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ABSTRACT THE FREE TRADE AGREEMENT between India and Sri Lanka came into full existence from 1st March 2000.This FTA basically deals with the modalities of the Duty Free Import of the goods manufactured in Sri Lanka which exempts specified goods imported under Indo- Sri Lanka Free Trade Agreement from the Import Duty up to 100%. There is a clear business opportunity for manufacturers from India to set up unit in Sri Lanka so that the goods produced in Sri Lanka can be brought to India duty free availing the exemption provided in the Free Trade Agreement. Since there is no Excise Duty in Sri Lanka or Import Duty the goods produced there would be cheaper. Establishment of free trade arrangements between India and Sri Lanka has accelerated the development of national economies, promoting mutually beneficial bilateral trade and strengthening intra-regional economic cooperation. Both sides have recognized that the expansion of their domestic markets through economic integration is a vital pre-requisite for accelerating their processes of economic development and have further recognized that comprehensive reductions and elimination of obstacles to bilateral trade through a bilateral free trade agreement would also contribute to the expansion of world trade.
INTRODUCTION The free trade agreement between India and Sri Lanka came into full existence from 1st March 2000. Under the agreement Zero duty on around 1000 items has been provided by India with. 50 per cent margin of preference on all items, except for those in the Negative List. Tariffs have been brought down to zero over a period of three years. Concessions on textile items have been restricted to 25 per cent. India has retained less than 400 items in its Negative List. These mainly include garments, petro-chemicals, alcoholic spirits and coconuts and coconut oil. Sri Lanka has around 1200 items in its Negative List. Items in the Negative List do not enjoy tariff concessions. Domestic value-addition requirements have been kept at 35%. If the raw-material/inputs are sourced from each other’s country, this is reduced to 25% within the overall limit of 35%. The criterion of ‘substantial transformation’ has been provided in the Rules.
India is the biggest source of Sri Lankan imports. Apollo Hospitals. About one-sixth of the total development credit granted by Government of India is made available to Sri Lanka. Tata’s and Ashok Leyland are among the prominent Indian companies operating in Sri Lanka. there are a large number of items in the negative lists (429 items in case of India.437 billion and US $ 588 million respectively in 2005. 2 . consultancy services and food items and a US $ 31 million line of credit for supply of 300. Indian Oil Corporation. L & T. At present two lines of credit are operational.Free Trade between India and Sri Lanka Since the coming of the FTA in March 2000. A US $ 150 million line of credit for purchase of petroleum products is operational since March 2005. At 15% of the total. there is scope for significant improvement. While the Free Trade Agreement has worked well. including Indian private airlines. Bilateral trade exceeded US $ 1. Rounds of talks in New Delhi on February 2005 resulted in the setting up of a Trade Negotiating Committee and its sub-groups which have since met in New Delhi and Colombo to finalize the Agreement by end-2006. is now being made available for post-tsunami rehabilitation of the coastal railway line. 1180 items in case of Sri Lanka as well as quantitative caps on tea and textiles) and implementation of the Agreement has thrown up another set of issues. It rose to further US $ 1. India is a keen partner in developmental activities in Sri Lanka. Exports from India to Sri Lanka in 2004 amounted to US$ 1350 million. Work is simultaneously going on to move to the next step of economic integration by expediting the Comprehensive Economic Partnership Agreement (CEPA) between the two countries.025 billion in 2005. India is the 4th largest investor in Sri Lanka. while exports from Sri Lanka to India in the same year amounted to US$ 382 million. trade has grown rapidly. Abuja’s. Another one of US $ 100 million.7 billion in 2004 and rose to US $ 2.000 tonnes of wheat. consumer durables. These are a US $ 100 million line for capital goods. earlier slated for rural infrastructure projects including a road between Anuradhapura and Trincomalee to be named the Rajiv Gandhi Amity Highway. Taj Hotels. The two sides are jointly addressing these practical difficulties arising out of the implementation of the FTA. With FDI approvals of US $ 450 million. to and from 10 destinations in India. The FTA prompted a 257 % increase in bilateral trade between 2001 and 2004. Connectivity between the two countries is at an all time high with approximately 100 flights per week. It is also the 3rd largest destination for Sri Lankan exports. Currently the Agreement covers only goods.
