COLOMBO: Trade between India and Sri Lanka has been very low despite the Free Trade Agreement (FTA) between the two countries.
Non-tariff barriers have been identified (NTBs) as the main cause for this situation. NTBs have been highlighted as a key factor that undermines trade between India and Sri Lanka.
The India Sri Lanka FTA (ISFTA) removed tariff barriers for most traded products, but does not have provisions to address NTBs.
As a result, despite having duty free access, trade between the two countries remains far below potential a research compiled by Verité Research with the support of Lanka Fruit and Vegetables, Producers, Processors and Exporters (LFVPPEA) and the National Chamber of Exporters (NCE) states.
The report says the problem arises because India does not accept certification from conformity assessment bodies (CABs) located outside India for certain products. The Indian authorities check each and every consignment to assess compliance with Indian product standards and regulations at the point of entry. The resulting delays, uncertainty and additional costs such as storage and demurrage costs act as a barrier to trade with India.
The average tariffs imposed by India on food imports are well over 30%. Tariffs for some products can be as high as 100 to150%.
Processed food exports to India surged from US$ 1 million to US$ 28 million during 2005-2011. However, since then food exports declined to US$ 7 million by 2014. In comparison, processed food exports to the world grew steadily from US$ 22.5 million in 2001 to US$ 178 million in 2011, and then fell slightly to US$ 175 million in 2014.
Two agreements currently in place between India and Sri Lanka to address NTBs resulting from CAPs have failed to address the problem. India and Sri Lanka entered into a bilateral free trade agreement (ISFTA) in 1998 and it became operational in 2000.
A major weakness in the current FTA is the lack of provisions to address NTBs. The existence of these barriers undermines the ability of Sri Lankan exporters to fully benefit from the duty-free access under the FTA.
Most of the agricultural and food products exported from Sri Lanka to India were in the duty phase-out list of India under the ISFTA. As a result, tariff barriers on these products were only completely removed in 2003. The impact of this is clearly indicated by the growth in processed food exports to India.
Sri Lanka now has duty free access to all food products falling under HS chapter 16-21: meat products, sugar confectionery, cocoa preparations, cereal preparations, vegetable and fruit preparations and other edible preparations.
With duty free access, there was an initial surge in exports of these products. However, sustaining this growth has been challenging with the fall in exports to India from US$ 28 million in 2011 to US$ 7 million in 2014,the report said.
