India-Sri Lanka Free Trade Pact

The India-Sri Lanka Free Trade Agreement (ISFTA) was signed during the India visit of Sri Lanka’s president, Chandrika Kumaratunge, in December 1998. The agreement aimed to create a free-trade area between India and Sri Lanka by removing trade barriers. The complete removal of tariffs on trade could not take place immediately after the implementation of the agreement. Both countries agreed to remove tariffs within a time-frame. India agreed to remove tariffs within three years after the implementation of the agreement. On the other side, Sri Lanka has eight years to allow tariff-free access to Indian commodities in its market. But the agreement did not cover all tradable commodities for tariff reduction: certain product lines were marked out to protect internal production safeguarding domestic markets. The commodities exempted were included in negative lists, and both countries identified commodities for the negative list.

The ISFTA would result in significant improvement in bilateral trade between India and Sri Lanka. The agreement would allow each country preferential access to the other’s market and this would be of advantage to exporters of the partner countries. At the same time, there is opposition to the agreements in the partner countries for various economic and non-economic reasons. Obviously, the free trade agreement would have varying effects across regions and sectors in both countries. In India, the southern region, and plantation crops, would be the worst affected. Most of the opposition would be from southern states, especially Kerala.