emphasizing that their rights and welfare should not get enmeshed in hostilities against the LTTE. culture and defence. During the course of the conflict. 3. as well as a broad understanding on major issues of international interest. displaced person and carried out over 3000 surgeries from 1 March to 30 September 2009. The Government of India put in place a robust programmed of assistance to help these internally displaced person return to normal life as quickly as possible.000 Tamil civilians housed in camps for Internally Displaced Persons (Internally displaced person). India provided a total of 250. it conveyed at the highest levels its deep concern at the plight of the mostly Tamil civilian population. the relationship has been marked by close contacts at the highest political level. encompassing all areas of contemporary relevance. cultural. India supported the right of the Government of Sri Lanka to act against terrorist forces. In the immediate aftermath of the end of armed conflict. 2. with nearly 300. Prime Minister Dr.800 tones of galvanized iron (GI) sheets for constructing temporary housing for Internally displaced person. In order to help with this.000 starter packs of agricultural 3 . India has provided shelter assistance by way of supplying more than 7. India has also consistently advocated the need for internally displaced person to be resettled to their original habitations as early as possible. which treated over 50. The relationship between the two countries is more than 2. At the same time. religious and linguistic intercourse. Relations between the two countries have also matured and diversified with the passage of time.000 family relief packs for the internally displaced person. cooperation in the fields of development. 70. Medicines worth SLR 225 million were also supplied to Sri Lankan authorities. education. The conclusion of the armed conflict saw the emergence of a major humanitarian challenge.000 internally. It also established an emergency medical unit in the IDP camps. In addition. Another consignment of 2600 tones of GI sheets is in transit for further supply in Sri Lanka. In13 June 2009. The nearly three-decade long armed conflict between Sri Lankan forces and the LTTE came to an end in 25 May 2009. The shared cultural and civilization heritage of the two countries and the extensive people to people interaction of their citizens provide the foundation to build a multi-faceted partnership.500 years old and both sides have built upon a legacy of intellectual.Free Trade between India and Sri Lanka CURRENT SENARIO India is Sri Lanka's closest neighbor. In recent years. growing trade and investment. Manmohan Singh announced a grant of Indian Rupees 5 billion for relief and rehabilitation in Sri Lanka.
India is one of the top five countries investing in Sri Lanka's business and trade since 2007 constituting to 6.000 bags of cement to help Internally Displaced Persons rebuild their shelters. Out of this number of 758. it will gain all the benefits of a productive partnership. Sri Lanka is currently a lucrative destination for Foreign Direct Investments (FDI).349 in the corresponding period of 2010 showing an increase of 32. India is the largest contributor with every fifth tourist being from India. By demonstrating a partnership with Sri Lanka.458. Sri Lankan tourists too are among the top ten sources for the Indian tourism market.882 were from India constituting 19. 126.98%. By managing economic bilateral relations with India. other countries being US. In tourism. Hong Kong.976 tourists.000 visas were issued by the High Commission in Colombo to facilitate travel between Indian and Sri Lanka. and Singapore.Free Trade between India and Sri Lanka implements have been supplied to help resettling families begin livelihood generating activities another 20. out of the total 654.98% of the global tourists.37%. India has enormous potential to produce vigorous growth and ameliorate its business structure. The number of India tourists during January-November 2011 (11 months) increased by 38. amidst the global turmoil. standing to be one among the least affected countries by the global recession. Tourism also forms an important link between India and Sri Lanka and India is the largest source market for Sri Lankan tourism. India is enriched with the potential to manage its own growth momentum. In 2010.5% of the total FDI stock. despite the economic downturn and hostile environment. which are now engaged in various sectors in northern Sri Lanka to help expedite resettlement.29%. the Government of India has fully financed seven Indian de-mining teams.919 tourists were from India making to 20. Indian economy is been predicted by economic analysts to grow by 7% during 2009. is a generator of huge volumes of foreign exchange revenues. nearly 200. Good ethical standards in the country's apparel industries and their scrupulous loyalty to the rules and regulations have paved way for its success.458 from 570. 4 . UK.5% as against the increase of 32. The Government of India also supplied 400. the tourist inflow to Sri Lanka increased to 758. In the period from January to November 2011.000 of these packs will be provided in the coming weeks and months. Sri Lanka's apparel industry. Since the requirement of de-mining is a major constraint on the speed of resettlement. In 2010. Sri Lanka can achieve quick and enormous economic development. FDEI inflows into Sri Lanka during 2001-07 accounted to 16% of the total investments. 153.
