BIMSTEC: Sri Lanka’s next FTA?

Thursday, 20 March 2014 00:00 -     - {{hitsCtrl.values.hits}}

  The third BIMSTEC Heads of Government Summit concluded on 14 March in Nay Pyi Taw, Myanmar, where very significant decisions were taken in order to accelerate economic growth and social progress in the sub-region. The theme of this third BIMSTEC Heads of Government Summit was ‘Partnership for Harmony and Prosperity’. The hallmark of the BIMSTEC was the initiative of creating free trade area amongst the member countries and expanding it to other countries and regional trade blocs. The declaration of third BIMSTEC Heads of Government emphasises that the leaders decided to move forward towards finalisation of the draft Agreement on Trade in goods with agreed general rules of origin and project specific rules. President Mahinda Rajapaksa who led the Sri Lankan delegation delivered a remarkable speech at the summit, highlighting Sri Lanka’s commitment as a one of the founder members as well as a member of Trade Negation Committee to bring the Free Trade Agreement (FTA) to a success. The President also emphasised that once the FTA is finalised, it will open new avenues to increase trade and economic cooperation in the region.   Liberalisation of trade Subsequent to World War II, various tendencies emerged in the global social economic scenario. Since the 1970s the global trend on trade moved towards liberalisation of trade or simply trading without tariff and non tariff barriers. While multilateral agreements under the GATT (General Agreement on Tariffs and Trade) and WTO (World Trade Organization) have been led global trade towards greater trade liberalisation, regional trade agreements such as NAFTA (North American Free Trade Agreement) and SAFTA (South Asian Free Trade Area) became significant free trade agreements for individual nations. The development of regional cooperation among the countries has given boost to free trading environment. The main objective of the bilateral or Regional Free Trade Agreement is to build up a treaty between two counties or more countries that do not impose tariffs for trade conduct across their borders. Ultimately it will provide a conducive environment for business to compete globally. Today almost every country has become a member of at least one Regional Trade Agreement. According to the WTO, 583 notifications of Regional Trade Agreements for goods and services had been received by WTO up to January 2014; 377 agreements are in force including reciprocal trade agreements between two or more partners.   BIMSTEC The Bay of Bengal Initiative for Multi Sectoral Technical and Economic Cooperation (BIMSTEC) is an international organisation established in the latter part of the 1990s as sub regional group by some South Asian countries and South East Asian countries. The current members of the BIMSTEC are Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka and Thailand. If we recall the history of BIMSTEC, Bangladesh, India Sri Lanka and Thailand initially convened a meeting in Bangkok and jointly formed a new sub-group on 6 June 1997 by the name BIST-EC (Bangladesh, India, Sri Lanka, Thailand – Economic Cooperation). Originally Myanmar attended this summit as an observer and obtained full membership in December, 1997. With this new addition of membership, the name of the organisation was changed to BIMST – EC. Subsequently Nepal and Bhutan also joined in 2004. In the first Summit of Heads of Governments held on 31 July 2004, the leaders of the group decided that the name of grouping should be BIMSTEC or the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation. BIMSTEC was established with objective of combining the ‘Look West’ policy of Thailand and ASEAN together with the ‘Look East’ policy of India and South Asia. The Bangkok Declaration on the establishment of BIMSTEC clearly expressed the objectives of the organisation. The objectives were to create an enabling environment for rapid economic development, accelerate social progress in the sub region, and promote active collaboration and mutual assistance on matters of common interest. BIMSTEC has 14 priority sectors covering all areas of cooperation while Sri Lanka gives leadership to technology sector.   Free Trade Area The most significant feature in the economic development activities of BIMSTEC is the proposed Free Trade Area amongst the member countries which expected to expand it later to involve other countries as well as other Regional Trading Blocs. It was the BIMST – EC Economic Ministerial Meeting held in August 1988 which concluded with certain decisions that BIMST – EC should aim to develop a Free Trade Agreement. At the BIMSTEC Trade, Commerce and Economic Ministerial meeting held on 8 February 2004 in Phuket Thailand, the member countries jointly signed a Framework Agreement to establish a Free Trade Area by 2013 to create a conducive environment for trade for member countries without any barriers. Initially Bangladesh did not sign the agreement due to prevailing domestic issues, but later Bangladesh joined for the Framework Agreement. The objective of the Agreement is to strengthen and enhance economic, trade and investment cooperation among the members, progressively liberalise and promote trade goods and services and explore new areas. The Trade Negotiating Committee (TNC) was set up in 2004 to continue all negotiations on the implementation of FTA. Trade negotiations mainly cover all trade in goods, outline the reduction and elimination of tariffs with more flexibility granted to the LDCs. The Committee is required to start deliberations on general rules, etc., focusing the preparation of on positive and negative list. It is expected to expedite implementation of FAT by the regular TNC meetings being held now. Sri Lanka Sri Lanka’s first FTA signed with India in 2000 was the first bilateral FTA of India. Since then, the implementation of the Sri Lanka-Pakistan FTA became effective from 2005. As a member of SAARC, Sri Lanka became member of the South Asian Free Trade Area (SAFTA) which came into force in 2006. Sri Lanka had discussions and negotiations with Bangladesh and Egypt for FTAs in early 2000 but did not continue discussions. Currently the discussions are in progress to implement a FTA between Sri Lanka and China. However BIMSTEC FTA will be a promising one which is at a reachable threshold. Somebody may argue that Sri Lanka is already in SAFTA and FTA with India. Sri Lanka could utilise benefits of these agreements as most of member countries of BIMSTEC are South Asian nations and they have their own SAFTA agreement. Also India covers the bulk of trade of Sri Lanka. Myanmar and Thailand cover only 3% of Sri Lanka’s total trade. But with fast moving world for liberalised trade, FTAs hold an integral part of trading pacts. This provides opportunities not only for trade without barriers, but also to improve and promote other activities like investment and tourism et al.   