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An emerging trade conduit

August 27, 2007

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For long, Sri Lanka has remained a micro dot on the radar screen of Pakistani business. But with the fast changing global and regional environment, an increasing number of businessmen have started eying Sri Lanka as a purchase centre and also as a marketing destination.

They are seen in Colombo with a shopping list and exploring avenues for selling their products.

Trade figures are still not very impressive but what is noteworthy is the pace of improvement. The two-way volume has increased from $110.65 million in 2000-01 to $230 million in 2005-06 and has been estimated at around $149 million in first seven months of the last fiscal year. The two-way trade in 2003-04 swelled to $146.25 million from $114.36 million in 02-03, motivated by the signing of a Free Trade Agreement (FTA). The FTA came into effect in June 2005, and no wonder the two-way trade volume touched the peak of $230 million in 2005-06.

Encouraged by the pace of trade growth in about last two years, the inter-governmental FTA Review Committee of Sri Lanka and Pakistan proposed in March this year, to raise the volume of two-way trade to $1 billion annually in the next few years. ''Next few years mean by 2011 or 2012'', explained Sidhant Kumar, the Sri Lankan Trade Commissioner in Karachi.

“The Sri Lankan business community generally views the FTA with Pakistan more advantageous to them than their FTA with India'', Muhemmed Aejaz, Pakistan's Trade Counsellor in Colombo told this correspondent. As he sees it, the Sri Lankan businessmen are now beginning to consider Pakistan as an attractive market.

Sri Lanka signed an FTA with India in 2000 and with Pakistan in 2002 and many do not rule out of the island becoming a ''trade junction'' or ''trade conduit'' for exchange of goods among the regional countries -- India and Pakistan, Nepal, Bangladesh, Bhutan and Maldives.

Given the geographical location, (a high literacy rate, (more than 92 per cent with highest ratio of English-knowing population in South Asia), a strong adherence to democratic values and a secular outlook and endowed with a modern corporate culture, Sri Lanka is being considered as the destination of businessmen of South Asia.

After the FTA, Sri Lankan trade with India has reached $2 billion. The balance of trade is heavily in favour of India. But in a much modest two-way trade at $230 million, the share of Sri Lankan exports to Pakistan has shown a big jump-- from $44.86 million in 2004-05 to more than $71million in 2005-06

“The volume of the two-way trade between Pakistan and Sri Lanka would have considerably increased this year had there been no shipping crisis as is being witnessed now in Far East and East Asia'', says Raees Ashraf Tar Mohammad, leader of the Pakistan's Commodity Importers' Association. According to him, China announced termination of subsidy on chemicals and dyes by July 2007 under the growing world pressure. Almost the bulk of world shipping fleet diverted to Chinese ports to avail the subsidy for more than a month now, the shipping availability for other ports is still a problem. Explaining the gravity of problem, he said average freight between Sri Lankan and Pakistan was $80 a ton which peaked to $200 in recent times.

Raees led a five--member delegation to Colombo in the third week of August for concluding a deal with a Sri Lankan firm on supplies of spices and variety of kitchen items to meet growing demands during Ramzan and Eid and also for Christmas. The FTA has removed duty on import of black pepper and reduced considerably the rate of duties on many other items. ''We have placed orders for double the quantity of items this time than in the past'', he said. A rough estimate put the entire import orders between $35-- 40 million.

Sri Lankans are buying from Pakistan yarn and fabric in bigger quantities to which they add value for onward export to the USA and Europe. Like Pakistan, Sri Lankan depends a lot on USA and Europe for export of textiles. Reports also suggest that a few Pakistanis have made modest investment in Sri Lanka's garment industry.

The foreign secretaries of the two countries at a meeting in Islamabad reviewed the bilateral relationship in February with reference to military hardware sale to Sri Lanka. Pakistan is helping Sri Lanka in its endeavour to counter terrorism.

The first inter-governmental committee also explored the possibilities of including services sector in the FTA. The meeting noted Pakistan's achievements in banking, financial services, insurance, engineering, construction, road development and communications. “Addition of these services will provide new opportunities to our companies'', said Pakistan's Trade Counsellor in Colombo.

Business opportunities beyond the FTA are being explored. Pakistan mission in Colombo considers good opportunities for the export of surgical instruments, engineering goods, motorcycles and bicycles, cement, quality furniture, textiles, raw gemstones and livestock . The Indian FTA provides enough room for export of pharmaceuticals, chemicals, agro-based industry products, the FTA with Pakistan sets low ceilings for expansion of export base in Sri Lanka.

“This is one of the basic reason for lack of interest of many Pakistani businessmen in Pakistan-Sri Lanka FTA'', Mehemmed Aejaz observed. His advice was to keep pursuing the Sri Lankans to give an even playing field to Pakistan in export market.

“Rice is one item for which we seek better access in the Sri Lankan market'' Raees said pointing out that India enjoys a better access for rice than Pakistan. Pakistan normally harvests good rice crop every year and maintains good stocks. There is also a good demand for rice but sometimes the ''import duty is very high'', he said. Traders also confide that on a few occasions Pakistan and Indian traders join hands to service a tender of food grain won by either side.