By Sayuni Masakorala
Sri Lanka is considered a hub for trade and economic activities due to its strategic geographical location in the Indian Ocean, which is well poised at the centre of trade and naval routes. Coined the ‘Pearl of the Indian Ocean’ and the ‘Granary of the East’, Sri Lanka was well recognized within the trade climate of colonizers such as the Portuguese, Dutch and the British for its multitude of resources and sublime landscape.
Despite Sri Lanka’s pivotal role in trade since the past, the country’s economy has been severely affected due to socio-political volatilities. Sri Lanka’s economy is currently facing a severe economic downturn. In April 2022, the country announced its intentions to default on foreign debt settlements in the face of dwindling foreign reserves and acute shortages of imported essentials. The shortages, amidst galloping cost of living pressures, generated widespread public and social unrest in the country.
Sri Lanka’s road to recovery from this economic crisis largely depends on policy-making efforts on fiscal management, foreign investments and trade. In such a context, Sri Lanka – Thailand Foreign Trade Agreement (FTA) presents itself as a viable economic venture to re-vitalize the ailing Sri Lankan economy.
Sri Lanka – Thailand Bilateral Relations
The relationship between Sri Lanka and Thailand flourished through Buddhism over 800 years ago when Theravada Buddhism came to Thailand from Sri Lanka. During Colonial rule in Sri Lanka, Buddhism was suppressed and it was Thailand, through King Borommakot in the Ayutthaya Era, that helped restore higher ordination in then Ceylon by sending a mission of high-ranking monks led by Upali Thero in 1753.
However, Sri Lanka and Thailand share many similarities not only in the shared Buddhist heritage which reflect robust cultural ties but, also on the front of trade, Foreign Direct Investments (FDIs) and tourism. Both countries are also members of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) since 1997, owing to which there is a close affinity between the two countries in trade and economic activities.
Bilateral relations have been strong between the two countries, which have been confirmed by several agreements and memoranda of understanding, strengthened by reciprocal visits by both Heads of State. The 60th anniversary of formal diplomatic ties between Sri Lanka and Thailand was commemorated in 2015. In 2016, negotiations were in talks for an FTA between the two countries which were to be concluded by 2020. However, owing to the pandemic, the negotiation process was halted.
Third Round of FTA Negotiations in 2023
Sri Lanka and Thailand first began considering an FTA in 2016, when Somkid Jatusripitak, the former Deputy Prime Minister of Thailand, officially visited Sri Lanka. Under the negotiations framework, the third round of negotiations was initially supposed to take place in 2018. However, the discussions were halted due to the pandemic and the restructuring of Sri Lanka’s negotiations-related agencies.
The third round of negotiations on the FTA was held during 9-10 January 2023, which lead to the agreement on a timeframe to conclude all negotiations and implement the FTA by the beginning of 2024. The negotiations held focused on seven key areas; trade in goods, trade in services, investments, rules of origin, custom cooperation, trade facilitation, and economic cooperation.
Thailand as a Major Trading Partner
Thailand (South – East Asia) is an upper middle-income country with a Gross Domestic Product (GDP) of USD 505.95 billion; while Sri Lanka (South – Asia) is a lower middle-income country with a GDP of USD 88.93 billion (World Bank, 2021).
Sri Lanka is Thailand’s fourth-largest trade partner in South Asia, behind India, Bangladesh and Pakistan. Thailand is the 37th export destination for Sri Lanka. The total export value from Sri Lanka to Thailand was USD 51.55 million in 2021 and total imports from Thailand to Sri Lanka for the same period were USD 397.97 million according to Sri Lanka Export Development Board (SL EDB, 2022). Sri Lanka’s exports to Thailand have increased by 36.45% in 2021 compared to the year 2020.
Sri Lanka’s main exports to Thailand include gems, jewellery, tea, spices, fibre and metal products. Thailand, meanwhile, exports used cars, sugar, textiles, dry fish, cement, chemical products and car and automotive parts to Sri Lanka. Sri Lanka’s main export to Thailand in 2021 was gems (Sri Lankan Customs). Thailand on the other hand is well placed to polish and cut gemstones from Sri Lanka, as well as market them. This division of labour helps to reduce direct competition in the global market for both countries. Thus, comparative advantage is a catalyst spearheading trade relations between the two countries.
On the investment side, Sri Lanka is home to many Thai companies and brands such as Anantara, Avani, Amari and Centara in the hospitality and tourism sector. The expansion of Siam Cement Group to Sri Lanka (INSEE Cement) to accommodate the construction and real estate development in Sri Lanka is yet another milestone which reflects the importance of Thailand as a major trading partner to Sri Lanka.
Prospective Outcomes; Change in the Trajectory of Trade and Investment in Sri Lanka
The FTA offers prospective economic benefits to both Sri Lanka and Thailand. For Thailand this offers an opportunity of utilizing Sri Lanka as a distribution centre for Thai exports into the Middle East and Africa. In the perspective of Sri Lanka, the FTA being materialized will result in investment and joint venture opportunities in diverse sectors. Further, this partnership has the potential for the two countries to pave the way for mutual benefits through a conducive business and growth environment in the region as well as globally.
Sri Lanka has already implemented FTAs with India and Pakistan. Negotiations are currently underway on possible FTAs with China, India (Economic and Technological Cooperation Agreement), Singapore, and the BIMSTEC. Nevertheless, Sri Lanka – Thailand FTA negotiations remain imperative for Sri Lanka’s economic growth and development by virtue of the opportunity that it presents to penetrate into the South – East Asian market and due to Thailand’s presence as an emerging global trading partner.