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ABSTRACT THE FREE TRADE AGREEMENT between India and Sri Lanka came into full existence from 1st March 2000.This FTA basically deals with the modalities of the Duty Free Import of the goods manufactured in Sri Lanka which exempts specified goods imported under Indo- Sri Lanka Free Trade Agreement from the Import Duty up to 100%. There is a clear business opportunity for manufacturers from India to set up unit in Sri Lanka so that the goods produced in Sri Lanka can be brought to India duty free availing the exemption provided in the Free Trade Agreement. Since there is no Excise Duty in Sri Lanka or Import Duty the goods produced there would be cheaper. Establishment of free trade arrangements between India and Sri Lanka has accelerated the development of national economies, promoting mutually beneficial bilateral trade and strengthening intra-regional economic cooperation. Both sides have recognized that the expansion of their domestic markets through economic integration is a vital pre-requisite for accelerating their processes of economic development and have further recognized that comprehensive reductions and elimination of obstacles to bilateral trade through a bilateral free trade agreement would also contribute to the expansion of world trade.
INTRODUCTION The free trade agreement between India and Sri Lanka came into full existence from 1st March 2000. Under the agreement Zero duty on around 1000 items has been provided by India with. 50 per cent margin of preference on all items, except for those in the Negative List. Tariffs have been brought down to zero over a period of three years. Concessions on textile items have been restricted to 25 per cent. India has retained less than 400 items in its Negative List. These mainly include garments, petro-chemicals, alcoholic spirits and coconuts and coconut oil. Sri Lanka has around 1200 items in its Negative List. Items in the Negative List do not enjoy tariff concessions. Domestic value-addition requirements have been kept at 35%. If the raw-material/inputs are sourced from each others country, this is reduced to 25% within the overall limit of 35%. The criterion of substantial transformation has been provided in the Rules.
As of now, 1180 tariff lines remain in the Sri Lankan negative list that includes Agriculture/livestock items, rubber products, paper products, Iron and Steel, machinery, and electrical items. On the Indian side, there are 429 items in the negative list, which include garments, plastic products and rubber products etc.
All figures in US $ million, (FTA implemented in March 2000) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (Jan-Nov) 512 600 602 835 1076 1358 1399 1805 2750 2838 1707 2571 3973 49 58 72 171 241 385 559 489 516 418 328 471 482 561 658 674 1006 1317 1743 1958 2294 3266 3256 2035 3042 4455 -463 -542 -530 -664 -835 -973 -840 -1316 -2234 -2420 -1379 2100 -3970 10.4:1 10.3:1 8.4:1 4.9:1 4.4:1 3.5:1 2.5:1 3.6:1 5.3:1 6.8:1 5.2:1 5.4:1 8.2:1
Source: Sri Lanka Customs Percentage of Total Sri Lanka Trade with India Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (Jan-Nov) Exports (%) 3.57 4.79 6.84 8.95 7.17 6.63 5.10 4.56 5.57 5.12 Imports (%) 13.81 16.49 17.25 17.32 18.47 24.43 20.80 17.96 20.63 22.19
CONCLUSION India and Sri-Lanka signed the Free Trade Agreement on 28th December 1998 and further discussions were held between India and Sri Lanka on 2nd February 2000 in New Delhi. The Agreement provides duty free market access to both the countries on a preferential basis in a phased manner. India has also agreed to permit limited quantities of imports of tea and garments from Sri Lanka. Tea quota will be 15 million kilogram per annum and garments 8 million pieces. The Free Trade Agreement is expected to boost the bilateral trade between India and Sri Lanka and also consolidate the close economic, commercial and political relations between the two countries through increased trade and investments. As of now, India is one of the largest exporters to Sri Lanka and the trade balance is heavily in favors of India.