China FTA may bring a flood of Chinese goods – Dr. Kelegama

By Zahrah Imtiaz
From Ceylon Today
Sri Lanka needs to be careful not to have its markets flooded with Chinese goods when it enters into a Free Trade Agreement (FTA) with China next year, Executive Director of the Institute of Policy Studies, Dr. Saman Kelegama, said at the inaugural Gamani Corea Memorial Lecture.
He said Sri Lanka needs to add protectionist clauses to the agreement in order to avoid the island being flooded with cheap Chinese goods.
 
Sri Lanka's exports to China have increased from US$ 28.4 million in 2005 to US$ 121.6 million in 2013, but the trade balance remains significantly in favour of China.
Sri Lanka's imports from China last year amounted to US$ 2.9 billion.
China is Sri Lanka's second largest import market after India. Chinese imports comprise 16% of the island's total imports. Imports from India comprise 18% of Sri Lanka's total imports as at last year.
 
Dr. Kelegama also said the more important question however, is whether Sri Lanka is equipped to meet the demands of the Chinese FTA. "Can we meet the supply needed for the large Chinese market? Do we have the skills and the infrastructure to meet demand?" he asked.
Dr. Kelegama emphasized that with the world being globalized it is paramount that a country is linked to Global Value Chains (GVCs).
 
"Goods are being made in the world rather than in one country," he said.
The importance of integrating into a GVC has been clearly demonstrated through countries like China and India, which thereby have reaped the full benefits as income from trade within GVCs doubled between 1995 and 2009. For China the increase was six fold, while India experienced a fivefold leap.
According to Dr. Kelegama one of the best ways to gain access to the GVCs is through regional trade agreements (RTAs) as 37% of global exports and 46% of global imports flowed via RTAs. Sri Lanka unfortunately is at a disadvantage as it is located in a region where regional value chains are not well developed.
 
"Most trade agreements involving South Asian countries are shallow when compared to similar agreements in the Asia Pacific and South East Asia. Their (South Asian countries) trade arrangements are largely limited to tariff reductions and have minimal provisions for addressing non tariff barriers in goods and services investment," he said.
Sri Lanka is only party to 'four fully effective' agreements – the bilateral agreements with India and Pakistan, the South Asian Free Trade Agreement (SAFTA) and the Asia Pacific Free Trade Agreement (APTA), which together only cover 8.2% of exports and 33.2% of imports vis-a-vis Sri Lanka.