Feb 7 - 13, 2011

Pakistan and Sri Lanka intend to enhance bilateral trade value to two billion US dollar by 2012. The existing bilateral trade stands at over USD300 million, which unquestionably is insignificant considering the free trade agreement signed between the two countries. Pakistan and Sri Lanka reached a free trade agreement in 2002. However, the agreement was implemented in 2005. Since the implementation of free trade agreement, the bilateral trade shot up more than hundred per cent to USD336 million in 2010 from USD158 million. Sri Lanka has USD2.5 billion annual bilateral trade with India.

Notably, under the free trade agreement (FTA) Pakistan and Sri Lanka trade in several products providing duty free access and duty concessions to each other.

Under the FTA, Pakistan gives 206 products from Sri Lanka duty free access while Sri Lanka provides 102 items of Pakistan with similar status in reciprocation. Despite the agreement, the bilateral trade of two countries forms less than one per cent of their total trade.

This FTA also gives facilitation to bilateral flow of investments and Pakistani investors have already invested in garments, information technology, telecommunication, and rubber based industries in Sri Lanka. However, private sector from Pakistan can find lucrative markets in Sri Lanka if they explore other sectors like textiles, engineering goods, fish processing, agro-based industries, tourism, health services etc.

The growth trend of bilateral trade during last five years is giving positive indication of potential of enhancing bilateral trade value to over two billion dollar.

Sri Lanka has witnessed five per cent cumulative annual growth rate during last ten years. This growth rate was in spite of the civil strife and natural disasters the country has endured since 1983. The end of civil war in 2009 attracted bouts of investments and triggered economic activities in the country. According to Bloomberg, the economy recorded growth rate of eight per cent for the quarter ended September last year, nearing the rate of 8.5 per cent registered in the preceding three months. It said the government of Sri Lanka wished to keep fuelling economic growth along with setting inflation target, and pondering over cutting taxes on banks and builders as well as relaxing foreign exchange rules.

A small county with 20 million population Sri Lanka has the remarkable 82 per cent literacy rate. Connecting West and South East Asia, the country has beautiful landscape to attract tourists from around the world.

Sri Lanka puts Pakistan in the list of potential markets with which the Indian Ocean island nation wants to promote trade in goods and services. The potential markets include USA, Thailand, Japan, Australia, Malaysia, Korea, Spain, Canada, Philippines, Vietnam, and Pakistan and other Saarc member countries.

Pakistan is the largest supplier of textile raw materials to Sri Lanka. Though trade balance is in favour of former, yet latter earns significant export revenue by exporting finished textiles to EU and other countries. Pakistan's export basket for Sri Lanka consists of rice, potato, apples, carbon, machinery, transport items, etc, and has competitive edge over Indian exports.

Government of Pakistan also wants to increase bilateral trade value with Sri Lanka. In his recent visit to Sri Lanka, Pakistan's President Asif Ali Zardari urged the Sri Lankan government to provide more incentives to Pakistani investors and asked business community upon his arrival, to invest there. He urged the Pakistani businesspersons to increase import of tea from Sri Lanka. Sri Lankan tea has a little share in total tea imports of Pakistan, whereas in 70s it held more than 60 per cent shares. The decline was because of takeover of market shares by Kenyan tea processors.

President Zardari also stressed on the need of trade in local currency. His emphasise on promotion of bilateral trade in local currency was a hint at shift that might be brought in foreign exchange policy not particular with regard to Sri Lanka, but in the region. At present, US dollar is popular exchangeable monetary unit in the world, which makes exports and imports subject to greenback's value fluctuation. Following the global financial crisis, polarisation in international monetary system is being discussed openly with China and other nations with trade surplus all set to replace dollar with local currencies in international dealings.

Pak-Sri Lanka strong trade ties will be for mutual benefits. Sri Lanka has several sectors opened for investments, while access to central Asian landlocked countries from Pakistan's land would open up profitable markets for Sri Lankan aquarium fish, seafood plastic products, coconut, ceramic products, light engineering products, printing services, foliage and cut flowers food, beverages, edible oil, footwear and leather products, apparel and accessories, fruits, vegetables, cereals, cashew, rubber products, handicrafts, handloom textile products, spices, medicinal herbs, tea, gems and jewellery and diamond products, toys, granite and mineral sands, and wooden furniture.

As long as Pakistan is not granting most favoured nation status to 750 products from India and trade between two South Asian giants depend on third destinations: Dubai and Singapore, Sri Lankan government is struggling to become a viable channel of bilateral trade between India and Pakistan. Dr. Saman Kelegama, Executive Director, Institute of Policy Studies is vocal about this effort rendered to get Sri Lanka third country or trade hub status for alike Indian and Pakistani traders. Speaking at the moot on Pak-Sri Lanka FTA, arranged by Sri Lanka Pakistan Business Council, he asked Pakistan's investors to set up offices in Sri Lanka to make inroad into the Indian markets.

Critics said the bilateral trade between Sri Lanka and Pakistan is limited to specific location, for example Karachi and Colombo. Karachi's two seaports account for majority of international trade taking place from Pakistan. However, they said, business community should look for other places to find out more products and areas that can give boost to bilateral trade.