BILATERAL AGREEMENTS

The juridical framework for the relationship is provided by a Free Trade Agreement, a Double Taxation Avoidance Agreement, a Bilateral Investment Protection and Promotion Agreement. Bilateral agreements/MoUs on Air Services, Agriculture, Small Development Projects, Cooperation in Economic Projects, Cooperation Agreements in the sectors of Small Scale Industries, Tourism, Telecom and IT and an Agreement on Cooperation in Peaceful Uses of Nuclear Energy and on Cooperation in the field of Science and Technology also exist.

India-Sri Lanka Free Trade Agreement (ISFTA)

The main framework for bilateral trade has been provided by the India-Sri Lanka Free Trade Agreement (ISFTA) that was signed in 1998 and entered into force in March 2000. The ISFLTA took into account asymmetries between the two economies, local socio-economic sensitivities, necessity of safeguard measures to protect domestic interests, and revenue implications so as not to impact high revenue generating tariff lines in the short term. In a nutshell, India sought to do more without insisting on strict reciprocity from Sri Lanka. This is reflected in the respective obligations of the two countries under the ISLFTA where India agreed to open more tariff lines upfront and within a shorter time span of three years as against smaller and more staggered openings by Sri Lanka which was provided a longer time of eight years. 

As a result of ISLFTA, currently 4150 Indian tariff lines have been made zero duty for Sri Lankan exports to India. Similarly, 3932 tariff lines have been made zero duty for Indian exports to Sri Lanka. In addition to these steps, India has offered quotas to Sri Lanka on certain tariff lines (a) 15 million tonnes of Tea (5 tariff lines) with 50% margin of preference with no port entry restrictions since June 2007; (b) Textiles, where there is a 25% tariff reduction for 528 Textile items; and (c) Garments where the 50% margin of preference on 8 million pieces over 233 tariff lines. The Garments quota terms have been further liberalized through a MoU on October 5, 2007 by which the Government of India has issued a Custom Notification No. 52/2008 dated 22 April 2008 giving immediate effect to the MoU. As a result, India has reduced duty to zero and removed restrictions on entry ports and sourcing of fabrics from India for 3 million pieces of apparel products from Sri Lanka. India has also removed port restrictions on the balance 5 million pieces of apparel products. These 5 million pieces of garments will be allowed to enter India at zero duty or Margin of Preference of 75% depending on the product category provided that they are manufactured using Indian made fabrics. 

As of now, 1180 tariff lines remain in the Sri Lankan negative list that includes Agriculture/livestock items, rubber products, paper products, Iron and Steel, machinery, and electrical items. On the Indian side, there are 429 items in the negative list, which include garments, plastic products and rubber products etc. For further details on ISLFTA please click on the below link.

ISFTA Rules of Origin

In order to receive ISFTA benefits, the merchandise exported between India and Sri Lanka should comply with the following Rules of Origin criteria.

Wholly Obtained Products

All wholly obtained products such as tea, fish, spices etc. will be able to enjoy duty free benefits at each other's markets without difficulty, provided they are eligible for duty concessions.

Products not Wholly Produced or Obtained

These include the products manufactured using imported raw materials. In order to enjoy ISFTA benefits, the products should comply with the following criteria.

• The Domestic Value Addition (DVA) in the exporting country should not be less than 35% of the FOB value of the finished product and
• HS Codes of the imported raw materials and the finished products should be different at 4-digit level. (Change of Tariff Heading criteria)

Cumulative Rules of Origin

The Cumulative Rules of Origin encourage the contracting states (India and Sri Lanka) to source raw materials needed for their exports from each other. Accordingly, an exporter has to show only a minimum DVA of 25% of the FOB value of the finished product, provided the raw materials imported from the other contracting state accounts for not less than 10% of the FOB value of the particular product. (In other words, the aggregate value addition should not be less than 35% of the FOB value of the finished product, while the DVA in the exporting country should be minimum 25% of the FOB value)
Under SAFTA, the Rules of Origin and Cumulative Rules of Origin are slightly different and the SAFTA agreement text must be consulted before making use of this provision.

Under SAFTA, the Rules of Origin and Cumulative Rules of Origin are slightly different and the SAFTA agreement text must be consulted before making use of this provision.

