Indo-Lanka FTA should promote a win-win situation - Dr. Kelegama
Sri Lanka's exports to India have increased under the Free Trade
Agreement (FTA) and it is the third largest destination after EU and US
for Sri Lankan exports, said Institute of Policy Studies (IPS),
Executive Director Dr. Saman Kelegama at the launch of ‘Handbook on the
India-Sri Lanka FTA' in Colombo last week. The book is a publication of
He said that the import-export ratio which was in favour of India
before the FTA commenced in 1999, dropped from 10.3:1 to 6.4:1, last
year and in 2011 around 81 percent of Sri Lankan exports went to India
under the FTA compared to 13 percent of Indian exports to Sri Lanka.
On average, 70 percent of Sri Lankan exports go to India through the
FTA and 30 percent Indian imports come to Sri Lanka through the FTA.
Only one percent of Sri Lankan exports went to India before the FTA, now
six percent of overall exports from Sri Lanka go to India.
Dr. Kelegama said that there are many misconceptions and a limited
understanding of the agreement. The first myth is that when there is an
FTA between a large country and a small country it is always the large
country that gains the most. This is not correct.
If this is true, China and Pakistan will not have an FTA and on the
same grounds Australia and New Zealand would not have embarked on a free
Much research has been done on how to design an FTA between a small
and large country to bring more gains to the smaller country or to work
out a ‘win-win’ situation and this is done by taking the asymmetry
between the two countries by building Special and Differential Treatment
(SDT) for the smaller country in the FTA and the large country adhering
He said that the second myth is that in spite of the trade deficit
with India reducing in favour of Sri Lanka, it has still not reached a
balancing level or zero deficit, and the FTA has not been effective in
One thing should be clear in this context. In the globalised world,
no country can have surpluses or zero deficits with all trading nations.
Sri Lanka has trade surpluses with its main export destinations in the
West, such as US and EU and trade deficits with its main import sources
mainly in the East, such as China, India and the Middle East.
He said had the FTA not been there, given the fact that on average
70% Sri Lankan exports go to India through the FTA compared to 30%
Indian imports coming through the FTA to Sri Lanka, the trade deficit
would have been larger.
The key fact to take note of when talking about the trade deficit is
that it gets compensated to some extent by the large capital flows from
India in the form of FDI and aid.
So using this trade deficit argument does not make much sense in the
context of an FTA.
The objective of the FTA is to bring the best deal to the Sri Lankan
consumers and exporters, while giving reasonable protection to Sri
Lankan Industrialists, and not the bringing of the existing trade
deficit to near zero.
The publication highlights the misconceptions and clarifies the
correct position and it fills the gap of not having one document that
contains all the relevant information on the FTA. The India-Sri Lanka
FTA was signed in 1998 to promote trade, economic relations and FDI
between the two countries. It came into force in 2000.