The signing of a Free Trade Agreement (FTA) with Pakistan is expected to considerably enhance the potential of Foreign Direct Investment (FDI) into the country, the Board of Investment (BOI) said yesterday.
BOI said that this landmark event will take place this week when the Pakistani Minister of Trade Abdul Razak Dawood will arrive in Colombo at the head of a high- powered government delegation.
"We are confident that the signing of this historical document will contribute to greater FDI into Sri Lanka both from Pakistan and from countries keen to export to that country," the BOI said.
At the level of bilateral trade, the FTA is expected to create conditions for a greater volume of trade and investment between the two South Asian states. Currently the balance of trade is in favour of Pakistan and the agreement could help our country bridge the gap. Sri Lankan goods will become more attractive to Pakistan and there will be greater opportunities for Pakistani investment in Sri Lanka. Pakistani entrepreneurs will be able to use Sri Lanka as a base of operations at a time when the northern part of South Asia is suffering from political tensions.
Furthermore, Sri Lanka may become a gateway for Pakistani goods to access overseas markets including those of India. Foreign investors from outside the region may also move into Sri Lanka with the purpose of accessing the Pakistani market just as there is currently a major interest in the Indian market.
The FTA will thus bring about an expansion of the trade in goods and services, the creation of fair conditions for competition and the removal of barriers which will, in turn, lead to an expansion of bilateral economic exchanges. The agreement divides goods into three categories: items with no duty, items with partial duty and items with duties to be phased out. The main item that will benefit from the FTA will be Ceylon Tea, which is imported into Pakistan in large quantities. The growth in demand for Ceylon tea can be attributed to Pakistan's growing population's appreciation for our best-known export. Other items which will benefit from the FTA will be rubber and manufactured rubber products, coconut products, betel leaves, arecanuts, gems and jewellery, processed food items and light engineering products.
As in the case with the recently concluded FTA with India, there will be a negative list of products both countries deem strategically important and which therefore need to be protected. However according to the framework agreement, Pakistan and Sri Lanka will eliminate not only the tariff but also non-tariff barriers and these steps will contribute to the establishment of a free trade area. Both countries have also undertaken not to increase existing para-tariffs or to introduce existing para tariffs without the consent of each other.
The Sri Lanka -Pakistan Free Trade Agreement is a significant factor as it will lead to a greater level of exchange between two South Asian states that have had decades of friendly relation in all areas of economic, social and political activity. However its significance is even wider as when coupled with the FTA between Sri Lanka and India, conditions are created for a growing economic integration of South Asian economies. This point is further underscored as Bangladesh is expected to become the next candidate for an FTA with Sri Lanka, the BOI said.
As in the case of Western Europe, economic integration in turn will lead to a lessening of international tensions as transnational trade and investment will become a catalyst for a better economic performance and higher standards of living in the region.