Operational Certification Procedures (OCP)

Both ISLFTA and SAFTA specify Operational Certification Procedure for obtaining Certificates of Origin (COO) to make products eligible for concessions in the country of export under the relevant agreements. These must be carefully consulted and followed to avoid disappointment. The validity of the COO under SAFTA is 12 months and can be issued within 3 working days of the shipment of the product. The ISLFTA is silent in this regard and it is advisable to obtain COO before the consignment is shipped to avail benefits under the ISLFTA.

Designated authority for the issue of certificates of origin

In Sri Lanka

• Director General of Commerce,
• Department of Commerce,
• 4^th Floor, Rakshana Mandiraya,
• 21, Vauxhall Street,
• Colombo-02.
• Tel: 94-11-2329733
• Fax: 94-11-2430233
• E-mail: fortrade@doc.gov.lk

In India

• Export Inspection Council of India
• (Department of Commerce)
• (Ministry of Commerce & Industry, Government of India)
• 3rd Floor, NDYMCA Cultural Centre Building,
• 1, Jaisingh Road,
• New Delhi-110001.
• Tel: +91-11-23341263/ 23748189/ 23365540
• Fax: +91-11-23748024
• E-mail: eic@eicindia.gov.in
• Website: www.eicindia.gov.in  

For more information on ISFTA please visit:

Department of Commerce, Govt. of Sri Lanka - http://www.doc.gov.lk/ 

Department of Commerce, Govt. of India - http://commerce.nic.in/trade/international_ta_indsl.asp

High Commission of India, Colombo - hcicolombo.gov.in

South Asian Free Trade Area (SAFTA) 

The Agreement on South Asian Free Trade Area (SAFTA) came into force from 1st January, 2006. India, Pakistan and Sri Lanka are categorized as Non-Least Developed Contracting States (NLDCS) and Bangladesh, Bhutan, Maldives, Afghanistan and Nepal are categorized as Least Developed Contracting States (LDCS). With SAFTA in force the concessions under SAPTA signed in 1995 ceased in respect of Sri Lanka and India as they are classified as NLDCSs. 

Article 7 of the SAFTA Agreement provides for a phased tariff liberalization program (TLP) under which, in two years, NLDC would bring down tariffs to 20%, while LDCS will bring them down to 30%. Non-LDCS will then bring down tariffs from 20% to 0-5% in 5 years (Sri Lanka 6 years), while LDCS will do so in 8 years. NLDCs will reduce their tariffs for L.D.C. products to 0-5% in 3 years. This TLP would cover all tariff lines except those kept in the sensitive list (negative list) by the member states.

The salient features of the four Annexes of SAFTA Agreement are as under:

• (i) Rules of Origin 
• For giving preferential access to the Member Countries under SAFTA, the goods shall have undergone substantial manufacturing process in the exporting countries. The substantial manufacturing processes are defined in terms of twin criteria of Change of Tariff Heading (CTH) at four-digit Harmonized Coding System (HS) and value content of 40% (30% for LDCSs).
• Apart from the general rules, SAFTA provides for Products-Specific Rules (PSR) for 191 tariff lines to accommodate the interest of LDCSs given their limited base for natural resources and undiversified industrial structure. The Products Specific Rules have been provided clearly on technical grounds i.e. where both inputs and outputs are at the same four-digit HS level.

• Sensitive List or Negative List
• The summary of the Sensitive Lists are as under:

	Participating countries	No. of Tariff Lines for LDCS	No. of Tariff Lines for NLDCS	Consolidated List
1	Bangladesh	1233	1241	--
2	Bhutan	--	--	150
3	India	480	868	--
4	Maldives	--	--	681
5	Nepal	1257	1295	--
6	Pakistan	--	--	1169
7	Sri Lanka	--	--	1042
8	Afghanistan	--	--	1072

• As can be seen above, Bangladesh has 1,233 products on the sensitive list for the Least Developing countries and 1,241 for the non-Least developing countries under the SAFTA. India has 480 items on the sensitive list for the LDCs and 868 for the non-LDCs. Bhutan has 150 items for both the LDCs and non-LDCs and has no plan of shortening its list. Nepal has 1,257 for the LDCs and 1,295 for the non-LDCs. The Maldives has 681 for all seven SAFTA nations. Pakistan had 1,169 in its sensitive list and Sri Lanka has 1,042 and Afghanistan has 1,072 items on the negative list.

