Opportunities and challenges for Sri Lanka | Sunday Observer
EU-UK trade deal

Opportunities and challenges for Sri Lanka

3 January, 2021

Global investors cheered a last minute EU-UK trade deal last week which trade and equity market experts  in Sri Lanka said opens new opportunities for trade with a major bloc.

Britain’s index of leading shares closed at its highest since the pandemic sparked a market rout in March as investors on Tuesday cheered the post-Brexit trade deal.

The European Union and the United Kingdom came to a last-minute trade deal on Christmas Eve, narrowly averting the hardest of all potential Brexits. But major uncertainty remains.

However, trade experts said while the trade deal  opens a window for trade avenues the path should be tread cautiously while monitoring the situation well as it is still to unfold fully. 

The first day of trading since markets closed on Christmas Eve, the FTSE 100 ended up 1.6% at 6,603 points. It was the Footsie’s best day since November 9,  and only falls in bank shares stopped the index from rising further.

US shares hit record highs in early trading although ended slightly lower.

Wall Street was buoyed by US President Donald Trump agreeing to release hundreds of billions of dollars in pandemic spending support. 

He had previously refused to sign off on the deal.

TheEU-UK trade and cooperation deal was negotiated in nine months — much faster than the typical trade deal — and respects the major red lines of both parties. 

The EU avoids a hard border on the island of Ireland and preserves the “four freedoms” of its cherished single market: free movement of goods, services, capital, and people.

The UK achieves “zero tariff, zero quota” goods trade with its main trading partner and avoids any role for the European Court of Justice in settling trade disputes.

On fisheries, the EU agreed to give up 25 percent of its existing quotas in UK waters over a transition period of five and a half years, after which there will be annual renegotiations.

Senior Research Associate at the Overseas Development Institute in London, Dr. Ganeshan Wignaraja said it is vital to develop a strong business-government partnership locally  to address the opportunities and challenges from whichever form of Brexit emerges, and will be key to protecting Sri Lanka’s interests.The European Union is Sri Lanka’s largest market for goods exports, mostly consisting of garments, and the UK is the most important destination within the grouping. 

Trade experts said a drop in demand for Sri Lanka’s goods due to the negative impact of Brexit, or any change in tariff access to the UK market, is likely to be a negative shock to Sri Lanka and its prized garment sector. 

Therefore, it is vital that Sri Lanka  continues to  monitor developments in the Brexit process. Earnings from exports recorded US$ 11.84 billion from January to November last year compared to USD 16.14 billion in 2019.

Earnings from merchandise exports recorded a negative growth of 20.97% in November 2020 to US$747.58 mn as compared to the value of US$ 978.80 mn recorded in November 2019.

The revised export target for 2020 is US$ 13.39 billion.