COLOMBO (Reuters) – Talks between China and Sri Lanka for a free trade deal have come up against major obstacles, mainly because Beijing will not accept Colombo`s request to review the deal after 10 years, Sri Lanka`s chief negotiator said. Weerasinghe said another point of contention was that China wanted zero tariffs on 90 percent of the products sold to one another by the two countries as soon as an agreement was signed, while Colombo would prefer to start imposing zero tariffs on only half of the products concerned and gradually extend them over 20 years. Although Chinese imports have increased significantly, Sri Lankan exports to China remain slow, leading to an ever-widening trade deficit. In 2005, Sri Lanka`s trade deficit with China was only 2.5% of GDP; By 2018, it had risen to 4.4% of GDP, accounting for nearly 40% of the total trade deficit. In this context, it is necessary to carry out an in-depth study and to involve and consult the different interest groups of the country; Distributors, producers/producers and consumers before the finalisation of the agreement, as highlighted by the Sri Lankan Minister of Industry and Trade. For this reason, this study examines: (1) examines Sri Lanka`s existing free trade agreements to identify the main stumbling blocks in terms of tariff and non-tariff barriers to be taken into account when negotiating a trade agreement with China; 2) describes the salient features of China`s existing free trade agreements with countries/regions (ASEAN, Pakistan, Chile, New Zealand, Singapore, Peru, Costa Rica, Iceland, Switzerland) and 3) Products with export potential to China – products of interest to Sri Lanka, which should be part of trade negotiations with China. Sri Lanka has expressed interest in considering a bilateral trade agreement with China. The two countries have now agreed to start a free trade agreement aimed at opening up the huge Chinese market to Sri Lankan producers, producers and exporters. In this context, it is essential that the agreement cover a large number of tariff lines and trade and eliminate non-tariff barriers that may hinder export expansion. We can get a deeper perspective on the import-to-GDP ratio, which is seen as a better indicator of a country`s trade dynamics. Since 2000, Sri Lanka`s import-to-GDP ratio has declined with the export-to-GDP ratio.

This indicates a significant decline in trade and a simultaneous movement towards protectionism, which is one of the main causes of the economic problems facing Sri Lanka today. The interesting fact is that Chinese imports into Sri Lanka have increased despite the general decline in international trade and Sri Lanka`s growing protectionist policy. South Asia, led by India, has developed tremendously as part of regional trade integration, with intraregional trade accounting for only 5 per cent of total trade flows. Perhaps the rise of China`s trade relations in South Asia can help change this grim situation. Chinese exports to Sri Lanka dwarf trade that goes the other way, leaving Colombo with a large deficit against Beijing. Chinese Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing that China attaches great importance to its relations with Sri Lanka and they are willing to continue cooperation in all fields, including trade and economy. K.J. Weerasinghe, Sri Lanka`s chief trade negotiator, said this week that Colombo insisted on a right to review the free trade pact after 10 years, but that China was not ready to approve it. Chinese trade with the island state is booming, even though Indian trade appears to be stalled.

In 2016, China became Sri Lanka`s largest source of imports and overtook India. In the following years, however, the value of Indian imports slightly exceeded Chinese imports. . . .