Monday 11 July 2011 Cinnamon Grand, Colombo, Sri Lanka
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Transcript of Monday 11 July 2011 Cinnamon Grand, Colombo, Sri Lanka
Monday 11 July 2011
Cinnamon Grand, Colombo, Sri Lanka
INDO SRI LANKA TRADE RELATIONS AND EFFECT OF ILFTA
Nihal de Silva, Senior Consultant, LMRB
Introduction One of the important landmarks in the relationship between Sri
Lanka and India has been the signing of the Indo-Sri Lanka
Free Trade Agreement on 28th December 1998 and its
implementation since 1st March 2000.
The dramatic increase in trade which followed the
implementation of the FTA has in recent years experienced a
downturn. The current study looks at the trend in trade between
the two countries, obtaining the view of importers and exporters
on the reasons for trade with India and problems faced, as well
as suggestions for improvement
Survey Objectives The purpose of the study was to find out to what extent the larger
country acted as a locomotive for the smaller neighbouring island economy or whether the larger economy has dominated the smaller one.
More specifically, it focused on organizations engaged in trade between India and Sri Lanka in respect of selected products having high growth potential, not included in the negative list for trade, to arrive at the degree and nature of various kinds of tariff concessions to Sri Lankan traders after ILFTA, and whether the outcomes have been positive or otherwise.
Research Design Desk Research
To obtain background information on the operation of the ILFTA
Quantitative Field Survey (face-to-face interviews using semi-structured questionnaire)
To obtain views of stakeholders
MethodologyTarget Group: Consisted of organizations engaged in trade between India and Sri
Lanka, in product categories not included in the negative list
Development of database The database of organizations was generated from a multitude of
sources, such as directories of The Export Development Board, The National Chamber of Commerce and The Ceylon Chamber of Commerce.
Exporters 20 Importers 40 Clearing agents 5 Business Associations 6
(The Ceylon Chamber of Commerce, The National Chamber of Exporters, Institute of Policy Studies, Department of Commerce, Sri Lanka Tea Board, Textile Quality Board)
Orientation and Briefing
A team of experienced English interviewers were briefed by LMRB Researchers on various aspects of the survey, including its purpose as well as details of the FTA. The questionnaire provided by RIS was used as the measuring instrument for the survey. Fieldwork was conducted between the period 1st November 2010 and 28th January 2011.
Face-to-face interviews
In each of the above organizations, the senior decision maker handling exports/imports, or in the case of Business Associations, a senior official, was interviewed face-to-face .
Creation of sample frame The criteria for selection of respondent companies, specified in the Client Brief, was
strictly followed by LMRB, who interviewed only those Sri Lankan companies which were engaged in trade with India, using the ILFTA route, on products which did not fall in the negative list of both countries.
Appointments Appointments were made with senior decision makers in the different companies. This
resulted in many difficulties as follows: Being very senior people in the industry, getting appointments to fit their busy schedule was near impossible In many cases interviews had to be re-scheduled due to the non- availability of the respondent
Fieldwork was carried out from October 2010 – January 2011
Counts %Total no. of telephone calls made 1186 100
Total no. of wrong numbers 182 15Total no. of no answers 106 9
Total no. requesting call backs(Actual no of call backs exceeding <500 telephone calls) 206 17Total no. NOT exp/imp to/from India 164 14Total no. exp/imp to/from India 528 45
Total no. NOT using FTA 204 39Total no. NOT sure whether using FTA or not 7 1
Total no. using FTA 317 60Total no. where particular item falls into negative list 136 43Refused face-to-face 35 11Appointments made 86 27Total no. of f2f interviews completed 60 19
Industries consideredExporters
Insulated wire and cables 1
Rubber 3
Vegetable oil -
Cloves -
Boilers & Machinery parts 1
Pulp -
Diamonds -
Pepper -
Copper -
Furniture 2
Jams/ cordials 1
Garments 4
Tea/ tea boxes 1
Pipes 2
CSDs 1
Graphite 1
Coconut products 1
Confectionaries 2
Importers
Petroleum 3
Vehicles parts/engines/tyres 9
Sugar -
Cotton -
Steal files/ locks/nuts & bolts/ grinding wheels
6
Pharmaceuticals 2
Paper -
Copper -
Oil cakes -
Garments 7
Refrigerators 1
Pipes 2
Air Conditioners 2
Machinery /spare parts for machinery 3
Fragrances 2
Chemicals 3
Vehicles 2
Desk Research Exploratory research was conducted using published material related
to the two countries. The desk research contributed to: Understanding the economic activity between the two countries Finding out details about the Indo Sri Lanka Free Trade Agreement
FINDINGS
Reasons for trading with India in general
Exporters Tariff concessions under ILFTA Close proximity Good market demand.
Importers Low price Benefits under FTA Close proximity.
Reasons for trading with India under ILFTA
Duty concessions under ILFTA were by far, the
reason for both exporters and importers to trade with
India under ILFTA.
Effect of ILFTA on bilateral trade
Two-thirds of both exporters and importers claimed
they had experienced additional growth after the
implementation of the ILFTA.
However only 15% of exporters and 20% of importers
felt it had made a high / very high contribution to
their company’s additional growth
Effect of ILFTA on bilateral trade
However according to trade statistics, while imports
continued to grow steeply up to 2008, they dipped
sharply in 2009, coming back strongly the following
year. In contrast, exports which had shown an
increasing trend up to 2005, began to decline, only
recovering somewhat in 2010.
Analysis of trade data from 2000 to 2010
Sri Lanka’s Trade with China
Sri Lanka’s trade with China – Value in US$ Mn.
