IMPLEMENTATION of the Pakistan-Sri Lanka Free Trade Agreement (FTA), scheduled next month (mid June 2005), will expand the existing base of bilateral trade, both in scope and magnitude. Currently, the volume of two-way trade is minimal—- the highest ever was recorded only $146.24 million during year 2003-2004. Pakistan’s exports during the fiscal year 2003-04 were to the level of $98 million and imports from Sri Lanka over $48 million. Likewise, Pakistan’s exports to Sri Lanka during 2002-2003 were $76 million, whereas imports from Sri Lanka accounted for $38.24 million.

The bilateral trade has registered a declining trend for the last few years. For illustration, trade between Pakistan and Sri Lanka in 1997-98 and 1998-99 was $139.32 million and $139.04 million, respectively, with Pakistan exports totalling $101.39 and $105.00 million for the respective years.

In subsequent years our exports reduced, to the level of $72.10 million in the year 2001-02 and $76.00 million during 2002-03, recording two-way trade level of $100.64 million in 2001-02 and $114.24 million in 2002-03.

Major items of export from Pakistan are textile yarn and fabrics, vegetables, fruits, dried fish, chemicals (PVC), pharmaceutical products, cement, footwear, leather goods and others. Pakistan, the world’s third largest tea importer, buys about 5 million kg of tea from Sri Lanka every year. Also, Pakistan accounts for almost 90 percent of Sri Lanka’s total exports of betel leaves.

The FTA will enable the two countries to grant duty-free, or to allow concessionary duty, to the respective exports/imports of the identified commodities and products. Under these provisions, Sri Lanka will export spices, rubber and rubber products, coconut, paper and paper products, cane and wooden furniture, raw silk, silk yarn, copper products, precious stones and jewellery to Pakistan. Likewise, we will have benefit for export of oranges, apples, dates, fruit juices, rice, potatoes, welded pipes, iron and steel products and motorcycles and accessories to the Sri Lankan market.

Sri Lanka is a promising market for Pakistani products, and its high potential has not yet been realized properly. There is also the need to shift the present pattern of commodity-based trade to capital goods and industrial sector. For quite sometime Pakistan supplies defence hardware to Sri Lanka in competition mainly with the Chinese and Indian sources. This is primarily due to superior quality and better performance of Pakistani defence products, which are being supplied in various markets of the world, and because of established credibility of its manufacturers. Our share of exports in this sector can be increased manifold as military expenditure of Sri Lanka is currently in the range of $1 billion dollars annually.

Similarly, Pakistan manufactures a variety of engineering goods. Over the years the industry has produced and sold sizeable products in the domestic as well as international markets, at highly competitive prices. And Sri Lanka is no exception. Heavy Mechanical Complex has designed, supplied and installed 27 Nos. Dam Gates for Sri Lanka’s two irrigation schemes, namely Minipe Right Bank Canal and Riatkina Oyah Reservoir projects.

In the recent past, Pakistan Machine Tool Factory has delivered a reasonable number of tractor parts and components to private parties in Sri Lanka, whereas private sector has exported water meters, fans, air conditioners and domestic appliances.

Pakistan Railways have delivered 40 broad-gauge railway wagons to Sri Lanka in 1999-2000. Another agreement was signed between the two governments, in August 2001, for supply of railway coaches to Sri Lanka Railways at a price of $30 million. Other railway equipment of interest to Sri Lanka include axles, hydraulic screw jacks, surface traverser, steel bridges and railway electrification.

The above facts demonstrate future prospects for enhancing and widening our exports to Sri Lanka that at present has a marginal share of even less than one percent of Pakistan’s total exports.

Besides consolidating on export of our conventional products, market for new products and services is to be explored there. The manufacturing sector of Sri Lanka accounts for over 30 per cent of the GDP, major industries being textiles, apparel and leather products. Other industries include food, beverages, tobacco, chemicals, rubber and rubber products, plastic, paper and paper products, cement, sugar and non-metallic mineral sector.

Investments, domestic as well as foreign, are being made in light engineering, electronics, rubber-based industries, ceramics and glassware, and in the SME sector. There are seven sugar mills producing about 385,000 tons of refined sugar.

The country produces about one million-ton of cement annually at its five plants set up in private sector. There are identified opportunities for export of Pakistan’s machinery and equipment for sugar, cement, chemical, and petrochemical plants in Sri Lanka. A variety of light engineering goods are also required, such as irrigation pumps, machine tools, power transformers, electricity transmission lines, construction machinery, mining equipment, environment-related equipment, tractors and agricultural implements, air-conditioning equipment and domestic appliances.

In recent years, Sri Lanka has embarked upon plans for rapid industrialization, having adopted policies of establishing basic industrial manufacturing facilities, on one hand, and, on the other, expanding and diversifying the existing manufacturing capacities with focus on export-oriented products.

The nation is thus in need of design and consultancy services, progressive transfer of technology and training of personnel, besides plant machinery, which we can provide in selected areas. For example, Pakistan can extend technical assistance for developing and modernizing engineering, textile and sugar industries of Sri Lanka, and train its engineers and technician in different fields related to these sectors.

There are enormous possibilities for collaborative partnership through establishing joint ventures in Sri Lanka in manufacturing, information and technology sectors, engineering services, banking, insurance, tourism and others. At one time Sri Lanka had shown interest, and Pakistani investors responded, to form a joint venture in Pakistan for the blending and marketing of tea. It was also proposed to undertake tea cultivation in Pakistan with their assistance. Sri Lanka has earlier identified steel, sugar and textile sectors for direct foreign investment by Pakistani entrepreneurs.

The two countries are already implementing Agreement on Promotion and Protection of Investments. At the regional level, the Agreement on South Asian Free Trade Area (SAFTA) has been signed in January 2004. Effective from January 1, 2006, SAFTA entails adopting various trade facilitation measures through elimination of tariff and non-tariff restrictions in the region.

Pakistan has announced a credit line for the purchase of defence products by Sri Lanka, whereas another $10 million credit would be available for supply of Pakistani engineering goods. These measures would accelerate multi-sectored cooperation with Sri Lanka, and, at the same time, help in implementing Pakistan government’s priority to increase its total exports, further diversifying in the areas of value-addition and non-traditional items.