Comprehensive Economic Partnership Agreement (CEPA)

Following the FTA, the two Governments emboldened by the positive outcomes and success of the FTA, felt that more action was required to unleash the full potential of our bilateral economic relations. Accordingly, during the visit of Prime Minister of Sri Lanka to India in June 2002, the two governments decided to set up a Joint Study Group to explore possibilities of starting negotiations for a CEPA, modeled on the India-Singapore CECA. Based on the report of the JSG in October 2003, the two countries began negotiations on a CEPA in early 2005. Even though CEPA negotiations were completed, the agreement was not signed.

The Economic and Technology Co-operation Agreement (ETCA)

To further broaden the scope of FTA and to strengthen the economic, trade, investment and technology cooperation between India and Sri Lanka, ETCA was proposed and negotiations are under way. Economic and technology Co-operation Agreement (ETCA) cover both goods and services. Eleven rounds of negotiations have been completed so far.

BILATERAL TRADE

Bilateral Trade Figures (US$ Million)

Year	Imports from India	Exports to India	Total Trade	Trade Deficit for Sri Lanka	EXIM Ratio SL Imports : SL Exports
All figures in US$ Million, (FTA implemented in March 2000)
1999	512	49	561	-463	10.4:1
2000	600	58	658	-542	10.3:1
2001	602	72	674	-530	8.4:1
2002	835	171	1006	-664	4.9:1
2003	1076	241	1317	-835	4.5:1
2004	1358	385	1743	-973	3.5:1
2005	1439	560	1999	-879	2.6:1
2006	1800	489	2289	-1311	3.7:1
2007	2782	516	3298	-2266	5.4:1
2008	2845	419	3264	-2426	6.8:1
2009	1694	325	2019	-1369	5.2:1
2010	2548	474	3022	-2074	5.4:1
2011	4351	525	4876	-3826	8.3:1
2012	3534	571	4105	-2963	6.2:1
2013	3186	544	3730	-2642	5.9:1
2014	3977	625	4602	-3352	6.4:1
2015	4061	645	4706	-3416	6.3:1
2016	3827	551	4378	-3276	6.2:1
2017	4543	690	5233	-3853	6.6:1
2018	4168	767	4935	-3401	5.4:1
2019	3829	759	4588	-3070	5.0:1

 

Percentage of Total Sri Lanka Trade with India

Year	Exports (%)	Imports (%)
2002	3.57	13.81
2003	4.79	16.49
2004	6.84	17.25
2005	9.09	17.31
2006	7.24	18.46
2007	6.82	24.43
2008	5.12	20.81
2009	4.56	17.97
2010	5.63	20.62
2011	5.16	22.08
2012	6.21	19.77
2013	5.44	17.77
2014	5.64	20.62
2015	21.37	6.31
2016	19.61	5.39
2017	21.08	5.96
2018	18.85	6.59
2019	19.66	6.45

 

Top ten Articles exported from India to Sri Lanka – 2018

Serial No	HSCODE	Description	Share %	USD
1	87112010	Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof	17.81	242.73
2	27101942	Lubricating Oil	14.59	198.85
3	30049090	Pharmaceutical products	13.04	177.67
4	27101940	Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes	12.08	164.65
5	27101920	Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes	9.60	130.83
6	25232930	Salt; sulphur; earths and stone; plastering materials, lime and cement	9.49	129.38
7	17019910	Sugar & sugar confectionery	6.77	92.25
8	72071110	Iron and Steel	6.31	85.93
9	07031020	Edible vegetables and certain roots and tubers	5.28	71.92
10	09042110	Coffee, tea, mate and spices	5.03	68.51
		Total		1,362.72

 

