The Sri Lanka-China FTA

Thursday, 31 October 2013 00:04 -     - {{hitsCtrl.values.hits}}

Media reports indicate that a Sri Lanka-China FTA is in the offing. While Sri Lanka still can count only two bilateral FTAs and is signatory to less than a handful of regional FTAs, China currently has 14 FTA partners comprising 31 economies. They include FTAs with ASEAN, Pakistan, Chile, New Zealand, Singapore, Peru, Costa Rica, Iceland, Switzerland and closer Economic Partnership Agreements with Hong Kong and Macau. Negotiations for FTAs are ongoing with the Gulf Cooperation Council, Australia and Norway. Also under consideration are China-India Regional Trade Arrangement, China Korea FTA and China-Japan-Korea, with joint feasibility studies ongoing. China is also a signatory to the Asia-Pacific Preferential Trade Agreement. The official website states: “The Chinese Government deems Free trade Agreements (FTAs) as a new platform to further opening up to the outside and speeding up domestic reforms, an effective approach to integrate into global economy and strengthen economic cooperation with other economies, as well as particularly an important supplement to the multilateral trading system.”     Exports to China Exports to China did not get much attention from many Sri Lankan exporters in the past as it was considered a difficult market to penetrate due to the sheer size and price competitiveness. However, recent statistics tell a different story and the growth in exports to China indicate that niche markets could be created and sustained however difficult a market is and proves the effectiveness of aggressive and committed promotion in creating and sustaining a market. Considering the importance of China’s booming middle class in particular, creating an enormous demand for years to come as the world’s largest market, getting a foothold in that market, even for a few products, is a welcome development. However, this FTA is bound to be different from the two existing bilateral FTAs in certain ways. Those two FTAs were the first such agreements to be signed by the FTA partners whereby Sri Lanka received a distinct edge over other competitors by way of tariff concessions. Even though the road was bumpy, particularly in the case of India, due to the various road blocks which had to be faced by Sri Lankan exporters, over the years, such blocks have been gradually cleared and exporters are now aware of where such blocks could be.     Penetrating the Chinese market Penetrating the Chinese market through the FTA will not be the same as penetrating the Indian and Pakistani markets through FTAs. It must be kept in mind that Sri Lanka has entered the race of signing the FTA with China at a rather late stage. Products of 31 countries are entering the Chinese market through similar arrangements, creating competition to hold on to this market among these 31 countries too. It would therefore be necessary to go into a deep study of all these agreements to ascertain the competition that could arise from the tariff concessions given through these agreements. The present FTA partners of China are not only large economies, but economies closer to the size of Sri Lanka and doing similar products. The usual refrain of Sri Lanka being a stepping stone to India and Pakistan due to our FTAs with them, which was used to promote investment, will also not hold water in this case as China already has a FTA with Pakistan and is in a joint study for an arrangement with India.     Non Trade Barriers However, one advantage of the agreement with India would be that Sri Lankan exporters will be familiar with the term Non Trade Barriers (NTBs). NTBs can be described as any measure other than a tariff which distorts trade. A study of the complaints that China’s other FTA partners have made about exporting to China through FTAs will give an insight to what NTBs could be faced and the experience with India in clearing such NTBs to an extent, will certainly be helpful. NTBs faced by other partners as given in various reports include, issues in product certification, labelling standards, import approval requirements and delays in customs clearance. Some FTA partners have reported that higher compliance costs and delays have been of concern, particularly to Small and Medium Enterprises. Varying regional rules and regulations have also been a problem. Ways to overcome some of these issues have also been suggested in some reports. Having a quality distributor with an extensive network and experience in the market and is currently distributing more than one brand of the particular product is helpful, according to some. Having a quality product, preferably one with proven success in another market, and strong branding have also been suggested. Reports also indicate that China has efficient policies with regard to services which helped the growth of businesses related to services and that there have been benefits from China’s flexible service liberalisation policies. Although it is not known whether services will be covered by this agreement, this is good news. (Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)

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