Trade and economic relations between Pakistan and Sri Lanka are solid and longstanding. Pakistan is the second largest trading partner of Sri Lanka in the SAARC region. Sri Lanka was the first country to sign a Free Trade Agreement with Pakistan. A substantial growth is seen in bilateral trade, particularly after implementation of the Pakistan–Sri Lanka Free Trade Agreement (PSFTA) in 2005. The value of total trade between the two countries has increased from US $ 158 Million in 2005 to over US $ 508 Million in 2018. The balance of trade (BOT) has always been in favor of Pakistan and the trade gap has increased at a considerable rate over the years.
The main exports from Sri Lanka to Pakistan includes desiccated coconut, MDF boards, betel leaves, tea in bulk, textile articles, industrial and surgical gloves, crepe and sheet rubber, cartons, boxes and bags, copra, coconut oil, ekels, woven fabrics, animal feed etc.
Major import items from Pakistan to Sri Lanka include Portland cement, medicaments, potatoes, woven fabrics, pipes and tubes, bed table kitchen toilet linen, rice, denim fabric, fish etc.
This notable increase in bilateral trade is seen especially after implementing the Free Trade Agreement reflects the potentials that are available for both countries in further expanding the existing two way trade.
Bilateral investment between the two countries is at a very moderate level. Currently there are few projects undertaken by Pakistan investors in Sri Lanka covering areas including Chemicals, Rubber, Plastic, Apparel manufacturing , Leather products, Food and Beverages, etc. While there is an increasing interest among the business community of Pakistan and Sri Lanka to avail opportunities that are emerging in various sectors, need has arisen for the business community to work more closely to grab the opportunities.
News Areas of Cooperation
Pakistan industries in Steal, Pharmaceutical, Plastic, Sugar, Poultry etc. have expertise competitive advantages than the Sri Lankan industries in the same sectors. Sri Lankan industries can collaborate with these industry sectors and expand their exports to other regions through utilizing their market access preferences where Pakistan could not, especially through all the free trade agreement Sri Lanka has entered into.
Sri Lankan businessmen and industrialists should explore these industries and the possible market access advantages and expand their business with the collaboration of the Pakistan industries.
The complete text of Pakistan Sri Lanka Free Trade the Agreement(PSFTA) (signed on 1st August, 2002)
The agreement contains the Articles on objectives, definitions, elimination of tariffs, para-tariffs and non-tariff barriers, rules of origin, safeguard measures, settlement of disputes, amendments, annexes etc. Following the signing of the Agreement, the two countries, having conducted several rounds of bilateral negotiations, were able to finalize the annexes to the Agreement in December 2004 and in February 2005, the two governments exchanged Diplomatic Notes, confirming the finalization of the Annexes.
Annex A relates to the No-Concession List (Negative List) and the tariff preferences to be granted by the Government of Pakistan. These are embodied in four different Attachments.
Attachment I – Annex – ‘A’:
No Concession List of Pakistan (Negative List)
The Negative list of Pakistan consists of 540 HS tariff lines (products) at six digit level. Being on the Negative List, these products will not be entitled to enjoy any tariff concessions, when imported from Sri Lanka
Attachment II – Annex – ‘A’:
The Immediate Concession List contains a total of 206 HS tariff lines (products) at six digit level and Sri Lanka will receive 100% duty free access for these products in the Pakistan market, immediately.
Attachment III – Annex – ‘A’:
Tariff Rate Quotas (TRQ) are specific quantities of products, on which the importing country would agree to grant either duty-free access or preferential duty, when imported from the other contracting party to the Agreement. The products imported in excess of the agreed TRQ will be subject to the normal tariffs applied by the importing country for such products.
Attachment IV – Annex – ‘A’:
List of Products (Tariff Lines) for which Pakistan agreed to Granta Margin of Preference (MOP) on applied MFN rate
The products listed in the Attachment IV are entitled to receive a preferential duty margin of 20% on the applied MFN duty rate with no quantitative restrictions.
Annex B relates to the No-Concession List (Negative List) and the tariff preferences to be granted by the Government of Sri Lanka. Annex B is embodied in three different Attachments.
Attachment I– Annex – ‘B’:
No Concession List of Sri Lanka
Sri Lanka has granted Pakistan Tariff Rate Quota for 6,000 m/t of Basmati Rice and 1,000 m/t of Potatoes per each calendar year (January -December) on duty-free basis. However, import of potatoes is permitted only during Sri Lanka‘s off season. 2/3 to be imported during June –July and 1/3 during October –November each year.
Annex C deals with the rules of origin, which have to be complied with by the exporters of the two countries in order to qualify their products for preferential duty benefits. Based on the origin, the Rules of Origin categorize the products exported under the PSFTA into the following two main segments.
- Products wholly produced or obtained in the territory of the exporting country such as agricultural, fishery and mineral products.
- Products, not wholly produced or obtained in the territory of the exporting country (manufactured products).
All manufactured products falling under the category (b) above should contain a minimum of 35% of Domestic Value Addition of their FOB value in order to qualify for preferential treatments. Further, it is also necessary that all non-originating materials, used by the exporters change their HS codes at six-digit level against that of the final product as a result of the manufacturing process undertaken in the exporting country.
Cumulative Rules of Origin:
The Cumulative Rules of Origin encourages exporters to source their inputs from the other contracting country. However, the Domestic Value Addition in the territory of the exporting country shall not be less than 25% of the FOB value of the final product, while the aggregate value addition in both contracting parties should be minimum of 35% of the FOB value. In addition, the respective products should also conform to the Change of HS code requirement (at six digit level) as in the case of the manufactured goods, referred to under category (b) above.
Provision for Change of HS Codes at six-digit level, has made the Rules of Origin of the PSFTA more flexible, compared to most of the other Free Trade Agreements, which stipulate that Change of HS Code should take place at four digit level.
The Annex – D sets out the time-frame for Pakistan and Sri Lanka to phase out tariffs on products other than those in their No Concessions Lists (Negative Lists). It also indicates the percentage of tariff reductions undertaken by each country at the respective phasing out stages
Tariff Phasing out Schedule
List of Potential Importable & Exportable products from Sri Lanka on Duty Free Basis
- List of importable products
- List of Exportable products
Exportable & Importable Products List
For more details on trade opportunities in Sri Lanka and the assistance on Pakistan-Sri Lanka Free Trade Agreement, please contact Consulate General of DSR of Sri Lanka’s Commercial Division: firstname.lastname@example.org, 021-35854024