By: Staff Writer
September 01, Colombo (LNW): Sri Lanka’s Free Trade Agreement regime is entering a decisive phase as the Government prepares to determine whether existing trade deals require fundamental restructuring.
At the centre of the debate is a Cabinet-appointed committee whose report has now been submitted to the Cabinet Office. Chaired by Trade Ministry Secretary K.A. Vimalenthirarajah, the committee was instructed to examine the effectiveness and benefits of existing FTAs and recommend how Sri Lanka should approach future trade agreements.
The report contains several recommendations, but their contents remain undisclosed pending Cabinet consideration.
That creates an unusual situation: Sri Lanka may be preparing to renegotiate some of its most important trade arrangements without the public yet knowing what weaknesses the review has identified.
The country has four major bilateral FTAs—with India, Pakistan, Singapore and Thailand—alongside SAFTA, APTA, GSTP and other preferential arrangements such as the UK’s Developing Countries Trading Scheme.
The agreements vary considerably in age and ambition.
ISFTA dates back to March 2000 and remains Sri Lanka’s most heavily utilised bilateral trade agreement. It eliminated tariffs on 1,351 tariff lines and established tariff-rate quotas for products such as garments and tea. Yet exporters continue to encounter non-tariff barriers, making the agreement’s headline tariff concessions less valuable than they appear on paper.
The new Joint Working Group with India is consequently a critical development. It could determine whether the two countries simply modernise ISFTA or move toward a substantially broader economic arrangement, particularly alongside continuing discussions over the proposed Economic and Technology Cooperation Agreement.
The Singapore FTA presents a different challenge. Fully reactivated by the Government in 2025, it offers a high-standard framework intended to encourage investment, services, technology and e-commerce. Its 15-year tariff-elimination schedule provides businesses with a long transition period.
Thailand’s agreement is even newer, entering into force in January 2025 and covering goods, services and rules of origin across 14 chapters.
Meanwhile, the Pakistan agreement provides duty-free access for more than 4,500 products.Hitherto the existence of concessions does not automatically translate into exports.
This is where Sri Lanka’s FTA policy faces its biggest structural weakness. An agreement can provide legal market access while exporters remain unable to exploit it because of production costs, inadequate scale, quality standards, logistics, certification requirements, financing constraints or non-tariff barriers.
There is also a domestic political economy problem.
Preferential tariffs can reduce the cost of imported machinery, electronics, textiles and other inputs, potentially helping manufacturers. But the same liberalisation can expose inefficient domestic producers to cheaper foreign competition.
Consequently, renegotiation must not become an excuse for blanket protectionism.
The real challenge is identifying sectors where Sri Lanka can become internationally competitive and negotiating access accordingly.
The previous administration’s push toward agreements with China, Malaysia, Indonesia and Bangladesh reflected an ambition to expand Sri Lanka’s trade network. The current review could now determine whether that expansion continues or whether Colombo adopts a more selective approach.
The Government’s interest in RCEP makes the choice even more consequential. Deeper integration with Asian supply chains could attract investment and create export opportunities—but only if Sri Lankan firms have the productivity and capacity to participate.
The Cabinet therefore faces more than a technical trade-policy decision.
It must decide whether Sri Lanka’s FTAs will remain documents promising market access or become instruments producing exports, investment, jobs and foreign exchange.That distinction could define the country’s next phase of economic recovery.
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