PAK-SRI LANKA FREE TRADE AGREEMENT

The News

14-12-2009

A step forward in the right direction

By Alauddin Masood

Eager to reap maximum benefits from the Free Trade Agreement (FTA) between Pakistan and Sri Lanka, the Karachi Chamber of Commerce and Industry is holding a seminar to discuss ways and means to give a boost to the two-way trade between both the countries.

Scheduled to be held in early December of this year, the seminar would offer a good opportunity to the local businessmen to gain awareness and knowledge about the prospects for expansion of the two-way trade between Pakistan and Sri Lanka.

The bilateral trade between Pakistan and Sri Lanka has already doubled and touched $400 million during the last three years as a result of the bilateral free trade agreement which the two countries signed on August 1, 2002, but became operative in June 2005.

Under FTA, both Pakistan and Sri Lanka have granted duty free access to each other on several tariff lines, agreeing to eliminate custom tariff on almost 90 per cent of products by June 2010.

As per FTA’s provisions, Sri Lanka has granted duty free access to Pakistani products on 102 tariff lines; while Pakistan has granted Sri Lanka duty free access on 206 tariff lines. By June 2010, Sri Lanka will eliminate the customs duty on 4,527 tariff lines out of 5,224 products at six digit level. On the other hand, Pakistan has agreed to eliminate by June 2010 the customs tariff on 4,680 tariff lines at six digit levels, covering about 90 per cent of products. The elimination of customs duty will cover 69 per cent of the actually traded goods between the two countries.

The FTA enables Sri Lanka to export it natural rubber, coconut products, spices, natural graphite, paper and paper products, copper and aluminum products duty-free to Pakistani market. Similarly, Pakistan has duty-free benefits for its exports of oranges, basmati rice, chick-peas, cumin seeds, fennel seeds, motorcycles and accessories to the Sri Lankan market.

While keeping the negative lists to the minimum, the two countries have granted each other tariff rate quotas (TRQs) and higher margin of tariff preferences on a number of products on the negative list.

Pakistan has granted TRQs to Sri Lanka, on an annual basis, on 10,000 metric tonnes of tea at zero rate of duty and 1,200 metric tonnes of betel leaves at a preferential margin of 35 per cent against the pre-2005 import duty of Rs.150 per kilo. Before 2005, Sri Lanka exported about 3,000 metric tonnes of tea to Pakistan and the annual TRQ of 10,000 metric tonnes enabled Sri Lankan tea trade to make a fresh start. Likewise, TRQ on betel leaves has resulted in enhancing the income of betel growers in the rural areas of Sri Lanka.

Pakistan also granted Sri Lanka TRQs for three million pieces of apparel products, covering 20 categories where there was market potential without restrictions regarding the fabric’s country of origin. The apparel categories also qualify for 35 per cent preferential tariff margin. In addition, Sri Lankan ceramic tiles and tableware also enjoy 20 per cent of preferential tariff margin.

Sri Lanka has granted to Pakistan TRQs for duty free exports of Kino and 6,000 metric tonnes of long grade basmati rice, in addition to 1,000 metric tonnes of potatoes per annum.

Under FTA, both the countries have agreed to a 35 per cent domestic value addition and change of tariff heading at a six digit level, which provides flexibility for Sri Lankan and Pakistani investors to source their inputs from third countries and export manufactured products to each other.

Following FTA’s coming into operation on June 30, 2005, bilateral trade between both the countries has been strengthened through an increase in the number of products that they can now import from each other. Resultantly, Pakistan has now become the second largest trade partner for Sri Lanka in the South Asian region.

There is a great demand in Sri Lanka for Pakistani products. Pakistan can export cotton yarn and fabrics, potatoes (fresh/chilled), pharmaceutical products, knitted or crocheted fabrics, articles of iron and steel, galvanised pipes, rice, fish and many other kinds of sea food items, textile made-ups, apparel and clothing accessories and rods of refined copper.

Sri Lankan products in demand in Pakistan include: Coconut products, tea, rubber and rubber-based products, while Pakistani products in demand in Sri Lanka are rice, vegetables, pharmaceuticals, potatoes, textiles and apparel. Only the export of value-added textiles has reached more than $100 million.