CMI and KPMG discuss how to take advantage of FTAs with India and China
Wednesday, 24 December 2014 00:00
In an effort to go beyond the obvious and to better understand the dynamics, opportunities and challenges that stem from Sri Lanka’s Free Trade Agreements (FTA) with India and prospects with China, the Chartered Management Institute (CMI) – UK’s Sri Lanka Branch, held a knowledge sharing event recently which they organised in association with their exclusive knowledge partner, KPMG in Sri Lanka. The event captioned ‘Free Trade Agreements: Trends, Prospects and Opportunities with India and China’ brought together business leaders in an interactive discussion on how to make the most of the trade agreements with India and China and how they can contribute to the development of Sri Lanka’s economy.
Setting the platform for the discussion National Institute of Exports Chief Executive Officer P.D. Fernando shared Sri Lanka’s experience on FTAs, highlighting trends, limitations and opportunities. He stated that to counter challenges these agreements pose a joint operational cell to handle FTA related disputes can largely be of benefit to businesses.
Mihular conducting the panel discussion
P.D. Fernando also reviewed the FTA in place between China and Switzerland and mentioned that reading such agreements between other countries would assist in drawing up the Sri Lanka China FTA.
Sighting the importance of facing the main world trade route, as a natural marine hub, he said that the vision of Sri Lanka should be to conclude an effective FTA with China and step in to the Regional Comprehensive Economic Partnership process.
KPMG in Sri Lanka Principal – Tax & Regulatory Suresh R.I. Perera presented an overview of the 27 Articles of the Indo Lanka Free Trade Agreement including the Rules of Origin and the negative lists. He pointed out that according to the Rules of Origin, two criteria namely, 35% value addition and change of the HS coding at 4 digit level, must both be fulfilled. He also emphasised that though the parties have not invoked, the agreement contains measures for dispute resolution and establishment of a Joint Committee for the smooth operation of the FTA.
According to Article XI, a Joint Committee is to be established at Ministerial level and to meet at least once a year to review the progress made in the implementation of the FTA so as to ensure that benefits of trade expansion emanating from the FTA accrue to both Contracting Parties equitably. He also emphasised that articles should include addressing safeguard measures, balance of payment issues, state trading enterprises, domestic legislations etc.
His presentation was followed by a panel discussion moderated by KPMG in Sri Lanka Managing Partner Reyaz Mihular. The panel discussion included eminent business leaders and professionals comprising Dr. Rohantha Athukorala, Country Director – Turner Investments (USA), R.D.S. Kumararatne, Director General of Commerce, Navindra Abeyesekera, President, Sri Lanka-China Business Council, P.D. Fernando, Chief Executive Officer, National Institute of Exports, and Suresh R.I. Perera, Principal – Tax & Regulatory, KPMG in Sri Lanka.
Commenting on the opportunity that the China FTA can pose to Sri Lanka, Navindra Abeyesekera stated that today, China’s population stands at 1.4 billion people, which is more or less 19% of the total world’s population. China’s Imports have grown year on year by 7% from $ 1,817 billion in 2012 to $ 1,949 billion in 2013, and out of these imports, 42% is from developed Asian countries, namely, South Korea, Japan, Taiwan, Hong Kong and Malaysia.
Responding to how Sri Lanka could exploit the China market, Navindra Abeyesekera stated that our export strategy to China should be based on China’s presently high value added import products from Asia, which can be manufactured either fully or partially in Sri Lanka and focusing on the new Chinese consumer, their behavioural and spending habits. He added that in our exports strategy we need to focus on value addition through brand names, whereby Sri Lankan companies look at partnering reputed brands especially in high value added import segments such as, jewellery, shoes, thereby generating higher margins and changing our identity.
Rohantha Athukorala pointed out that in order to exploit the now available access to the market, one does not have to wait for FTAs. He believed one must venture out of the country and meet prospective buyers and initiate business. The FTAs will support the entrepreneurial venture that one embarks on. Specifically on the proposed China FTA he voiced the opinion that it is not going to be easy for the Sri Lankan export industry.
One will have to work out a competitive position by continuously studying the Chinese market. 15 countries have duty free and preferential access to the Chinese market. Many more FTAs are in the pipeline and are at a more mature stage compared to the Sri Lanka – China FTA. He added that focusing on consumer information is vital for successful business insights on market opportunities.
The most popular bilateral FTA to emerge in the region was the India-Sri Lanka FTA. In 2011-12, India’s imports from Sri Lanka went up by almost 45% to cross $ 720 million, making Sri Lanka the largest source of merchandise from the South Asian region for India. It is relevant to note that over 70% of Sri Lanka’s exports to India are covered under the FTA. Commenting on it R.D.S. Kumararatne stated that the full potential of the FTA is yet to be fully exploited by Sri Lanka, and broadening the FTA is the way forward. He added that FTAs are essential for countries, especially like Sri Lanka, to come up with strategies in order to face the new challenges in highly competitive markets.
In conclusion, Reyaz Mihular stated that businesses need the right insight in evaluating and implementing savings and compliance related advisory to exploit these agreements and be provided with necessary support of the complex business challenges and key issues faced by businesses.
CMI and KPMG hope to continue their partnership on similar knowledge sharing initiatives, bringing together industry professionals to share their expertise on topics that are of relevance to the Sri Lankan business environment.