Context
Recently Sri Lanka had formally conveyed its intent to join the 15 -member mega-regional trade agreement in 2023.
Sri Lanka-Thailand Free Trade Agreement
- In addition, Sri Lanka signed a free-trade agreement (FTA) with Thailand in February this year.
- The island economy is working on a growth strategy that emphasises outward orientation and integration with the East Asian regional/global value chain (RVC/GVC) hub.
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Need For Sri Lanka to join RCEP
- Diversification: It is also simultaneously revealing of a realization, by Sri Lanka, of the imperatives for export diversification, given that their recent external debt crisis was partly due to the foreign exchange reserves being constrained by an extremely narrow range of exports in goods and services.
- These include apparel and textiles, primary commodities like tea and rubber, and in services, mainly tourism.
- Tackle Labor Challenges: Sri Lanka has been plagued by decreasing labour productivity, an ageing labour force, and increased out-migration of its declining young, working-age population.
- Backward Integration: Backward integration with Regional Value Chains, which is invariably labour-intensive and promotes manufacturing specialisation and competitiveness, would therefore imply positive outcomes for both the labour force and industrial development in the country.
Reasons For Sri Lanka to join RCEP
- Bridge to High-Tech Manufacturing and Regional Connectivity: Thailand brings to Sri Lanka the advantage of linkages with the Eastern Economic Corridor (EEC).
- The EEC, which is a Special Economic Zone (SEZ), is aimed at developing Thailand’s manufacturing capabilities in the high-tech sector and enabling an extension of trade and investment opportunities through RVCs and connectivity projects to the neighbouring Association of Southeast Asian Nations (Asan) and Asian economies.
- Exploring Trade Routes: Linkages between Port City Colombo, also an SEZ, and the EEC to establish trade and logistics routes are already being explored.
- ASEAN Interest: Asean economies, like Malaysia, have also expressed a keen interest in facilitating their large corporations’ investment in Sri Lanka as well as offered support to Sri Lanka’s application to the RCEP.
- Sri Lanka’s Economic Recovery: The FTA policy can, therefore, potentially help Sri Lanka consolidate its as yet fragile economic recovery.
Rising Chinese Trade Influence in South Asia:
- Accounting for almost a quarter of their imports from the world, China already has a significantly higher share in the imports of both Bangladesh and Sri Lanka than India does.
- China’s share in Sri Lanka’s imports has increased by almost four times over the last decade while India’s has been almost stagnant.
- In the case of Bangladesh, even though India’s share in its imports increased in the last decade, it remains significantly lower than that of China.
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Benefits For Sri Lanka in Joining RCEP
- RCEP vs. Bilateral Agreements: While the RCEP includes World Trade Organization plus regulatory provisions in many areas, the coverage in the bilateral FTA with Thailand also extends to customs procedures, investment, and intellectual property rights in addition to substantial tariff liberalization for both countries over a period of 15 years.
- Investment Attractiveness: These provisions, through their “lock-in” effect, will help push structural and regulatory policy reforms in Sri Lanka, thereby making it more attractive for investment by multinationals.
- Structural Reforms and Rules of Origin: The RCEP, in addition, offers common and cumulative rules of origin that are facilitative of GVC integration and will help Sri Lanka attract export-oriented foreign investment.
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Conclusion
By leveraging regional partnerships and embracing structural reforms, Sri Lanka can navigate the complexities of global trade dynamics and emerge as a vibrant hub in the dynamic Asia-Pacific region.
Also Read: India Signs Free Trade Agreement With EFTA Countries
April 27, 2024
