35
Monday 11 July 2011 Cinnamon Grand, Colombo, Sri Lanka INDO SRI LANKA TRADE RELATIONS AND EFFECT OF ILFTA Nihal de Silva, Senior Consultant, LMRB

Monday 11 July 2011 Cinnamon Grand, Colombo, Sri Lanka

  • Upload
    orrin

  • View
    73

  • Download
    2

Embed Size (px)

DESCRIPTION

INDO SRI LANKA TRADE RELATIONS AND EFFECT OF ILFTA Nihal de Silva, Senior Consultant, LMRB. Monday 11 July 2011 Cinnamon Grand, Colombo, Sri Lanka. Introduction. - PowerPoint PPT Presentation

Citation preview

Page 1: 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

Page 2: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

Page 3: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 4: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

Page 5: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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)

Page 6: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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 .

Page 7: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

Page 8: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

Page 9: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

Page 10: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

FINDINGS

Page 11: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 12: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 13: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

Page 14: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 15: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

Analysis of trade data from 2000 to 2010

Page 16: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

Page 17: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 18: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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)

Page 19: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

Problems faced by exporters when using FTA route

As much as 65% of exporters claimed they faced

problems when trading with India.

.

Page 20: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

.

Page 21: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

Page 22: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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%).

Page 23: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 24: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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]

Page 25: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 26: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 27: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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)

Page 28: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 29: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 30: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

Opinion on physical proximity, personnel & services

Exporters (%)

Importers (%)

Offices located far away 25 18

Adequate personnel 60 80

Services readily available 45 40

Page 31: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 32: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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.

Page 33: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

Page 34: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

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

Page 35: Monday  11 July 2011 Cinnamon Grand, Colombo,  Sri Lanka

Thank You!