China-Sri Lanka FTA: Will it benefit Sri Lanka in the long run?

The year 2014 was a watershed year for Sri Lanka-China relations. The official launch of negotiations for the Sri Lanka-China Free Trade Agreement was witnessed by Chinese President Xi Jinping and Sri Lankan President Mahinda Rajapaksa.

The Chinese Minister of Commerce, Gao Hucheng, and the Sri Lankan Minister of Economic Development, Basil Rajapaksa, signed a memorandum on the launch of the free trade agreement (FTA) negotiations, officially announcing the launch of bilateral FTA negotiations.

The two parties confirmed that the China-Sri Lanka FTA will be a comprehensive agreement covering trade in goods, trade in services, investment, and economic and technological cooperation.

The two parties also agreed to accelerate negotiations to ensure an early closure. This was critical so as to benefit the enterprises and people of the two countries at an early stage.

The joint feasibility study between China and Sri Lanka began in Beijing in August 2013 and ended in March 2014. At that stage, the two parties studied the feasibility and effect of constructing the China-Sri Lanka FTA comprehensively and deeply. The results showed that the construction of the China-Sri Lanka FTA would contribute to further deepening bilateral economic and trade relations in line with the mutual interests of the two countries. It was suggested that the two governments begin negotiations as soon as possible.

In recent years, bilateral trade between China and Sri Lanka has continued to grow. The two countries’ trade volume reached US$ 3.62 billion in 2013, a 14.3% increase year on year. In January-July 2014, bilateral trade volume reached US$ 2.1 billion, an increase of 7.2% year on year. China has become the second largest trade partner and import source for Sri Lanka. Besides, China is a major source of foreign investment in Sri Lanka.

Verite Research investigated the Sri Lanka-China FTA on the challenges that Sri Lanka should face and came to the following conclusions: China’s FTAs are more comprehensive than Sri Lanka’s in terms of the sectors covered.

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