Sri Lanka is interested in gaining access to the lucrative Southeast Asian market with an FTA with Thailand a crucial entry point. However, its strategy to access global markets is blunted by several problems. These include slow implementation of trade facilitation measures, lack of awareness among local SMEs about FTA benefits, limited product competitiveness, bureaucratic resistance to adopting international trade standards, dependence on traditional exports, and inadequate modern trade infrastructure. 

Addressing these issues is essential for Sri Lanka to enhance its global trade competitiveness and capitalize on new market opportunities. With the recent signing of the Sri Lanka-Thailand Free Trade Agreement (SLTFTA), Sri Lanka has demonstrated a willingness to further facilitate commerce with other ASEAN countries, including Malaysia and Indonesia. While the newly enforced facilitation leaves much to be desired, given the slow progress of reversals on government import controls; researchers at the Institute for Policy Studies (IPS) estimate that Sri Lanka’s exports to Thailand will increase by 38% once tariffs are eliminated on Lankan exports, with tea and apparel export industries standing to gain the most. 

One might furtively assume that the push for the SLTFTA may have been due to the recent turn of events in Sri Lanka’s economic history—but that could not be furthest from the truth. 

Long Overdue

The first move towards the implementation spans back to 2018, when the Thai cabinet approved a framework for FTA talks with Sri Lanka, leading up to the first round of negotiations within two months of the announcement, in Bangkok Thailand. However, despite having progressed to the second round of negotiations in 2018 itself, Sri Lanka would only reopen talks on the SLTFTA in 2023.

Thai director-general of the Trade Negotiations Department Auramon Supthaweethum revealed to the Bangkok Post that Thailand’s strategic interest in Sri Lanka lies in its capacity as a gateway to South Asia, to a population of 1.2 billion people—and even as a distribution centre for Thai exports to the Middle East and Africa. 

While Sri Lanka began its emergence from its protectionist clampdown, Thai investments increased by 72% in 2023 from the previous year, totalling around $18.6 billion in foreign direct investments. Among the top investing nations were China, Singapore, the United States, Japan, and Taiwan, with the majority of the investments being made in the digital and creative sectors, electric vehicles (EVs), and Bio-Circular-Green (eco-friendly high-value) products and services.

By 2024, Thailand’s biggest exports include electric equipment, automobile equipment, and parts, electrical appliances, jewellery and rubber products. Car manufacturing multinationals such as Toyota and China’s BYD (Build Your Dreams) compete in the local segment of electric vehicle (EV) manufacturing, aiming to target local markets and longstanding foreign target markets such as the EU, which is looking to ban the sale of cars that do not reduce emissions by 100%, by 2030.

At a recent panel discussion on the effectiveness of the SLTFTA, Institute for Policy Studies Research Fellow Asanka Wijesinghe said that Sri Lanka’s mining industry has the potential to produce high-quality graphite to potentially leverage the resource, to integrate into the ASEAN value chains of car and electronics manufacturing.

He insisted that by continuing to forge direct trade facilitations with other Regional Comprehensive Economic Partnership (RCEP) nations such as Indonesia, Malaysia, Japan, South Korea, Vietnam and Cambodia, Sri Lanka can find itself playing a part in an ever-growing, important global value chain.

“It is not that much. Deposits are not very high. Sri Lanka currently has an economies of scale problem. But if Sri Lanka can attract businesses for green mining activity by branding Sri Lanka’s graphite as “green graphite”; and join the Thailand-Indonesia ecosystem of electric vehicle manufacturing, it would be a great thing for the country,” he said.

He added that Sri Lanka missed the opportunity of joining the once nascent global electronic production line value chains within the ASEAN, which has enabled fast-paced integration, and thereby a push for complete streamlining of trade facilitations, as evident in countries like Thailand, Indonesia and Vietnam. “We know that Asian countries joined this global, regional value chain in the 1970s. That was the success of their growth. But Sri Lanka could not move beyond ready-made garments. This can be an opportunity to attract investors from Thailand.”

Multinationals like AWS (Amazon Web Services), Google and Microsoft have long enjoyed the benefits of Thailand’s doorway to the Greater Mekong Basin with markets that have greater economic potential (China, Myanmar, Lao PDR, Cambodia and Vietnam), a government with a free trade positive outlook, and most importantly a skilled and diversified workforce; have all announced their intentions to expand their footprint within the country, to further bolster their positions within the broader Asian region, from out of Thailand.

Uncompetitive

According to the study conducted by the Institute of Policy Studies, of the 4813 product lines of export, Thailand has 1127 lines with Revealed Comparative Advantage (RCA). RCA can be defined as a country’s competitiveness vis-a-vis the rest of the world. In comparison, Sri Lanka with its 3289 product lines to the world, has only 613 lines of RCA, indicating the relatively low competitiveness and scope for further growth.

