Indo – Sri Lanka free trade agreement: a critical appraisal of influence on trade between two countries

The Indo – Sri Lanka Free Trade Agreement (ISFTA) was a significant milestone in the trade relations between India and Sri Lanka, the objective of which was to boost the economies of the two countries through bilateral tariff concessions. Completing 13 years in operation since its implementation in 2000, several studies that have been made regarding the ISFTA have brought evidence to suggest that the Agreement has brought mixed results in terms of trade expansion between the two countries. However, the majority of these studies have been based on analyses of overall trade data which do not distinguish between trade patterns of goods receiving ISFTA concessions from those that do not.

 

This paper is an attempt to assess the effectiveness of the ISFTA by evaluating the trends of imports and exports of items receiving concessions under the ISFTA with those do not, for the pre and post Agreement periods and to compare those patterns with Sri Lanka’s trade with countries other than India.

 

The findings of the study suggest that the ISFTA has not been effective in significantly promoting trade between the two countries. Also, it is evidenced that Sri Lanka has not been able to secure benefits as expected from the ISFTA. The outcomes of the study therefore suggest that the drawbacks of the present Free Trade Agreement be resolved prior to considering further deepening of the bilateral liberalisation of trade between India and Sri Lanka. The study also produces lessons which are potentially useful in negotiating free trade agreements with other countries.