Negotiations on the Free Trade Agreement had reached six rounds before stalling in 2018, primarily over concerns that the agreement disproportionately favoured China. Sri Lanka objected to three key clauses in the proposed deal.
Chinese Commerce Minister Wang Wentao is expected to visit Sri Lanka in June, an official said, as the island nation looks to expand its export markets globally following US President Donald Trump’s announcement of reciprocal tariffs.
The United States has imposed a 44 per cent tariff under Trump’s latest policy, although its implementation has been delayed by three months. In the meantime, Sri Lanka faces a 10 per cent universal baseline tariff.
“Topics are still under discussion and have not been finalised,” an official familiar with the visit told the Sri Lankan news platform, EconomyNext on Monday.
Government sources, however, said trade and export expansion – including talks on the stalled Free Trade Agreement (FTA) between Sri Lanka and China – is likely to be high on the agenda.
Sri Lanka and China had agreed to work toward an early conclusion of a comprehensive FTA, according to a joint statement issued during President Anura Kumara Dissanayake’s visit to Beijing in January this year.
Negotiations on the FTA had reached six rounds before stalling in 2018, primarily over concerns that the agreement disproportionately favoured China. Sri Lanka objected to three key clauses in the proposed deal.
In January, Sri Lanka expressed appreciation for China’s efforts to boost imports from the island nation through various initiatives.
Caught in a Geopolitical Crossfire
Analysts say Sri Lanka is caught in a geopolitical proxy cold war between China and India, backed by the United States. This precarious balancing act has made Sri Lanka cautious in its dealings with both Asian giants, even at the cost of missing some investment opportunities.
However, the 2022 economic crisis and subsequent sovereign debt default have forced Sri Lanka to explore all available avenues to attract foreign inflows and move away from prolonged instability.
Analysts warn that Trump’s new tariff policy could push Sri Lanka closer to China, especially as the US measures could impact around $1 billion – or about 8 per cent – of the island’s total exports.
FTA Stalemate and Renewed Prospects
The proposed Free Trade Agreement had run into trouble when Sri Lanka objected to three major issues: the timeline for tariff reductions, the percentage of tariff lines to be liberalised, and the review period for the agreement.
Sri Lanka wanted about 500 tariff lines reduced to zero from the first day the agreement takes effect, but negotiators said there was no reciprocal offer from the Chinese side.
China had proposed liberalizing 90 per cent of tariff lines and trade value, while Sri Lanka advocated a more conservative 85 per cent liberalisation based on tariff lines alone.
Additionally, Sri Lanka proposed a review of the agreement after 10 years, whereas China preferred a 20-year review period.
Following these disagreements, sources said China has recently shown flexibility on the three key issues, raising hopes that FTA talks could soon resume.
