Singapore, 29 Jan 2018 – The free trade pact signed last week between Singapore (Aaa stable) and Sri Lanka (B1 negative) will enhance the cross-border trade of goods and services and promote foreign direct investment (FDI) between the two countries.
The Sri Lanka-Singapore Free Trade Agreement (SLSFTA) is Singapore’s 21st trade agreement with 32 trading partners, and reiterates Singapore’s commitment to free and open markets.
Singapore also stands to save about S$10 million each year as Sri Lanka will eliminate tariffs on 80% of Singapore’s exports over the next 15 years.
Singapore does not impose import duties on 99% of the items listed in the tariff schedule for Sri Lankan exports to Singapore, the pact’s main trade benefits for Sri Lanka will materialize through the opening of access to the broader Association of Southeast Asian Nations (Asean) market and other large economies given Singapore’s existing preferential trade arrangements with Australia, Japan, Korea and other countries in Southeast Asia.
In 2017, Sri Lanka was Singapore’s 37th-largest trading partner, while Singapore was that nation’s eighth-largest trading partner. Their bilateral trade amounted to about 0.5% of Singapore’s gross domestic product (GDP) and 2.5% of Sri Lanka’s.
It is likely to boost Sri Lanka’s tourism.
Using travel and passenger transport by air as a proxy, tourism accounts for about three-quarters of the services surplus. Although Singapore comprised less than 1% of Sri Lanka’s total tourist arrivals in 2017, the SLSFTA may allow Sri Lanka to leverage Singapore’s transportation hub to attract more tourists.
Additionally, there are provisions on the cross-border transfers of information by electronic means and data flows, which could aid Sri Lanka’s burgeoning IT services sector.
The agreement is to promote direct investment in Sri Lanka by Singapore companies. According to the Sri Lankan government, FDI from Singapore totalled US$658 million (less than 1% of Sri Lanka’s GDP) during 2006-17 in sectors such as food manufacturing and real estate. By easing regulation in the services sector, the SLSFTA will broaden the scope of investment to other areas such as infrastructure, logistics, education and healthcare.
The agreement also protects against expropriation, improves transparency through safeguards against discriminatory treatment and provides for a dispute resolution mechanism, all of which create a better investment climate to attract FDI.