The impact of non-tariff barriers for the success of Indo – Sri Lanka free trade agreement

Abstract

Introduction The Indo – Sri Lanka Free Trade Agreement (ISFTA) was signed in 1998 with the aim of expanding the trade between the two countries. The ISFTA came into effect from 2000 (Hand Book of ISFTA, 2013). There have been suggestions to expand the ISFTA and include more service exchange between two countries and it was proposed to sign Economic and Technology Corporation Agreement (ETCA). According to the initial agreement, if any product is to be considered under the ISFTA, at least 35 % of the value addition should take place in the country of origin. Accordingly, ISFTA facilitates more than 70 % of the exports to India. However, only less than 30 % is exported from India to Sri Lanka through the ISFTA. When the ISFTA was initially signed, Sri Lanka was allowed a larger negative list (1,180 tariff lines) than India (429 tariff lines). However, in 2003, the duty exempted items for Sri Lanka was increased from 1,351 to 4,150 (Kelegama, 2003). It was evident that the removal of tariff barriers has resulted in increasing the existence of NTBs. ISFTA, too had been subjected to the NTBs which had hindered the possibilities of expanding the bi-lateral trade. Many research conducted to evaluate the success of ISFTA and to identify shortcomings of it. Ever since the ISFTA came into effect, certain exporters are facing NTBs which are not easily comprehended or foreseen until someone faces the situation. It was evident that during last decade, the trade with India had not grown sufficiently in spite of the existence of ISFTA. Literature identifies that NTBs has been acting as obstacles to trade in contrast to tariff barriers which has been reduced by a large margin. At this moment, it is very vital to identify the NTBs exist in trading with India. Therefore, it is an utmost need to identify the existing barriers prior to expansion of the ISFTA.