LAHORE

Trade between Pakistan and Sri Lanka has shown lacklustre growth despite the FTA, as Pakistan's exports to Lanka grew from $154 million in 2004 to $316 million in 2013, but Pakistan could only claim 1.7 per cent of total Sri Lankan imports from the world in 2013. Sri Lanka's exports to Pakistan grew from $46 million to $63 million between 2004 and 2013, and Sri Lanka claimed only 0.14 per cent of total Pakistani imports from the world in 2013.

Both countries claim significant market shares in precious few exports to the other. Trade has continued in roughly the same mix of products that existed prior to the FTA and most tariff lines continue to report zero trade. This is in stark contrast to Sri Lanka's trade relations with countries such as India and China, wherein significant and fast-paced growth has occurred.

This was stated in a report compiled by the Pakistan Business Council, which suggests that fledgling Pakistan-Sri Lanka trade relations cannot be blamed on a paucity of opportunities or lack of potential for trade. Both countries produce goods that have healthy markets in the partner country.

Pakistan and Sri Lanka signed a Free Trade Agreement in July 2002 and it became operational in June 2005. The terms of the FTA were comprehensive and granted 100pc immediate concession to major Pakistani exports such as cotton and cement and major Sri Lankan exports such as rubber and coconut products. By 2010 both countries were required to have removed tariffs on all items barring those listed in their respective no-concession lists or those facing Tariff Rate Quotas (TRQ).

Top Pakistani exports to Sri Lanka include cotton products, cement, refined sugar and potatoes. Top Sri Lankan exports to Pakistan include vegetable products, rubber, fibreboard and coconut products.

The FTA is comprehensive and offers full concession on a variety of important exports. Sri Lanka is currently in a period of reconstruction following the conclusion of long-lasting political conflict and is growing its status as a prime tourist destination. Moreover, Pakistan and Sri Lanka have strong political ties and the goodwill between them is part of what led Pakistan to sign its first free trade agreement with Sri Lanka. According to study, the major impediment to healthier trade relations between Pakistan and Sri Lanka seems to be disengagement between the countries' businessmen as well as their policy makers. This could be due to misconceptions regarding Sri Lanka's potential as a market for Pakistani goods and the resulting lack of interest in trade with the country. This suggests that trade potential remains unrealised largely because neither country views the other as a priority market despite an abundance of opportunities. This is evinced by the lack of regular trade delegations and single country exhibitions, which leads to weak ties between the business communities of the two countries, thereby making it difficult to jump-start trade within neglected high potential items. While there are specific items which can be put forward to be considered for further concessions, by and large the FTA terms themselves are comprehensive and do not seem to be in need of any serious amendments.

Trade delegations and single country exhibitions must be held regularly in order to lay the groundwork for stronger ties between the two countries' business communities, as well as to raise awareness regarding the significant potential that lies in Pak-Sri Lanka trade. One of the major complaints voiced by Pakistani exporters to Sri Lanka is that a lack of interaction with their Sri Lankan counterparts impedes the identification of further opportunities for business in either country and prevents existing partnerships from being deepened. The granting of arrival visas by both sides would be a significant step towards facilitating the kind of interaction required to boost trade.

Any changes in tariffs, para-tariffs or no-concession lists that conflict with the terms of the FTA must be discussed by both countries before being brought into effect. There are instances of unilateral changes made by both Pakistan and Sri Lanka that have undermined the spirit of the FTA and consequently seriously disrupted business dealings between the two countries within products such as broom corn and steel pipes. Problematic changes such as these will likely become less common as trade between Pakistan and Sri Lanka becomes more significant.  Industrialists and exporters should have greater involvement in the drafting of future FTAs and the review of this existing FTA. A commonly voiced complaint was that an FTA can only be maximally advantageous if it takes into account the variegated and interwoven issues and concerns of different sectors affected by the FTA. In other words, an item-by item discussion involving stakeholder is thought to be necessary.

Forums must be set up for the efficient arbitration of trade disputes. Disputes arise with regularity and end up unaddressed due to the lack of efficient mechanisms for their resolution. This has acted as an additional disincentive to trade between Pakistan and Sri Lanka, as the danger of a delayed resolution or no resolution has resulted in more frequent cases of fraud. The decade following the signing of the Pakistan-Sri Lanka Free Trade Agreement has witnessed low growth in trade between the two countries. This is particularly troubling because in addition to having strong political ties and comprehensive FTA terms to capitalise on, both countries also seem to possess markets for the other's major export goods.