Notes on the new Sri Lanka-Singapore Free Trade Agreement

Office of the Minister of Development Strategies and International Trade

Key Highlights

This is a landmark agreement for Sri Lanka – the first FTA in over a decade
and the first comprehensive FTA in our history. It signals to the world that
the country is moving to a new era in international trade and investment

§ This is the first bilateral trade agreement that Sri Lanka has forged in over 10
years. It is also the first comprehensive agreement for Sri Lanka, which means
it’s the first agreement that goes beyond goods, and includes services,
investment, economic cooperation, etc.
§ To have done our first comprehensive agreement with Singapore – a country
regarded as being one of the most open and liberalized economies and having
high-quality institutions – is an especially important milestone for Sri Lanka.
§ It signals the commitment of the government to usher in an era of openness for
Sri Lanka, and become a formidable economic Hub in the Indian Ocean.
§ This agreement is an important part of the new ‘National Trade Policy’
launched last year, and is a linchpin in the ongoing trade policy reforms. To
complement this, SL is undertaking domestic reforms and initiatives to make
Sri Lanka internationally competitive (e.g. Enterprise Sri Lanka, National Export
Strategy, Innovation and Entrepreneurship Strategy, Doing Business and trade
facilitation reforms, etc.).
§ Together, these reforms will boost the creation of more good quality jobs
especially for young people, and new trade and biz partnership opportunities.

This FTA is part of a broader strategy towards greater engagement with

dynamic Asian economies; with eyes on RCEP

§ The Singapore-Sri Lanka FTA is part of a broader strategy of looking East to

renew our trade relationships. While we focus on growing and sustaining in our
traditional markets of the US and Europe, we have begun to diversify our
markets towards Asia and focus on plugging in to Asian supply chains.
§ This FTA is our first agreement with a South East Asian country – and we
envisage this as a first step towards closer integration with ASEAN, and
potentially be part of the RCEP – Regional Comprehensive Economic
Partnership - in the future.

The key benefit of this FTA is leveraging the trade-investment nexus, and
plugging into Asian supply chains

§ There is already interest among Singaporean investors to invest in services

and manufacturing – and this FTA can catalyse more. Much potential for
diversification of exports through the trade-investment nexus that this
agreement encourages, as well as new JV opportunities for Sri Lankan
companies.
§ The agreement provides a binding commitment and framework on bilateral
investment, which we didn’t have earlier, and this will encourage investment.
§ Important to understand that not every FTA is meant to “balance trade between
the two countries” or “bridge the bilateral trade deficit”. SL has trade surpluses
with some countries and deficits with other countries. SL would need to sign a
suite of FTAs for different purposes – some aimed at boost exports
(new/preferential market access) as well as give domestic producers access to
lower cost inputs; while some to leverage on the trade-investment nexus rather
than narrowly looking only at goods.
Scope of the Agreement and Some Key Features

§ Scope is very progressive; it is wider than the proposed China and India
agreement – goes beyond to cover telecommunications, financial services, e-
commerce, and government procurement. Singapore has recognized that the
e-commerce chapter in this FTA is quite a progressive one.

§ Sri Lanka is not a member of the Government Procurement (GP) WTO

agreement, but as a step towards reform, for the first time SL has included a
GP chapter in this agreement. It covers international competitive bidding
(excluding national bidding). It also embodies procedural fairness and
transparency in procurement. The chapter ensures alignment with national
procurement guidelines and does not deviate.

§ Goods - on goods (and the tariff liberalisation programme – TLP), Singapore is

already has 99% of tariff lines zero-rated. But the agreement recognises that
SL has to go step by step. So, SL has agreed to liberalise 80% of tariff lines -
50% of lines immediately to zero (around 3600 lines), 15% over the 1st to 6th
year in equal installments, and 15% over the 6th-12th year.

§ Items that remains in SL’s negative list are those that are sensitive on revenue
and other domestic grounds: Petroleum and related products; Tobacco and
related products; Alcohol and spirits.
o Important to note that out of the current approx. US$ 1,000 imports
from Singapore, 50-60% are petroleum products.

§ Rules Of Origin (ROO) – no ASEAN cumulation is allowed under this FTA.

Standard ROO agreed is 35% Value Addition and CTH (change of tariff
heading). Additionally there are Product Specific Rules on 2000 tariff lines and
product chemical rules, which are exceptions to the ROO.

§ The real focus of this FTA is on investment from Singapore in services and
manufacturing – potential for diversification of exports through the trade-
investment nexus and new JV opportunities for Sri Lankan companies.

§ Investment - The investment chapter will give a strong signal to prospective

Singaporean investors – it gives protection to investors, predictability, and
transparency. Protection, national treatment - many provisions to attract
investors. The agreement provides a binding commitment and framework
which we didn’t have earlier.

§ Services – Both countries did not commit to independent movement of

professionals (under Mode 4) in this FTA; so only Modes 1 to 3. SL has
undertaken liberalisation in some important areas for business - testing labs
(this will help SL firms that now have to send samples etc to S’pore); sports
and recreation; maritime; environmental services (pollution, waste water,
energy efficiency, noise abatement, etc). In services, only Singaporean
nationals are recognised.

§ Meanwhile, Singapore has gone well beyond SL in services sectors - GATS

plus. Just as SL has not done, Singapore has not offered Mode 4 independent
professionals movement either, but Sri Lankans can benefit from the services
liberalisation by Singapore as Mode 4 business visitors and intra corporate
transferees.