20140731095621169

Joint Feasibility Study on
a China-Sri Lanka Free Trade Agreement
July 01, 2014
Table of Contents
1
Review ........................................................................................................................ 1
1.1 Background and Objective of the Study ....................................................................... 1

1.1.1
Background ............................................................................................................. 1
1.1.2
Objectives of the Study* .......................................................................................... 2
1.2 The Scope and Structure of the Study ......................................................................... 2
1.2.1
The Scope of the Study ........................................................................................... 2
1.2.2
The Structure of the Study ....................................................................................... 2
2
Overview of the Chinese and Sri Lanka Economies and Foreign Economic
Policies ....................................................................................................................... 4
2.1 Chinese Economy and Foreign Economic Policy ......................................................... 4

2.1.1
Chinese Economy ................................................................................................... 4
2.1.2
Chinese Foreign Economic Policy ........................................................................... 7
2.1.3
Chinas FTA Practice ............................................................................................... 9
2.2 Sri Lanka Economy and Foreign Economic Policy ..................................................... 13
2.2.1
Sri Lanka Economy ............................................................................................... 13
2.2.2
Trade performance ................................................................................................ 16
2.2.3
Macro Economic Growth Targets .......................................................................... 19
2.2.4
Sri Lankas Foreign Economic Policy ..................................................................... 20
2.2.5
Sri Lanka FTA Practice .......................................................................................... 21
3
Bilateral Trade and Economic Relations between China and Sri Lanka .............. 25
3.1
3.2
3.2.1
3.2.2
3.3
3.4
3.5
3.5.1
3.5.2
3.5.3
3.6
3.6.1
3.6.2
3.6.3
3.6.4
3.6.5
Overview of Bilateral Trade and Economic Relations ................................................. 25

Two-way Trade in Goods ........................................................................................... 25
Imports by Sri Lanka from China ........................................................................... 26
Sri Lankas Exports to China ................................................................................. 34
Two-way Trade in Services ........................................................................................ 37
Two-way Investment .................................................................................................. 37
Bilateral Economic Cooperation ................................................................................. 39
Economic Cooperation and Development .............................................................. 39
Tourism Cooperation ............................................................................................. 48
Cooperation in Other Fields ................................................................................... 49
Existing Legal and Institutional Framework of Bilateral Trade and Economic
Cooperation ............................................................................................................... 50
Legal and Institutional Framework of Bilateral Economic Cooperation ................... 50
Legal and Institutional Framework of Bilateral Investment ..................................... 51
Legal and Institutional Framework of Intellectual Property ..................................... 52
Legal and Institutional Framework of Tourism ....................................................... 52
Other Legal and Institutional Frameworks ............................................................. 53
Trade in Goods......................................................................................................... 54
4.1
Overview of Trade Policies Applying to Trade in Goods ............................................. 54

1
4.1.1
Tariffs .................................................................................................................... 54
4.1.2
Trade Policies of Non-tariff Measures .................................................................... 59
4.2 Other Trade Policies Affecting Trade in Goods .......................................................... 60
4.2.1
Rules of Origin....................................................................................................... 60
4.2.2
Customs Procedures and Trade Facilitation .......................................................... 64
4.2.3
SPS and TBT ........................................................................................................ 68
4.2.4
Trade Disciplines/Trade Remedies ........................................................................ 75
4.3 Trade in Specific Sectors ........................................................................................... 78
4.3.1
Tea ........................................................................................................................ 78
4.3.2
Fish and Fisheries Products .................................................................................. 85
4.3.3
Machinery and Electronics..................................................................................... 95
4.3.4
Textile and Clothing ............................................................................................. 101
4.3.5
Rubber Products ................................................................................................. 115
4.3.6
Coconut Products ................................................................................................ 124
4.3.7
Gems and Jewellery ............................................................................................ 130
4.3.8
Fruits and Vegetable Products ............................................................................ 137
5
Trade in Services ................................................................................................... 146
5.1 Overview of Trade Policies Applying to Trade in Services ........................................ 146

5.1.1
Overview of Services Sectors .............................................................................. 146
5.1.2
Trade Policies Affecting Trade in Services .......................................................... 147
5.2 Trends in Service Sectors ........................................................................................ 149
6
Investments ............................................................................................................ 159
6.1 Investment Policies of China and Sri Lanka ............................................................. 159