Top 10 Items exported from Sri Lanka to India - Year 2018

Serial No.	HS CODE	Description	Share %	USD (Mn)
1	23099030	Residues and waste from the food industries, prepared animal fodder.	26.39	77.93
2	27101960	Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes	22.46	66.32
3	854430	Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles	8.68	25.64
4	9041190	Coffee, tea, mate and spices	8.65	25.55
5	470790	Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap ) paper or paperboard	7.59	22.42
6	740811	Copper and articles thereof	6.52	19.24
7	8028090	Edible fruits and nuts; peel of citrus fruit or melons	5.93	17.52
8	621210	Articles of Apparel and clothing accessories, not knitted or crocheted	4.87	14.39
9	87120090	Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof	4.64	13.72
10	600622	Knitted or crocheted fabrics	4.26	12.57
		Total		295.30

Source: Sri Lanka Customs

INVESTMENTS

India is among the top investors in Sri Lanka with cumulative investments of over USD 1.2 billion since 2003. According to the figures of BOI (Board of Investment), for the year 2019 Indian investment amounted to USD 139.015 million.

The investments are in the areas of Petroleum, Retail, IT, Financial Services, Real Estate, Telecommunication, Hospitality & Tourism, Banking and Food Processing (tea & fruit juices), Metal industries, Tyre, Cement, Glass manufacturing, Infrastructure development (railway, power, water supply) etc.

FDI from India (2007-2019)

    

Year	FDI (US$ Mn.)
2007	42.88
2008	125.925
2009	77.714
2010	110.238
2011	146.798
2012	160.17
2013	50.524
2014	51.839
2015	67.838
2016	112.127
2017	173.84
2018	340.839
2019	139.015
Total	1644.655

CONCESSIONAL FINANCING PROJECTS IN SRI LANKA

India has provided concessional financing of over 1.8 billion dollars to Sri Lanka through Line of Credit (LoC) Projects funded by EXIM Bank of India. Out of this over USD 1.2 billion has been committed to the railway sector in Sri Lanka.

Line of credit of USD 150 million

A LoC of US$ 150 million for export of petroleum products from India to Sri Lanka was given in 2004. LoC has been fully disbursed and fully repaid by GoSL by 2012.

Line of Credit of USD 167.40 million for up gradation of Coastal Railway Track

The up gradation of tsunami-affected Southern Railway line was undertaken under this Line of Credit. The up gradation of the 118 km Coastal Railway track from Kalutara to Matara was undertaken under 2 LoCs:

LoC amounting to USD 100 million signed in July 2008 and

LoC amounting to USD 67.40 million signed in March 2010. Projects under these LoCs included track laying on the Kalutara-Galle and Galle-Matara sector by IRCON; supply of locomotives, supply of 20 Diesel Multiple Units train sets; training of nearly 600 personnel of the Sri Lanka Railways, and setting up of a maintenance facility by RITES.

The project was completed in April 2012, four months before schedule.

Line of Credit of USD 416.39 million for up gradation of Northern Railways

This LOC was sanctioned in 2009 and projects commissioned under it have been completed. Projects covered include:

Track laying from Omanthai to Pallai at a cost of USD 185.35 million

Track laying from Madhu Church Tallaimannar sector at a cost of USD 149.74 million has been undertaken except construction of Tallaimannar Pier. The project was inaugurated by Prime Minister on 14 March 2015 during his visit to Sri Lanka.

Track laying on Medawachchiya -Madhu Railway line at a cost of USD 81.30 million

Line of Credit of USD 382.37 million for up gradation of Northern Railway

This Line of credit was sanctioned in 2010. Following projects have been undertaken under this Line of credit

Track laying on the Pallai- Kankesanthurai sector at a cost of USD 149.34 million

Setting up of signaling and telecommunications systems for the Northern Railway line by IRCON at a cost of US$ 86.52 million

Procurement of rolling stock such as Diesel Multiple Units, locomotives, Container Carrier Wagons, Fuel tanks is underway. Bus Engines Kits have also been procured by government of Sri Lanka under this Line of credit.

Line of Credit of USD 318 million for Sri Lankan railways

LoC Agreement was signed on 6 June 2017 for undertaking railway projects in Sri Lanka. Several projects have been identified under the LoC such as procurement of, passenger coaches, and other rolling stock by Sri Lanka railways; up gradation of tracks and signaling; and expansion of the Rathmalana Workshop etc., all of which are moving forward.

