A Review of the Pakistan-Sri Lanka Free Trade Agreement

The Free Trade Agreement (FTA) between Pakistan and Sri Lanka came into effect in July 2005 after being signed in August 2002. Under the FTA, Sri Lanka was given immediate duty-free market access for 206 products. Pakistan, on the other hand, received duty-free access for 102 products. Further concessions were agreed in November 2010.

The purpose of this study is to analyze the performance of the FTA to-date and to highlight the opportunities available to both partners to increase bilateral trade. This Study also highlights some sectors which, if promoted, could potentially increase trade between the two countries. These include Pakistan’s cement and motorcycle industries and Sri Lanka’s apparel and clothing, tourism, and tea industry.

Bilateral trade with Sri Lanka has mostly been in favor of Pakistan since the signing of the FTA. Pakistani exports more than doubled from 2005 to 2011 while imports stayed relatively constant; Pakistan enjoyed its largest trade surplus in 2011 which was worth $287 million. Exports fell after 2011 and reached $269 million by 2017. Imports, on the other hand, have risen by about 60% since 2011 and reached their apex of $103 million in 2017. Pakistan’s trade surplus with Sri Lanka in 2017, was $166 million.

Pakistan's Trade with Sri Lanka

This Study identifies twenty products which have the potential to increase Pakistan’s exports to Sri Lanka by $1.14 Bn. An analysis of Sri Lanka’s tariff regime shows that amongst Pakistan’s top twenty exports to Sri Lanka, only four products receive better tariff rates than those applied on India and China.

Pakistani industries where there is potential to export to Sri Lanka include the cement and motorcycle industries. The impediments to increasing exports from Pakistan of both cement and motorcycles have been identified. This report also contains a review of the strategies employed by Sri Lanka to develop its apparel and clothing, tourism and tea industry. There is some learning in these for Pakistani policy makers.

The table below shows Pakistan’s top 5 exports and imports to Sri Lanka in 2017.

Pakistan’s Top 5 Exports to Sri Lanka in 2017 Pakistan’s Top 5 Imports from Sri Lanka in 2017
Code Description Value (USD Mn) Code Description Value (USD Mn)
’52 Cotton 79.14 ’89 Ships, boats & floating structures 30.52
’30 Pharmaceutical products 25.28 ’14 Vegetable plaiting materials; 23.20
’25 Salt; sulphur; … cement 25.19 ’40 Rubber and articles thereof 9.20
’10 Cereals 22.99 ’44 Wood and articles of wood; 9.05
’31 Fertilisers 17.82 ’08 Edible fruit and nuts; 5.53

The PBC is a private sector not-for- profit advocacy platform set up in 2005 by 14 (now 74) of Pakistan’s largest businesses. PBC’s research based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk