Sunday, June 4, 2023

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Sri Lanka to sign China FTA this year under pressure of debt restructure

By: Staff Writer

Colombo (LNW): China is pushing Sri Lanka towards the signing of China-Sri Lanka Free Trade Agreement (FTA) signed this year 2023 while there are many issues to be resolved in the agreement, Sri Lankan Ambassador to China Dr. Palitha Kohana claimed.

Sri Lanka is under pressure to sign the FTA following the assurance given by the Chinese Exim Bank for the restructure of the country’s debt for the unlocking of US$ 2.9 billion IMF bail out loan recently.

He noted that Sri Lanka is ensuring that certain safeguards are incorporated into the FTA to protect various local sectors as China is the second largest economy in the world.

He further noted that President Ranil Wickremesinghe has clearly stated his intent to have this FTA concluded in 2023.

Sri Lanka’s ongoing debt crisis has caught the attention of major global players, including China, which has been keenly interested in helping the island nation restructure its debt.

Since the end of the Sri Lankan civil war in 2009, China has extended numerous loans to the country for various infrastructure projects, including a port, an airport, highways, and other significant projects.

Sri Lanka owed Chinese lenders $7.4 billion – nearly a fifth of its public external debt – by the end of last year, calculations by the China Africa Research Initiative (CARI) shows.

However, concerns have been raised about the nature of China’s financial assistance and the motivations behind its debt restructuring efforts several economic experts disclosed arguing that China’s aid is part of a broader strategy to extend its economic and political influence in the region.

Their aim was to place Sri Lanka serving as a key location for China’s ambitious Belt and Road Initiative (BRI).

The Sino-SL FTA is set to open up new markets for Chinese businesses while providing Sri Lankan businesses with access to China’s vast consumer market.

However, an eminent expert argues that the deal would be heavily favourable for China allowing it to export Chinese goods into Sri Lanka affecting the country’s domestic industries.

He noted that China’s efforts to push for the FTA may be part of a broader strategy to gain greater influence over Sri Lanka.

Sri Lanka’s growing economic dependence on China may lead the country towards falling into a debt trap that could threaten its economic sovereignty, he claimed.

To address these concerns, Sri Lanka has been seeking to diversify its economic ties, exploring new opportunities for economic partnerships with other countries in the region while seeking to renegotiate its debt agreements with China, with some suggesting that the country reduce its dependence on Chinese loans.

One of the potential disadvantages of signing the FTA with China is the risk of job losses as the Sri Lanka’s labour-intensive industries, such as textiles and apparel, could face increased competition from cheaper Chinese imports, leading to potential job losses in these sectors.

Another disadvantage of signing an FTA with China is the risk lowered regulatory standards. As part of the FTA negotiations, Sri Lanka could be required to harmonize its regulatory regime with China.

Signing an FTA with China could lead to a loss of policy autonomy for Sri Lanka as it could be required to abide by certain rules and regulations set forth in the FTA, potentially limiting its ability to pursue certain policies in areas such as trade, labor standards, and the environment.

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