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Free Trade Agreement China Sri Lanka

April 9th, 2021

Colombo is negotiating a trade pact with India separately, but it is also moving slowly, because Sri Lankan companies fear being exposed to competition from a stream of cheap indian companies. Sri Lanka has expressed interest in reviewing a bilateral trade agreement with China. The two countries agreed to conclude a free trade agreement to open the huge Chinese market to Sri Lankan producers, producers and exporters. In this context, it is imperative that the agreement covers a considerable number of tariff and trade lines and removes non-tariff barriers that could hinder export expansion. That is why discussions have taken place on the extension of the existing free trade agreement and on the signing of an agreement known as economic and technological cooperation (CETA), which would improve the current free trade agreement and include some liberalisation of certain services. Eleven rounds of negotiations have been concluded on an India-Sri Lanka ETCA. However, negotiations were suspended due to the political and constitutional crisis in Colombo in October 2018. Since then, no progress has been made in the ETCA negotiations. Although Chinese imports have increased significantly, Sri Lankan exports to China remain slow, leading to an ever-increasing trade deficit. In 2005, Sri Lanka`s trade deficit with China was only 2.5% of GDP; By 2018, it had risen to 4.4% of GDP, or nearly 40% of the total trade deficit. However, an important part of Sri Lanka`s economic relations with China has not been at the forefront: the rapid growth of trade relations between two countries over the past decade. Like other countries` trade relations with China, the expansion of trade with Sri Lanka has been fuelled by a large influx of Chinese imports, resulting in a growing trade deficit between the two countries. India-led South Asia has seen a terrible development in regional trade integration, with intra-regional trade accounting for only 5% of total trade flows.

Perhaps the growing power of China`s trade relations in South Asia can help to change this dismal situation. Chinese trade with the island state is booming, even though Indian trade appears to be stalled. In 2005, Sri Lanka`s import rate to GDP was 36%; In the same year, China`s import/GDP rate was only 2.6%. In 2017, the import/GDP rate had fallen to 23.8%, while China`s import/GDP rate had risen to 4.8%. This significant increase in Chinese imports occurred even in the absence of a Free Trade Agreement (FTA) from China with Sri Lanka. This means that Chinese imports are subject to normal tariffs that could be abolished under a free trade agreement. In contrast, India has a free trade agreement with Sri Lanka, the Do-Sri Lanka Free Trade Agreement (ISFTA), which comes into force in 2000. Even with this free trade agreement, Sri Lanka`s Indian import rate has fluctuated by about 5% and has not seen a significant sustainable increase since 2005. Chinese Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing that China had placed great importance on its relations with Sri Lanka and was ready to continue its cooperation in all areas, including trade and the economy. Although Sri Lanka currently does not have a free trade agreement with China, discussions have taken place on the signing of such a bilateral agreement. Beginning in 2014, Sri Lanka and China concluded six rounds of negotiations on the proposed free trade agreement.

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