Free Trade Agreement Between India and Sri Lanka
The Free Trade Agreement between India and Sri Lanka( ISFTA) is a cornerstone that has been shaping the economy of the two South Asian Countries significantly. Officially addressed as the India-Srilanka Free Trade Agreement (ISFTA), it was signed in 1998 by the governments of the two neighbouring countries, and the year of execution was 2000. Furthermore, the prime objective of the treaty between India and Sri Lanka was to encourage bilateral trade by reducing tariffs and eliminating trade barriers completely. This agreement is an extension of the history of the accords between the two countries, including the 1974 Indo-Sri Lanka Agreement. This blog will delve into ISFTA, its benefits, impacts, and future prospects with its historical context, including the 1974 agreement.
Key Objectives of ISFTA
The initiatives of the trade agreement
• Firstly, Increase the level of bilateral trade for better exchange of goods and services by lowering the tariffs.
• Secondly, what the bilateral agreement aimed at was to boost the economic cooperation between the two countries.
• Third, the emphasis of the bilateral trade was to increase the joint ventures and investments.
•Fourthly, the motto behind bilateral trade agreement was to promote fair competition along with harmonious trade.
•Next, its aim was to increase trade opportunities and consequently investment.
•Finally, stimulation of job creation and industrial development was aim of free trade agreements between India and Sri Lanka.
1974 Indo-Sri Lanka Agreement- the Foundation
The origin of India-Srilanka Free Trade Agreement dates back to 1974 Indo-Sri Lanka Agreement. This treaty was an important benchmark in the bilateral relations between the two countries. Furthermore, The pact focussed mainly on mutual development, economic support, and cultural exchange, it was not a free trade agreement. The 1974 trade agreement paved the way for stronger economic relationship by signing of the ISFTA in 1998.
ISFTA: A Synopsis
India Sri Lanka Free Trade Agreement was entered by the two neighbouring South Asian nations to boost the trade between them. A mutual benefit of duty free access to the market is a key feature of the pact. Particularly, this agreement is a key for Sri Lanka to get wide access to the market of India, while India benefits from strategic location and fostering economy of Sri Lanka.
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Salient Features of the ISFTA:
Tariff reduction: India and Sri Lanka both agreed to remove tariffs on most of the goods traded between them.
• Rules of Origin: To avail the advantage of duty -free, goods must comply with the norms regarding the origin to ensure goods have originated in Sri Lanka or India.
• Barring Lists: Few items are not the part of agreement to safeguard the domestic markets.
• Dispute Resolve Instrument: The ISFTA also includes provisions for solution of trade dispute to ensure fair trade.
Impact on Bilateral Trade
ISFTA has redefined the trade relations between India and Sri Lanka. The trade statistics spills the beans about the impact of bilateral trade very well. Before ISFTA, the bilateral trade was reported to be approximately $650 million in 1999, whereas in 2023 after ISFTA, the trade statistics were over $5 billion annually. The growth in trade denotes the mutual benefits derived by both the countries through bilateral trade.
Major Sectors Benefiting from the ISFTA:
- Manufacturing: Manufacturing goods such as machinery, industrial products, and equipment exchange between the two nations have dominated the bilateral trade between India and Sri Lanka.
- Agricultural products: Sri Lanka exports tea, fruits, and vegetables, whereas exports of vegetables and grain via free trade have boomed after ISFTA due to duty-free trade.
- Textiles: India and Sri Lanka have grown exponentially in textile and apparel trade.
Challenges and Opportunities
The ISFTA has supported growth between India and Sri Lanka but still faces challenges. Sri Lanka’s imports from India are much higher than its exports. Trade barriers on sensitive goods protect domestic markets, limiting the agreement’s full potential. Non-tariff barriers like customs delays and compliance issues continue to hurt trade.
Despite these challenges, ISFTA offers key growth opportunities. It has improved connectivity through better infrastructure and logistics. The agreement also fosters regional cooperation. Additionally, ISFTA opens doors for exchanges in sectors like renewable energy and technology.
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The Road Ahead
The India-Sri Lanka Free Trade Agreement is a road march toward more robust relationships between the two countries. There have been economic and diplomatic relations between the two countries. Attempts have been made to maintain this alliance between the two countries. Nations have been trying to resolve the current issues and seeking new areas for cooperation.
Future Prospects:
Both the nations, India and Sri Lanka are seeking to incorporate green practices, which do not harm the environment, instead protect it. Likewise, technology incorporation is at boom and is expected to increase cross-border and digital services.
Summing Up:
The India-Sri Lanka Free Trade Agreement is the best example of economic cooperation. The India-Sri Lanka Free Trade Agreement shows how economic cooperation strengthens ties. Since the 1974 Indo-Sri Lanka Agreement, ISFTA has boosted trade and mutual growth. Both nations face global economic challenges. ISFTA promotes trade, jobs, and stability. With dedication and innovation, the partnership has strong future potential.
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