Sri Lanka would need to sign a suite of FTAs for different purposes – some aimed at boosting exports (new/preferential market access) as well as give domestic producers access to lower cost inputs, while some to leverage on the trade-investment nexus rather than narrowly looking only at goods.

The scope of this agreement is very progressive; it is wider than the proposed China and India Agreement – goes beyond to cover telecommunications, financial services, e-commerce and government procurement.  Singapore has recognized that the e-commerce chapter in this FTA is quite a progressive one.

‘‘It is important to understand that not every FTA is meant to “balance trade between the two countries” or “bridge the bilateral trade deficit”. Sri Lanka has trade surpluses with some countries and deficits with other countries.  Sri Lanka would need to sign a suite of FTAs for different purposes – some aimed at boosting exports

Sri Lanka is not a member of the Government Procurement (GP) WTO Agreement but as a step towards reform, for the first time Sri Lanka has included a GP Chapter in this agreement. It covers international competitive bidding (excluding national bidding). It also embodies procedural fairness and transparency in procurement. The chapter ensures alignment with national procurement guidelines and does not deviate.

On goods (and the tariff liberalization programme – TLP), Singapore already has 99 percent of tariff lines zero-rated. But the agreement recognizes that Sri Lanka has to go step by step. So, Sri Lanka has agreed to liberalize 80 percent of tariff lines – 50 percent of these lines immediately to zero (around 3600 lines), 15 percent over the first to sixth year in equal instalments and 15 percent over the sixth to 12th year.

Items that remain in Sri Lanka’s negative list are those that are sensitive on revenue and other domestic grounds: petroleum and related products; tobacco and related products; alcohol and spirits.

As far as Rules of Origin (ROO) are concerned – no ASEAN cumulation is allowed under this FTA. Standard ROO agreed is 35 percent value addition and CTH change of tariff heading. Additionally there are product-specific rules on 2000 tariff lines and product chemical rules, which are exceptions to 
the ROO.

The real focus of this FTA is on investment from Singapore in services and manufacturing – potential for diversification of exports through the trade-investment and new joint venture opportunities for Sri Lankan companies.

The investment chapter will give a strong signal to prospective Singaporean investors – it gives protection to investors, predictability and transparency. Protection, national treatment and many provisions are to attract investors. The agreement provides a binding commitment and framework, which we didn’t have earlier.
Both countries did not commit to independent movement of professionals (under Mode 4) in this FTA; so only Modes 1 to 3 are open.  Sri Lanka has undertaken liberalization in some important areas for business – testing labs (this will help Sri Lanka firms that now have to send samples, etc. to Singapore); sports and recreations; maritime; environmental services  (pollution, waste water, energy efficiency, noise abatement, etc.).  In services, only Singaporean nationals are recognized.

Meanwhile, Singapore has gone well beyond Sri Lank in services sectors – GATS plus. Just as Sri Lanka has not done, Singapore has not offered Mode 4 independent professionals movement either but Sri Lankans can benefit from the services liberalization by Singapore as Mode 4 business visitors and intra 
corporate transferees.

We are particularly keen to have Singaporean companies partner with our Sri Lankan companies to create new business ventures. As you meet our companies you will realize that they have a strong focus on good management and are well run. You will realize that they have a strong focus on quality standards, given that we export to countries with very high demands on quality and certification and they also have a strong focus on environmental and ethical compliance.

Once again, I wish to thank Minister Iswaran and his team at MTI for organising this timely outreach seminar and for inviting the Prime Minister, myself and our delegation.

I look forward to working closely with your team and the team at Enterprise Singapore to fulfil the promise of this FTA and make it work for the enterprises and the people of our two countries.