Line of credit for USD 45.27 million for rehabilitation of Kankesanthurai Harbour (KKS)

Line of Credit Agreement was signed on 10 January 2018. Four out of the six phases of the rehabilitation of KKS port have already been completed under India’s grant assistance. The current LoC is for the remaining two phases involving works relating to installation of port infrastructure facilities etc. After completion of this project, KKS Harbour could be fully used as a commercial port, facilitating movement of cargo between Southern India and Sri Lanka.

Line of Credit of USD 100 million for Solar Projects in Sri Lanka

A line of credit for USD 100 million was announced for Sri Lanka during visit of President of Sri Lanka to New Delhi in March 2018 for the Founding Conference of the International Solar Alliance. The LoC Agreement is yet to be signed.

Sri Lanka signed International Solar Alliance Agreement on 31 January 2018. Ratification was done in February 2018.

GRANT PROJECTS

Expansion of the 1990 Emergency Ambulance Service island-wide under

Grant of USD 15.02 million

Emergency Ambulance Service is the largest Indian grant project in Sri Lanka after the Indian Housing Project. The project also showcases smart use of Indian technology, innovation, best practices and skill set for saving lives. This project which has an island-wide impact epitomizes India’s people-oriented development partnership with Sri Lanka.

The Emergency Ambulance Service was launched in July 2016 in Western and Southern Provinces of Sri Lanka under an Indian grant of USD 7.56 million. The grant covered provision of 88 ambulances, setting up of a temporary emergency response center and operations for one year.

Considering the success of the service, Government of Sri Lanka requested to expand the service nationwide. Consequently, the expansion of Emergency Ambulance Service nation-wide in Sri Lanka was announced by Prime Minister of India during his landmark visit to Sri Lanka in May 2017. An agreement to operationalize the service nationwide under an Indian grant assistance of USD 15.02 million was signed on 3 January 2018. The grant covers procurement of 209 ambulances, training costs, as well as operational costs for one year after launch of services.

The implementation is currently underway. The island-wide expansion was started with the launch of the Ambulance Service in Jaffna in Northern Province of Sri Lanka. Prime Minister of India joined Prime Minister of Sri Lanka through a live video conference from New Delhi for the launch of the service in Jaffna in July 2018.The service has been available in Northern Province since July 2018; in Uva since August; in North Central Province since September; in North Western Province since October; Central Province since November 2018; in Sabaragamuwa Province since January 2019. The ambulance service is expected to be rolled out in the Eastern Province soon, which will complete the island-wide roll out.

BUYER’S CREDIT PROJECTS

Access to clean and safe water is essential for people to live a happy and healthy life. Clean water and sanitation is also an important Sustainable Development Goal and priority for all governments across the world. Partnering with Sri Lanka in this endeavor is India, by funding and executing various Water Projects across Sri Lanka through EXIM Bank of India.

Major Projects completed and under execution include

Greater Dambulla Water Supply Project (Value of Buyer’s Credit: US$ 60.69 million): completed by an Indian company M/s V A Tech Wabag Limited.

Aluthgama, Muthugama Water supply project (US$ 164.9 million): being implemented by M/s Ion Exchange Ltd. The Buyer’s Credit Agreement has become effective from October 2016.

Polgahawela, Pothuhera Water Supply Project (US$ 91.8 million): being implemented by M/s V A Tech Wabag Limited. The Buyer’s Credit Agreement has become effective from October 2016.

OTHER ECONOMIC ENGAGEMENTS

MoU for Cooperation in Economic Projects

A MoU for cooperation in economic projects was signed between India & Sri Lanka on 26 April 2017 during the visit of Prime Minister of Sri Lanka Ranil Wickremesinghe to India. The MoU identifies specific projects; and provides an overall framework for further strengthening bilateral development partnership. We are working closely with Sri Lankan authorities for early implementation of projects.

MOU on Ferry Service

A Memorandum of Understanding (MoU) was signed on 7th January 2011 between India and Sri Lanka on Passenger Transportation by Sea. The MoU envisages putting in place ferry services between Colombo and Tuticorin and Talaimannar and Rameswaram. The ferry service between Colombo and Tuticorin started operations on 13th June 2011 but was discontinued by the operator in November 2011, because of unviable nature of their operation. Resumption of these services signals an important step in the restoration of the traditional links between the two countries.

