The India -Sri Lanka Free Trade Agreement was signed on December 28, 1998 with an overall objective to promote trade and economic relations between the two countries and promote FDI. It entered into force from March 1, 2000. The focal points are the respective Ministries of Commerce and Industry.

• The Foreign Trade Agreement can be accessed here.

Highlights of the FTA

• India has implemented zero duty on 4150 tariff lines for exports from Sri Lanka. The list of such items is available here.
• Sri Lanka has implemented Zero duty on 1208 tariff lines for Indian exports to Sri Lanka. The list of such items is available here.
• Sri Lanka has also undertaken to progressively liberalise its duties to reach zero-level in respect of additional 2724 tariff lines over a period of 8 years. It has already implemented 70% margin of preference on these tariff lines, which were to become zero duty in March 2008 but implementation is awaited. The list of such items is available here.
• As of now, 1180 tariff lines remain in the Sri Lanka’s negative list that includes Agriculture/livestock items, rubber products, paper products, Iron and Steel, machinery, and electrical items. Sri Lanka’s negative list is available here.
• On the Indian side, there are 429 items in the negative list, which include garments, plastic products and rubber products etc. India’s negative list is available here.

Further, India has offered quotas to Sri Lanka on certain tariff lines:

	(a) 15 million tonnes of Tea (5 tariff lines) with 50% margin of preference on which port entry restrictions that existed earlier have been removed in June 2007; India’s list on which Tariff Rate Quota (TRQ) has been granted (tea and garments) is available here. Modalities for the Export of Tea under TRQ is available here. Customs circular on removal of Port Entry restrictions on Tea exports under TRQ by India is available here.
	(b) Textiles, where there is a 25% tariff reduction for 528 Textile items; India’s concession list of Textile items with 25% MOP is available here.
	(c) Garments where the 50% margin of preference on 8 million pieces over 233 tariff lines has been further liberalized through an MoU on October 5, 2007. The Government of India has issued a Custom Notification No. 52/2008 dated 22nd April 2008 giving immediate effect to the MoU. As a result, India has reduced duty to zero and removed restrictions on entry ports and sourcing of fabrics from India for 3 million pieces of apparel products from Sri Lanka. India has also removed port restrictions on the balance 5 million pieces of apparel products. India’s list on which Tariff Rate Quota (TRQ) has been granted (tea and garments) is available here. Modalities regarding quota on garments (i)       Minutes on Garment concessions: (ii)      Custom Notification No. 52/2008 dated 22nd April 2008 allowing 3 million pieces without restrictions on sourcing and port entry.

• An important element of the FTA is the Rules of Origin (ROO) criteria to ensure minimum local content. Under the FTA this is reduced to a level of only 35% of FOB value as against 40% under SAPTA. The Rules of Origin can be accessed here.

Other Important FTA Documents

Modalities with regard to export of Vanaspati, Bakery Shortening.
Modalities with regard to export of Pepper and Desiccated Coconut.
Link to the FTA Website of Department of Commerce, Government of India.
Link to the FTA Website of Department of Commerce, Government of Sri Lanka.

Other Useful Links.

IMPACT OF FTA ON BILATERAL TRADE

Bilateral Trade Figures for last 9 years

Year	Imports from India	Exports to India	Total Trade	Trade Deficit for Sri Lanka	EXIM Ratio SL Imports: SL Exports
All figures in US $ million, (FTA implemented in March 2000)
1999	512	49	561	-463	10.4:1
2000	600	58	658	-542	10.3:1
2001	602	72	674	-530	8.4:1
2002	835	171	1006	-664	4.9:1
2003	1076	241	1317	-835	4.4:1
2004	1358	385	1743	-973	3.5:1
2005	1399	559	1958	-840	2.5:1
2006	1805	489	2294	-1316	3.6:1
2007	2750	516	3266	-2234	5.3:1

• The overall trade turnover has grown five times since the entry into force of the FTA and crossed USD 3 billion in 2007.
  
  

• India has emerged as the largest trade partner of Sri Lanka. Sri Lanka has also emerged as India’s largest trade partner in South Asia.
  