6.2 Investment in Specific Fields .................................................................................... 163
6.2.1
Machinery ............................................................................................................ 163
6.2.2
Pharmaceuticals .................................................................................................. 165
6.2.3
Motor Spare Parts ............................................................................................... 166
6.2.4
Others ................................................................................................................. 167
6.2.5
Tourism & Leisure ............................................................................................... 168
6.2.6
Higher Education / Skills Development ................................................................ 169
6.2.7
Health .................................................................................................................. 169
6.2.8
Alternative Energy ............................................................................................... 170
6.2.9
Mineral based industries ...................................................................................... 170
6.3 FTA Impact to Direct Investments ............................................................................ 171
6.3.1
Potential Impact of China- Sri Lanka FTA on FDI to Sri Lanka ............................ 173
7
Strengthening Bilateral Economic Cooperation in Key Areas ............................ 174
7.1 E-commerce ............................................................................................................ 174

7.2 Small and Medium Enterprises ................................................................................ 176
7.3 Trade and Investment Promotion ............................................................................. 178
7.3.1
Trade promotion .................................................................................................. 178
7.3.2
Investment promotion .......................................................................................... 179
2
7.3.3
Transparency ...................................................................................................... 180
7.4 Industry Cooperation ................................................................................................ 181
7.5 Cooperation in the Development of Pilot Zone ......................................................... 182
7.6 Other Related Areas of Cooperation ........................................................................ 183
8
General and Institutional Provisions, Dispute Settlement .................................. 184
8.1
8.2
8.3
8.4
8.5
General Provisions ................................................................................................... 184

Joint Committee ....................................................................................................... 184
Consultations ........................................................................................................... 184
Contact Points.......................................................................................................... 184
Dispute Settlement ................................................................................................... 185
Conclusions and Recommendations.................................................................... 186
9.1 General Conclusions ................................................................................................ 186

