Singapore FTA:Sri Lanka’s stepping stone to ASEAN market | Sunday Observer

Singapore FTA:Sri Lanka’s stepping stone to ASEAN market

16 September, 2018

Sri Lanka is aiming to leverage the recently signed Free Trade Agreement (FTA) with Singapore and the potential trade agreement with Thailand to break into the ASEAN market, the fast expanding trade bloc in Asia with a growing economic clout, officials and analysts point out.

In a recent article authored by Prime Minister Ranil Wickremesinghe, ahead of his visit to the 27th World Economic Forum on ASEAN, the Premier had spelt out plans to use the two agreements to bring Sri Lanka closer to obtaining ‘observer status’ in ASEAN with the goal of an FTA, as well as linking to the RCEP – the Regional Comprehensive Economic Partnership agreement.

“The purpose of closer engagement with ASEAN is to generate more foreign direct investment (FDI), diversify export markets and create new technology and people linkages. ASEAN is important as a source of FDI inflows and a market for Sri Lankan exports,” Prime Minister Wickremesinghe said in an article titled“This is how I will make my country rich by 2025”.

As a member of the Association of Southeast Asian Nations (ASEAN) Regional Forum along with 26 other countries, Sri Lanka at present only enjoys a ‘dialogue partner’ status in ASEAN. The only two countries accorded Observer status in ASEAN - the regional intergovernmental organization comprising ten Southeast Asian countries, are Papua New Guinea and East Timor.

While the criteria to qualify for ‘observer status’ in ASEAN requires states to be geographically placed in the Southeast Asia region, a number of countries, despite being outside the geographical limits of South East Asia, have however expressed interest in becoming part of ASEAN. While Pakistan has sought the support of Indonesia to express an interest in joining ASEAN, Laos has supported Bangladesh getting ‘observer’ status in ASEAN.

“Since Singapore is the ASEAN chair for this year, one hopes that Sri Lanka through its diplomatic channel, is asking Singapore behind the scenes, to apply pressure so that Sri Lanka is eventually given ‘Observer’ status in the future. So, this (FTA) will be an entry point to the discussion,” Executive Director of the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKIIRS), Dr. Ganeshan Wignaraja told a recent public forum.

The RCEP, the proposed FTA which involves 16 countries, is expected to be signed in November 2018 during the ASEAN Summit and Related Summit in Singapore. The RCEP agreement is likely to be reached between the ten member states of ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and the six Asia-Pacific states with which ASEAN has existing free trade agreements (Australia, China, India, Japan, South Korea and New Zealand).

RCEP, the world’s largest economic bloc, covering nearly half of the global economy is viewed as an alternative to the Trans-Pacific Partnership (TPP), a proposed trade agreement which includes several Asian and American nations but excludes China and India.

According to estimates by PwC, the Gross Domestic Product of RCEP member states is likely to amount to nearly US$250 trillion by 2050, or a quarter of a quadrillion dollars, with the combined GDPs of China and India making up more than 75% of the amount.

Addressing a discussion themed ‘Free Trade: What is in it for us?’organised by the Colombo Chapter of the Young Professionals Organisation (YPO) recently, the LKIIRS Chief, Wignaraja described the RCEP as East Asia’s efforts to create a market of 2.6 billion people across 16 countries.

“The world is splitting into blocks. The North American FTA or NAFTA is being renegotiated in the United States, the Latin America has its own element of agreements, there is something in Africa and then there is the East Asian agreement.

This is the way the world is going and what it means for countries outside the agreements such as those in Nepal, Bangladesh or indeed Sri Lanka is that the costs to trade and investments are much higher.

That is the biggest problem,” said Wignaraja, who is also the Chair of the Global Economy Programme at the LKIIRS. Explaining that the success of many East Asian economies was due to capitalising of free trade and investment through FTAs, he said that East Asia started having FTAs as a major thrust only in the last ten years or so.

While before year 2000, there were only about three FTAs in ASEAN - a region of 2.2 billion people with three of the top richest in the world, Japan, Korea and Singapore.Wignaraja highlighted that today East Asia has already signed 90 FTAs while there are still about 100 FTAs in the works. Singapore has 25 FTAs, Japan 15, China 15 and India 12, he said.

“East Asia didn’t just use FTAs but had a strong export push of their firms into international market. They also gave incentives to attract export-oriented foreign investment over a long period into the Export Processing Zones and they did selective liberalisation,” he said.

Speaking at the same forum, Economic Advisor to the Finance Ministry, Deshal De Mel noted that Sri Lanka’s larger goal of pursuing a strategy of FTAs is to get a foothold into the ASEAN region. He noted that while at present, Sri Lanka is outside of the ASEAN network, the intention is to develop a network of FTAs in the South East Asian region so that it enablesthe island’s participation in regional value chains.

“We have initially got into an FTA with Singapore. We have also had our first round of negotiations with Thailand and there is interest from Indonesia, Malaysia etc.Hopefully, we can eventually get a foothold into the broad trade network in this South Asian region which will enable us to capitalise some of the potential regional trade flows we may have access to,” de Mel said.

Whilst noting that engaging in binding FTAs signals Sri Lanka’s commitment to meaningful economic reform and engagement with global markets to drive exports and FDI, he said the island could in the medium term also seek an entry into RCEP.

“Most investors will look for three things, large market, natural resources and efficiency.The size of Sri Lanka’s market is too small and not very attractive for investors. In terms of natural resources also, we don’t have any in abundance. So clearly, investors are looking for efficiency-led investments. “When we have FTAs with countries like India and China, then we are creating a market for investors. Investors can use Sri Lanka as a base to India and China, into Europe via the GSP plus etc. So FTA makes our country attractive for investment by creating access to other markets,” the learned economist pointed out.

He further added that Sri Lanka’s comprehensive agreement with Singapore has brought in a degree of stability and predictability to the future outlook of the trade and investment environment while giving confidence to investors.

This has already resulted in a significant investment pipeline which will benefit the country to create high quality jobs, technology and exports, he said.

“After the Singapore FTA was signed, there has been interest mainly from Japanese to consider investments of over US$ 15 billion into Sri Lanka’s large export-oriented tradable sectors.

These are expected to trickle into the country in the next three years,” outlined Mangala Yapa, the Managing Director of Agency for Development at the Development Strategies and International Trade Ministry. Yapa is also a Board Member of Sri Lanka’s investment promotion agency, the Board of Investment.