Research Director of Verite Research, Subashini Abeysinghe at a forum for practical inclusive growth solutions held recently in Colombo, said that Sri Lanka’s long-standing poor progress on implementation of the World Trade Organization’s (WTO) trade facilitation measures, at just 37.4%, reflects Sri Lanka’s bureaucratic unwillingness to adapt to international standards and best trade practices that deal with the adoption of streamlining, automation, assessment systems, transparency and predictability of compliance; all of which reduce costs and time of trading.

Trade facilitation is crucial when competing in global markets where competitors with recognized ease of trade will have much more significant advantages over those who fall behind on it. Among the emerging markets and developing countries assessed by the tool, Bangladesh has completed 78.6% of implementation, Cambodia 92.9%, Pakistan 97.5%, and Vietnam 94.5%. In the least developed category of countries: the Lao People’s Democratic Republic has completed 49.6% of total implementation and the Solomon Islands 42.4%. 

In 2017 when Sri Lanka signed the TFA  it had 29% of the required implementation on trade facilitation completed. However, six years later, Sri Lanka only progressed by 2.5% to 31.5% of the implementations last year. In 2024, quite unsurprisingly, Sri Lanka’s current progress stands at 37.4%.

As Sri Lanka is ranked below some of the least developed countries, such as Lao PDR and the Solomon Islands—based on the lower-than-average performance rate, Sri Lanka’s presence in the international market almost solely is dependent on its reputation of being a legacy brand for tea and a few other exports such as cinnamon, rubber, coconut and tourism. “Sri Lanka is also one of the very few countries in the world that has told the WTO that we cannot implement trade facilitation measures without WTO assistance,” Abeysinghe said. 

“Sri Lanka has requested for technical assistance from abroad for 70% of the trade facilitation measures to be implemented. Even the least developed countries had 40% of the implementations completed [by the time they came into force].” According to Abeysinghe, this has resulted in Sri Lankan exporters facing an unfair level of trade barriers or an uneven playing field in international markets, while competing with nations with fewer trade barriers.

During the panel discussion on the Thai-Sri Lanka FTA, Chamber of Commerce Economist Imesha Dissanayake said that another challenge observed within the realm of FTA and exports is the lack of awareness of the products and services covered by the FTA, among local SMEs and the general public. She also added that the lack of awareness of the FTA’s preferential scheme for the export of goods and services extended to the awareness of compliance with international export standards, one such being the fulfilment of the rules-of-origin criteria; which enables consumers to determine the source of the product they have purchased.

Trade Facilitation

Sri Lanka has long been in talks about establishing a one-stop gateway to streamline imports and exports through a National Single Window (NSW). A NSW is a centralized system that aims to improve international trade and transportation procedures by connecting government border control agencies and private sector firms, allowing them to complete all import, export, and transit border control operations on a single platform. By connecting numerous agencies to a single system, the NSW enables electronic submission and retrieval of all trade-related information. 

This integration simplifies interactions with border control agencies, decreasing the need for physical document submission and collection, and saving time and resources for enterprises involved in international trade. A well-implemented NSW can positively impact a nation’s ranking within the WTO framework. An ideal NSW supports the implementation of the WTO Trade Facilitation Agreement (TFA), particularly in areas concerning transparency, efficiency, and predictability in trade processes. 

By meeting these international standards, countries can improve their WTO performance rankings, which reflect positively in their prospective trade environment, as a higher WTO ranking is attractive to international businesses looking for efficient and reliable trade partners, or potential locations for investments.

Following the implementation of TradeNet in Singapore, Singapore’s own NSW, trade document processing times were slashed from 2 to 4 days to as little as fifteen minutes. The majority of transactions now take less than ten minutes to complete. Productivity has increased as a result of time savings, and research indicates that TradeNet achieved a 20% or more reduction in trade documentation processing expenses. Employees were no longer required to wait in lines to have their documents cleared, and a quicker turnaround time allowed for improved shipment organization and increased production all around.  

Sri Lanka must embrace these lessons of agility to stay competitive within the broader Asian region and among its potential free trade partners. Adapting swiftly to modern trade facilitation methods like the National Single Window is not just a choice but a necessity. By leveraging technology and streamlining processes, Sri Lanka can position itself as a dynamic and efficient hub for international trade, attracting investments and fostering economic growth. The nation’s commitment to these reforms will not only enhance its global trade standing but also secure its place as a formidable player in the Asian economic landscape. The time for action is now—Sri Lanka’s future in the global market depends on it.