The basic premise in signing the ISLFTA was asymmetries between the two economies.Free Trade between India and Sri Lanka INDIA-SRI LANKA FREE TRADE AGREEMENT (ISLFTA) The main framework for bilateral trade has been provided by the India-Sri Lanka Free Trade Agreement (ISLFTA) that was signed in 1998 and entered into force in March 2000. India has reduced duty to zero and removed restrictions on entry ports and sourcing of fabrics from India for 3 million pieces of apparel products from Sri Lanka. currently 4150 Indian tariff lines have been made zero duty for Sri Lankan exports to India. (b) Textiles. and (c) Garments where the 50% margin of preference on 8 million pieces over 233 tariff lines. In a nutshell. 3932 tariff lines have been made zero duty for Indian exports to Sri Lanka. India has also removed port restrictions on the balance 5 million pieces of apparel products. local socio-economic sensitivities. As a result of ISLFTA. The Garments quota terms have been further liberalized through a MoU on October 5. In addition to these steps. 52/2008 dated 22 April 2008 giving immediate effect to the MoU. These 5 million pieces of garments will be allowed to enter India at zero duty or Margin of Preference of 75% depending on the product category provided that they are manufactured using Indian made fabrics. and revenue implications so as not to impact high revenue generating tariff lines in the short term. where there is a 25% tariff reduction for 528 Textile items. 5 . India has offered quotas to Sri Lanka on certain tariff lines (a) 15 million tonnes of Tea (5 tariff lines) with 50% margin of preference with no port entry restrictions since June 2007. safeguard measures to protect domestic interests. As a result. Similarly. India sought to do more without insisting on strict reciprocity from Sri Lanka. 2007 by which the Government of India has issued a Custom Notification No. This is reflected in the respective obligations of the two countries under the ISLFTA where India agreed to open more tariff lines upfront and within a shorter time span of three years as against smaller and more staggered openings by Sri Lanka which was provided a longer time of eight years.
Iron and Steel. rubber products. plastic products and rubber products etc. there are 429 items in the negative list. 6 . and electrical items. On the Indian side. paper products.Free Trade between India and Sri Lanka As of now. which include garments. 1180 tariff lines remain in the Sri Lankan negative list that includes Agriculture/livestock items. machinery.
9:1 4.57 4.63 5.3:1 8.57 5.Free Trade between India and Sri Lanka BILATERAL TRADE Bilateral Trade Figures (US$ Million) Year Imports India from Exports India to Total Trade Trade Deficit EXIM Ratio for Sri Lanka SL Imports: SL Exports All figures in US $ million.4:1 3.10 4.12 Imports (%) 13.5:1 3.19 Source: Sri Lanka Customs 7 .3:1 6.2:1 Source: Sri Lanka Customs Percentage of Total Sri Lanka Trade with India Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (Jan-Nov) Exports (%) 3.4:1 4.81 16.5:1 2.32 18.84 8.79 6.49 17.8:1 5.56 5.47 24.95 7.25 17.2:1 5.6:1 5.43 20.4:1 8.96 20.80 17.4:1 10.17 6.63 22. (FTA implemented in March 2000) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (Jan-Nov) 512 600 602 835 1076 1358 1399 1805 2750 2838 1707 2571 3973 49 58 72 171 241 385 559 489 516 418 328 471 482 561 658 674 1006 1317 1743 1958 2294 3266 3256 2035 3042 4455 -463 -542 -530 -664 -835 -973 -840 -1316 -2234 -2420 -1379 2100 -3970 10.
As of now. The Agreement provides duty free market access to both the countries on a preferential basis in a phased manner.21 CONCLUSION India and Sri-Lanka signed the Free Trade Agreement on 28th December 1998 and further discussions were held between India and Sri Lanka on 2nd February 2000 in New Delhi.Free Trade between India and Sri Lanka SRI LANKAN EXPORTS TO INDIA Sri Lanka – Exports 2010 SRI LANKAN IMPORTS FROM INDIA Top ten Articles exported to Sri Lanka from India -2009: Description 1. The Free Trade Agreement is expected to boost the bilateral trade between India and Sri Lanka and also consolidate the close economic.96 45.81 65.97 3. 6.60 60.28 64.62 3. 9.29 141.15 100. 8 .00 US$M.79 8. Tea quota will be 15 million kilogram per annum and garments 8 million pieces. Mineral fuels. 5.92 67. mate and spices Knitted or crocheted fabrics Paper and paperboard Others Total % Share 20.82 3.78 3. 343.85 582.30 54.75 95. tea. 2.69 34. commercial and political relations between the two countries through increased trade and investments. India is one of the largest exporters to Sri Lanka and the trade balance is heavily in favors of India. India has also agreed to permit limited quantities of imports of tea and garments from Sri Lanka.22 2. 3. 8. & parts Coffee.50 184. 7.94 1707. 10.30 5. mineral oils and products Vehicles other than railway or tramway Cotton Pharmaceutical products Iron and steel Edible vegetables and certain roots and tubers Machinery and mechanical appliances.53 3. 4.12 10.
(2010) 3.Sri Lankan Trade Scenario Favors Indian Investors.(2010). High commission of India Colombo 9 . of India Ministry of Commerce & Industry. 2. INDO-SRI LANKA trade in services: FTA II and Beyond. FMS Delhi School of economics. Duty concessions for Sri Lanka Exports to India.(2011).(2010) 4.Free Trade between India and Sri Lanka References: 1. Department of Commerce. Govt. Dr. Abhijeet Singh. Indian council for Research on International Economic Relation. New Delhi. Title. India-Srilanka economic and trade engagement.
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