Abstract:
The Uruguay Round Agreement on Agriculture (AoA) signed in 1994 by many
countries in the world, including India and Sri Lanka was a major instrument in
liberalization of agricultural trade during the last decade. Further, India and Sri Lanka
signed the South Asian Preferential Trading Agreement (SAPTA) in 1993 to enhance
the regional trade with the hope of South Asian Free Trade Agreement (SAFTA) in
future. The Indo-Sri Free Trade Agreement (ISLFTA) was signed in 1998 to boost the
bilateral trade between India and Sri Lanka. Despite the impacts of above agreements,
in 2004, Comprehensive Economic Partnership Agreement (CEPA) was signed and
there was a debate about possible impacts. This paper discusses the trends of
agricultural trade between India and Sri Lanka after ISLFTA in 1998 in order to find
out the possible impacts on both countries.
The analysis is mainly based on secondary data of external trade published by the
Director General of Foreign Trade (DGFT) of India, Department of Customs of Sri
Lanka and Food and Agriculture Organization (FAO) and supplemented by costs of
production data published in Sri Lanka and India. The compound growth rates (CGR),
variability indices (1-R2), Resource Cost Ratios (RCR), Agricultural Tradability
Indices, Michel Porter’s competitive models and Constant Market Share models were
used as analytical tools of competitiveness for trade of agricultural commodities in both
countries.
Results of the analysis revealed that India’s total exports to Sri Lanka have increased at
a faster rate compared to Sri Lanka’s export to India after 1998. However, the share of
agricultural commodities in the export basket of India to Sri Lanka is declining in the
same period. Moreover, indicators revealed that Indian agricultural commodities are not
competitive in Sri Lanka’s market and India’s share of Sri Lanka’s imports of many
agricultural commodities is less than 1% throughout the period. Although, Sri Lanka
indicates the competitiveness in pepper, cloves, cinnamon and tea exports, still Sri
Lanka could acquire only less than 2% of the share of those commodities.
The study concludes that the impact of bilateral, regional and global trade agreements is
trivial in agricultural trade flows between India and Sri Lanka. Therefore, vertical and
horizontal integration of production process and trade of agricultural products
particularly tea and spices would be beneficial to enhance the bargaining power of both
countries in the world market as the products of two countries are supplementary rather
than competitive.
