Sri Lanka is set to expedite the finalization of the proposed Preferential Trade Agreement (PTA) with Bangladesh under the guidance of the International Trade Office.
The proposal to this effect submitted by President Ranil Wickremesinghe was approved by the Cabinet of Ministers at its meeting on Monday.
Although trade between Sri Lanka and Bangladesh was low despite special provisions under accords the Government is confident that the PTA would be a catalyst to enhance commerce volume, official sources said.
Once finalised, Bangladesh will be the third South Asian country with which Sri Lanka has a free or preferential trade arrangement after India and Pakistan. Both FTAs have helped to enhance bilateral trade.
It is expected to strengthen relationships with key trade stakeholders at the regional level to develop market access opportunities for Sri Lankan exporters by removing market trade barriers and to achieve the objectives of attracting investment as well as to further enhance economic cooperation as a remedy for the existing problems related to domestic supply.
The current trade deals between the two countries are still partially restrictive. Both countries keep a sensitive list of products that are not eligible for tariff cuts.
Sri Lanka maintains a list of 925 products sanctioned by SAFTA (South Asian Free Trade Area) while Bangladesh keeps 993 products.
Sri Lanka’s sensitive list covers USD 6.2 million or 23.8% of imports from Bangladesh. The sensitive list of Bangladesh covers USD 77.6 million or 62% of imports from Sri Lanka. Thus, the elimination of sensitive lists may benefit Sri Lanka more.
On 14 June 2021, the Cabinet of Ministers approved the decision to commence discussions towards finalizing a PTA with Bangladesh, following the two countries agreeing to strengthen their economic relationship via a free trade pact during Prime Minister Mahinda Rajapaksa’s State visit to Dhaka in March 2021.
Both Sri Lanka and Bangladesh act as stakeholder member countries of the SAARC Preferential Trading Arrangement (SAPTA), South Asian Free Trade Area (SAFTA), Global System of trade Preference (GSTP), Asia-Pacific Trade Agreement (APTA) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC).
The ongoing Bangladesh-Sri Lanka discussions on a preferential trade agreement (PTA) will benefit from knowing the potential gains from reducing bilateral trade costs. In addition, knowledge of products with a higher potential for export gains will help optimise the economic benefits from a trade deal.
If tariffs on the sensitive lists are eliminated, there will be modest export gains for Bangladesh and Sri Lanka in absolute terms.
Sri Lanka will gain USD 24.7 to 49.7 million of exports to Bangladesh, while Bangladesh will gain USD 2.1 to 4.5 million of exports to Sri Lanka.
Potential export gains are given in a range due to assumptions on elasticity values used in the partial equilibrium model. Elimination of sensitive lists will generate a higher tariff revenue loss to Bangladesh, ranging between USD 13.5 million to USD 19.1 million. By contrast, Sri Lanka’s revenue loss will be slight at USD 1.4 million to USD 1.9 million.