Bridge for long term trade BIMSTEC is an important trade agreement to member countries including Sri Lanka, as it is has the potential to be a bridge for long term trade in South Asia and South East Asia. It covers significant areas of Asia. The BIMSTEC region is a region with US$ 2,454 billion GDP containing 1.5 billion population and US$ 1,135 billion total trade. This organisation mixes a diverse cultural, social and economic group. Social and economically Sri Lanka, India and Thailand are defined as Non-Less Developed Countries and other four countries Bangladesh, Bhutan, Myanmar and Nepal are in the LCD category. It is understood now that Japan is willing to help BIMSTEC to make its objectives successful. BIMSTEC, the organised trade bloc in South Asia and South East Asia, would be fortunate to share the cooperation extended by Japan as the fifth economic power in the world. Sri Lanka has been trading with Japan which is our ninth largest export market with US$ 226 million (2013) exports during a long period of time. The possibility of Japan joining BIMSTEC will make a better platform for Sri Lanka to expand her market share in this leading market. It is thought today that China too would consider extending its cooperation to BIMSTEC. Since 2003, China has entered nine FTAs and China is still looking forward to have more FTAs with Asia. Presently a few FTAs are in progress of development according to China’s preference such as the China-India Regional Trade Arrangement Study, China-Korea FTA Joint Feasibility Study, and China-Japan-Korea Joint Study. Today, cooperation amongst trading blocs has increased and important discussions are being held regarding free trade facilities in a global social economic scenario. ASEAN having a FTA with New Zealand and Australia is one such case. Some economists predict that in future the ASEAN will cooperate with BIMSTEC to create a wider free trade area in Asia. Thailand and Myanmar as members of the ASEAN have great potential in making this concept a reality.   Diversifying export destinations The Strategic Plan 2010-2015 of the Sri Lanka Export Development Board, the National Plan for Export Development indicate that one of the targets under the plan is to increase exports to markets other than EU and USA by over 50% by 2015. The increase of 50% exports of export markets other than EU and USA is not an easy target. The EDB Strategic Plan also indicates that China, Russia and other Asian countries emerging as friendly nations of Sri Lanka have potential for Sri Lankan exports. If the EDB needs to diversify Sri Lanka’s export destination from Europe to Asia and other countries, they should utilise these opportunities to its best. After it takes some time to implement FTA, but Sri Lanka should ready to utilise it. Even the promotional strategies should now build up with new tendencies in BIMSTEC counties for long term benefit.   Myanmar Sri Lanka’s exports to Myanmar value US$ 1 million, ranking at the 116th position in the list of export destinations. This reveals that very negligible trade is done with Myanmar. The main reason is that Sri Lanka maintains only political and cultural relationships as a Buddhist country, not focusing much on trade. Today Myanmar is displaying its willingness to politically change its governing system and is moving towards a more liberal path. The Sri Lankan Government together with the chambers should develop a new mechanism on how to enter the Myanmar market strategically. It is a timely need to organise trade missions to Myanmar and strengthen relations with its respective counterparts in Myanmar such as the Myanmar-Sri Lanka Friendship Association.   Thailand As far as Thailand is concerned, it needs to be looked at from a wider angle. Even though Thailand ranks 34th in Sri Lanka’s export destination list with exports of US$ 56 million, Sri Lanka exports nearly 25 major export products. Thailand is the second largest Sri Lanka export market for gems and diamond next to USA. Thailand is not only the important market for gems, jewellery and diamonds, but also maintains most important market status for Sri Lanka in South East Asia after Singapore. On the other hand Sri Lanka imports nearly US$ 430 million worth of products from Thailand, ranking as the 10th largest importer. This shows a huge unfavourable trade balance between the two countries. With the implementation of BIMSTEC, the advantages of FTA may be favourable to Thailand, but the authorities in export development should look into the scenario seriously and take necessary steps to narrow the gap as a remedial measure.     China The Sri Lanka-China FTA is a much-discussed topic amongst the business community. The writer has also previously written on the Sri Lanka-China FTA and the possibility of it concluding within a specific timeframe. In the light of available evidence, the BIMSTEC Free Trade Agreement is likely to take effect before the FTA with China as it is already notified in the list of WTO and due to various other reasons. Even if a decision was arrived at the BIMSTEC Trade, Commerce and Economic Ministerial meeting held on 8 February 2004 to finalise BIMSTEC FTA before 2013, it has difficulties of implementation due to various issues involved. However, it has been decided at the Third Heads of Government summit to move forward with the finalisation of the draft agreement on trade in goods with agreed General Rules of Origin and Product Specific Rules. Further the Summit has agreed to sign the Agreement on Dispute Settlement Procedures and the Agreement on Cooperation and Mutual Assistance on Customs. The Heads of Governments has also issued a directive to the Trade Negotiating Committee (NTC) to expedite its work on conclusion of its duties on the Agreement relating to the Free Trade Area in Goods by end 2014. It has further directed the continuing of its efforts to finalise at the earliest the Agreement on Services and Investments. Prospects of FTA as brilliantly approached by BIMSTEC leaders will seemingly reap harvest in the near future. There may be both advantages and disadvantages of these FTAs because as a small country Sri Lanka has to deal with a massive sub-region. It is therefore imperative for all the parties and public and private sectors involved to join hands to achieve the best out of an FTA of BIMSTEC with maximum benefit to Sri Lanka. (The writer is the retired former Head of Corporate Affairs and Communications of the Sri Lanka Export Development Board and Ex-Director of the Sri Lanka Trade Centre in Maldives. He can be reached at

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