YearSri Lanka’s
Total Exports
Sri Lanka’s Exports to
China
Sri Lanka’s Imports
from China2006 6,766 25 7802007 7,654 35 9212008 8.175 48 1,1702009 7,122 59 8812010 8,307 89 1,241
Source: Sri Lanka Customs Statistics
Reasons for decline in exports to India
An analysis of trade data after the implementation of ILFTA clearly
showed that until 2007 the products that had had the greatest impact
on exports, in many cases accounting for 50% of total exports to India,
were copper and vanaspathi.
Copper exports gradually increased from US$ 37 million to an all time
high of US$ 189 million in 2005, falling sharply thereafter to almost zero
in 2008/2009. This followed India’s removal of MFN (Most Favoured
Nation) tariff and its governments’ introduction of a new regulation
which specified that metal imports should conform to prices stipulated
by the London Metal Exchange (LME)
Vanaspathi exports which were almost non-existent in 2004, jumped to
US$ 189 million in 2005. They dipped somewhat in 2006 but recovered
to reach US$ 132 million in 2007. However, vanaspathi exports
collapsed in 2008 and is now zero.
Reasons for decline in exports to India cont.
India maintained high tariffs on imports of crude palm oil from countries
such as Malaysia, while Sri Lanka maintained relatively low tariffs on
imports of these products. Thus Indian manufacturers set up
vanaspathi manufacturing plants in Sri Lanka, imported crude palm oil,
processed it in Sri Lanka to form vanaspathi and exported it to India
free of duty under the FTA. ( Dr. Saman Kelegama, India-Sri Lanka
Bilateral Free Trade Agreement: Sri Lankan Perspective and
Implications, 2009)
Problems faced by exporters when using FTA route
As much as 65% of exporters claimed they faced
problems when trading with India.
.
Problems faced by importers when using FTA route
Significantly, 73% of importers (even higher than the
65% for exporters) claimed they faced problems
when trading with India under ILFTA
.
Business Association’s views on problems faced by traders
Delays in checking of quality certification / rules of
origin
Different Indian States have different tax rates
Indian Customs sometimes allocate wrong HS codes
Labelling issues
Quota restrictions
External barriers faced by traders while trading with India
65% of exporters and 82% of importers claimed that
they face external barriers in India whilst trading with
that country.
In the case of exporters the main problems were
admin delays related to NTBs (25%) and differences
in acceptance of rules of origin certification between
Indian and Sri Lankan authorities(20%), whilst for
importers it was delay in clearance (45%), handling of
goods at Indian ports (30%) and delay in issuing
certificates of origin (27%).
NTBs faced by traders
A much higher proportion of importers (72%) claimed
they face NTBs in Sri Lanka than exporters (41%)
who said they face NTBs in India.
For importers, packaging, labeling and marking, tariff
classifications, import licensing, and acceptance of
Indian testing methods came out as barriers.
In the case of exporters who faced NTBs, quota
restrictions, documentation requirements and non-
acceptance of SL testing methods by Indian
authorities, were mentioned as barriers.
Prospects for future investment
45% of exporters and 27% of importers were willing
to increase their investments to expand their
presence in the market.
[there was no provision in the questionnaire for
finding out the type & size of the planned investment]
Opinion about who benefited under ILFTA
The majority (65%) of exporters felt that ILFTA
benefited Indian businesses, while most importers
were either of the opinion that ILFTA benefitted Indian
businesses (42%) or the benefits were equally split
(40%) between both Indian and Sri Lankan
businesses.
Perception about simplification of documentation
Almost a third of exporters (among whom 35% said
they couldn’t say) and half of importers claimed that
there had been no reduction in paperwork at Sri
Lankan ports.
Average time taken for clearance
Time taken for import clearance at Sri Lankan ports
(3-4 days) appeared to be faster than for export
clearance at Indian ports (5 days)
Knowledge about rules and regulations
80% of exporters and 75% of importers were aware
of the rules and regulations pertaining to their
business.
But around one-third of exporters and over half of
importers claimed that there were sudden changes.
However, 33% of exporters and 29% of importers
said that these changes were made public instantly
In addition, 25% of exporters and 43% of importers
complained that they were harassed due to being
ignorant of these changes.
Knowledge about negative list
Access to the negative list was low, while so too was
awareness of inquiry points.
For every ten, 2 to 3 exporters and 4 to 5 importers
were aware of various inquiry points that catered to
trade related matters.
Of those who were aware, 8 out of 10 exporters and
7 out of 10 importers said they found these inquiry
points to be helpful and efficient.
Opinion on physical proximity, personnel & services
Exporters (%)
Importers (%)
Offices located far away 25 18
Adequate personnel 60 80
Services readily available 45 40
Harassment at Sri Lankan ports
Almost three-quarters of exporters said that there had
been instances where the Sri Lankan authorities had
insisted on them obtaining clearance, when none was
necessary.
Interestingly, only about a quarter of importers
expressed the same sentiment.
However, more importers were vocal about how
penalties had been levied for minor breaches and
that these were far too excessive.
Dependence on clearing agents
The majority of exporters (70%) and importers (85%)
used clearing agents whom they say have better
knowledge of procedures and links with customs
officers, which enable them to save time.
Suggestions for improvement When respondents were asked to give their
suggestions on how the FTA process could be made
more suitable for trading, 40% of exporters had no
suggestions. In contrast almost every importer had
some suggestion to improve the process.
Exporters suggested having an on-line
documentation process and more transparency of
procedures
Importers mainly wanted officials to be more efficient,
and to increase their awareness of ILFTA regulations
To sum up….
Overall the stakeholders seem to be seeking:
Systems that are technologically advanced but
simple to use
Officials who are knowledgeable, efficient, honest
and courteous
Thank You!