MOU on Agriculture

A Memorandum of Understanding (MoU) between the Government of the Republic of India and the Government of the Democratic Socialist Republic of Sri Lanka on Cooperation in the field of Agriculture Cooperation was signed on 17 January, 2012 by High Commissioner and Mr. W. Sakalasooriya, Secretary, Ministry of Agriculture during the visit of EAM to Sri Lanka. Under the MOU, both sides shall promote development of cooperation in the agreed fields to be effected through biennial Work Plans and joint activities in areas like agricultural crops, agricultural extension, horticulture, agricultural machinery, post-harvest technology, plant quarantine measures, credit and cooperation. The Work Plan for 2015-16 was signed during the visit of President Maithripala Sirisena to India in February 2015.

MOU on Telecommunications

A MoU was signed on 17^th January 2012 by Dr. J.S. Sarma, Chairman, Telecom Regulatory Authority of India (TRAI) and Mr. Anusha Palpita, Director General, Telecommunication Regulatory Commission of Sri Lanka (TRCSL). The MoU provides for establishing a mechanism of technical and institutional cooperation in the field of telecommunications, with the purpose of development of telecommunications in both the countries.

Cooperation in IT

The visit of Minister of Law & Justice and Electronics & IT Ravi Shankar Prasad in January 2018 saw significant outcomes in the IT sector including signing of an MoU on cooperation in Electronics & IT covering e-Governance, m- Governance, e-Public Services Delivery including e-learning, telemedicine, cyber security etc. Sri Lanka joined the National Knowledge Network (NKN), being the first SAARC country to do so, through which the Sri Lankan Universities has now digital access to around 1600 universities in India & beyond. A pilot program on E-Office, developed by NIC was also launched, wherein an eGov documentation was digitally signed for the first time in Sri Lankan public sector.

Palaly Airport

Under the MoU concluded in November 2005 with Sri Lanka, Government of India extended grant assistance for the rehabilitation of runway and basic infrastructure at the Palaly Airfield. In January 2016, a technical team from Airports Authority of India (AAI) visited Sri Lanka, at Sri Lanka’s request for operationalization of regional commercial passenger flights from Palaly. AAI submitted a pre-feasibility study for development of Palaly airport in August 2016. Both India and Sri Lanka stand committed to commencement of air connectivity between Palaly and India, as it is in their mutual interest.

Launch of South Asia Satellite (SAS)

South Asia satellite was launched on 5 May 2017. Sri Lanka was the first country that agreed to be part of SAS. Following the launch of South Asia Satellite, Prime Minister of India had a video conference with the leaders of participating countries including President of Sri Lanka. SAS will be used by the participating countries free of charge for the communications and broadcasting applications such as Direct-to-Home television, VSAT terminals, tele-education, tele-medicine and disaster management support.

Civil Nuclear Cooperation

During the visit of President Maithripala Sirisena to India in February 2015, a bilateral agreement on Civil Nuclear Cooperation was concluded. The MoU entered into force in June 2015. The Agreement provides for establishment of a Joint Committee to identify the specific areas of cooperation between India and Sri Lanka. The areas of mutual interest include applied nuclear research, production and use of radioactive isotopes in industry, healthcare, agriculture, water management, etc. Joint Committee has been constituted on both sides. The first round of JWG was held in Mumbai in November 2016.

Science and Technology Cooperation

The India-Sri Lanka Joint Committee on Science & Technology has held three meetings. The last meeting of the Committee was held in New Delhi in August 2016.   During the meeting, both sides renewed the programme of Cooperation. Nine projects have been identified for joint research by the Committee.

Training Programmes

India provides training opportunities to over 400 officials in Sri Lanka annually for skill development and capacity enhancement under the Indian Technical and economic Cooperation Programme (ITEC). These training programmes are fully funded by Government of India and cover a wide variety of subject matter ranging from IT to Rural Development, Government Procedures to Entrepreneurship, and Banking to Engineering.

For more information kindly check the following link https://www.itecgoi.in/index.php