  

• India is also Sri Lanka’s most balanced trade partner. It is the only country among the top Sri Lankan trade partners where both exports and imports are substantial. Thus, India ranks first as exporter to Sri Lanka and third as importer from Sri Lanka. All other leading partners of Sri Lanka, viz., USA, UK, China, Singapore etc are either predominantly exporters to or importers from Sri Lanka.
  
  

• India was the second largest exporter to Sri Lanka before the FTA and is now the largest exporter to Sri Lanka. But, more important, India became the third largest export destination for Sri Lankan products (rising from 16th rank) as a result of FTA.
  
  

• Overall Sri Lankan exports to India have grown 10 times since 2000 while Indian exports, mostly on the non-FTA route, has grown 5 times.
  
  

• Sri Lankan exports to India have largely been of new products where Sri Lanka did not traditionally have capacities. Therefore, FTA has created new export capacities in Sri Lanka that hitherto did not exist. It has brought precious foreign exchange to the country by helping create this potential.
  
  

• While the trade gap has expanded, the FTA has helped by creating export opportunities for Sri Lanka at a much faster rate helping in bringing down the export-import ratio from 10.5:1 in 2000 to 5:1 in 2007.
  
  

• A better way to look at benefits of the FTA is to compare the trade between India and Sri Lanka using the FTA concessions, as this is trade generated by FTA for either country and conversely at non-FTA trade where trade is carried out without any concessions. Trade under FTA between India and Sri Lanka show Sri Lankan exports are at about USD 450-500 million and Indian exports at USD 600-700 million, which is fairly balanced.
  
  

• Non-FTA exports from Sri Lanka to India are negligible at about US$ 50 million, the same as it was in 2000, when FTA came into force. Non-FTA exports from India to Sri Lanka are substantial standing at about US$ 2 billion, up from about US$ 500 million in 2000.
  
  

• This would imply that without the FTA, Sri Lankan exports to India would have remained stagnant while Indian exports, which are largely on the non-FTA route, would have grown four times from the 2000 level.
  
  

• Clearly, therefore, FTA has benefited Sri Lanka by creating 90% of its current export potential. In contrast, FTA accounts for only 30% of India’s export to Sri Lanka. The import-export ratio which has come down from 10:1 in 2000 to 5:1 in 2007 would have been 40:1 if the FTA was not there.
  
  
• The FTA has spurred bilateral investments by capitalizing on the opportunities generated by the FTA and availing of the comparative advantages both countries possess. 
   
• BOI figures put India among the four largest investor in Sri Lanka. Most visible Indian investments are Lanka Indian Oil Corporation, TATAs (Taj Hotels, VSNL, Watawala tea plantations) LIC, Ultratech, Ambujas, Rediffusion, Ceat, Nicholas Piramal, and Ashok Leyland. There are currently four Indian banks operating in Sri Lanka - SBI, IOB, UTI and ICIC banks. Human Resources and Education Companies ICFAI and MAFOI have also entered the Sri Lankan market.
  
  
• Upcoming investments are likely to be in core sectors such as oil exploration and production, power, IT, telecom sector (Airtel), and development of SEZs.
  
  
• A major upshot of the FTA has been beginning of major Sri Lankan investments in India. These include Carsons Cumberbatch (Carlsberg), John Keels, Hayleys, and Aitken Space.
  
  
• Sri Lanka has established itself in many sectors through trade or investments in India. To name a few, confectionaries (Ceylon Biscuits), Garments (Brandix’s Textile City in Vizag and MAS holdings in Nellore), hotels (Aitken Spence and John Keels), beverages (Carson Cumberbatch), furniture items (Damro), porcelain (Dankotuwa), tyres (CEAT-Kelani), shipbuilding (Colombo Dockyards), logistics (DRH Logistics and Freight Links International).
  
  
• Trade expansion has also given a push to the service industry like shipping, logistics, banks, insurance etc.  70% calls at Colombo port are from India. Largest tourist arrival in SL is from India (1.28 lac in 2006 = 21%).
  
  

More than 130 flights per week from Colombo to India. SL Airlines is the largest foreign airline in India with 100 flights a week to 11 Indian destinations. Other players Mihin Lanka, Air India Express, Indian Airlines, Sahara,

Jet Airways.