9.2 Sector Specific Conclusions ..................................................................................... 186
9.2.1
Trade in Goods.................................................................................................... 186
9.2.2
Trade in Services ................................................................................................ 187
9.2.3
Cooperation in Other fields .................................................................................. 187
9.2.4
Investment ........................................................................................................... 187
9.3 Recommendations ................................................................................................... 187
Annex I Partial Equilibrium Method ................................................................................ 188
List of Tables
TABLE 2-1 IMPORT AND EXPORT OF CHINAS TRADE IN GOODS, 2005-2012 .......................................... 5
TABLE 2-2 IMPORT AND EXPORTS OF CHINA'S TRADE IN SERVICE SECTORS .............................................. 6
TABLE 2-3 THE FDI INFLOW AND OUTFLOW OF CHINA, 2003-2012 ..................................................... 7
TABLE 2-4 CHINAS SIGNED FTAS AND THE MAIN CONTENTS ............................................................. 10
TABLE 2-5 KEY ECONOMIC INDICATORS - 2012 ............................................................................... 13
TABLE 2-6 SECTORAL COMPOSITION OF GDP FOR YEAR 2012 ............................................................ 14
TABLE 2-7 PADDY PRODUCTION IN SRI LANKA 2010-2012 (MT000) ................................................ 16
TABLE 2-8 IMPORTS - EXPORTS AND TRADE BALANCE (2003-2012) ................................................... 16
TABLE 2-9 DIRECTION OF EXPORTS OF SRI LANKA - 2012 .................................................................. 17
TABLE 2-10 COMPOSITION OF EXPORTS -2012 ............................................................................... 18
TABLE 2-11 DIRECTION OF IMPORTS OF SRI LANKA - 2012 ................................................................ 19
TABLE 2-12 COMPOSITION OF IMPORTS -2012 ............................................................................... 19
TABLE 2-13 TARIFF LIBERALIZATION PROGRAMME UNDER THE ISFTA .................................................. 23
TABLE 2-14 TARIFF LIBERALIZATION PROGRAM UNDER THE PSFTA ..................................................... 24
TABLE 3-1 BILATERAL TRADE BETWEEN CHINA AND SRI LANKA ............................................................ 25
TABLE 3-2 OVERVIEW OF BILATERAL TRADE..................................................................................... 26
TABLE 3-3 SRI LANKA'S IMPORTS FROM CHINA @ 4 DIGITS LEVEL........................................................ 27
TABLE 3-4 IMPORTS TO SRI LANKA FROM CHINA HS CHAPTER-WISE (US$ MN) ................................. 33
TABLE 3-5 SRI LANKA'S EXPORTS TO CHINA @ 4 DIGITS LEVEL ............................................................ 34
TABLE 3-6 EXPORTS BY SRI LANKA TO CHINA CHAPTER-WISE (US$ MN) ............................................. 36
TABLE 3-7 CHINESE PROJECTS IN SRI LANKA (AS AT END OF OCTOBER 2013) ........................................ 38
TABLE 3-8 CUMULATIVE CHINESE FINANCIAL ASSISTANCE TO SRI LANKA INCLUDING LOANS AND GRANTS
(1971 -2012) ............................................................................................................ 42
TABLE 3-9 PROJECTS WITH CHINESE GRANTS ................................................................................... 45
TABLE 4-1 TARIFFS SUMMARY OF CHINA ........................................................................................ 54
TABLE 4-2 APPLIED TARIFFS OF CHINA BY PRODUCT GROUPS .............................................................. 54
TABLE 4-3 IN-QUOTA INTERIM DUTY RATE ON IMPORTED GOODS ....................................................... 55
TABLE 4-4 TARIFF STRUCTURE IN 2012 .......................................................................................... 56
TABLE 4-5 IMPORT DUTIES COLLECTED 2002 2012 (US$ MN) ........................................................ 57
TABLE 4-6 SUMMARY OF SRI LANKAS BOUND TARIFFS AND APPLIED TARIFFS IN 2011 ........................... 57
TABLE 4-7 SRI LANKAS BOUND & APPLIED TARIFFS BY PRODUCT CATEGORIES (2011) ........................... 57
TABLE 4-8 PREFERENTIAL RULES OF ORIGIN OF CHINA (2013)............................................................ 61
TABLE 4-9 SUMMARY OF RULES OF ORIGIN PROVISIONS IN SRI LANKAS RTAS....................................... 63
TABLE 4-10 IMPORT AND EXPORT OF TEA PRODUCTS OF CHINA .......................................................... 80
TABLE 4-11 KEY INDICATORS FOR THE TEA INDUSTRY ........................................................................ 80
TABLE 4-12 SRI LANKA TEA DIRECT EXPORTS TO CHINA IN MT, US$ MN (2006 TO 2012) ..................... 81
TABLE 4-13 THE IMPORT TARIFF RATES DISTRIBUTION OF CHINA'S TEA PRODUCTS IN 2012 .................... 82
TABLE 4-14 IMPORT OF 0902.40 BY CHINA.................................................................................... 84
TABLE 4-15 IMPORTS OF 0902.30 BY CHINA IN 2012 ...................................................................... 84
TABLE 4-16 IMPORT AND EXPORT OF CHINAS FISH AND FISHERIES PRODUCTS ....................................... 87
TABLE 4-17 CONTRIBUTION OF FISHERY SECTOR FOR GDP FROM 2002-2012 ...................................... 87
TABLE 4-18 FISH IMPORTS AND EXPORTS FROM 2002-2012 ............................................................. 88
TABLE 4-19 FISHERIES CONTRIBUTION IN EXPORT EARNINGS AND BALANCE OF FISH TRADE ...................... 89
TABLE 4-20 TOP 10 FISHERIES EXPORTS BY SRI LANKA TO THE WORLD (US$ MILLION) ........................... 89
4
TABLE 4-21
TABLE 4-22
TABLE 4-23
TABLE 4-24
TABLE 4-25
TABLE 4-26
TABLE 4-27
TABLE 4-28
TABLE 4-29
TABLE 4-30
TABLE 4-31
TABLE 4-32
TABLE 4-33
TABLE 4-34
TABLE 4-35
TABLE 4-36
TABLE 4-37
TABLE 4-38
TABLE 4-39
TABLE 4-40
TABLE 4-41
TABLE 4-42
TABLE 4-43
TABLE 4-44
TABLE 4-45
TABLE 4-46
TABLE 4-47
TABLE 4-48
TABLE 4-49
TABLE 4-50
TABLE 4-51
TABLE 4-52
TABLE 4-53
TABLE 4-54
TABLE 4-55
TABLE 4-56
TABLE 4-57
TABLE 4-58
TABLE 4-59
TABLE 4-60
TABLE 4-61
TABLE 4-62
TOP EXPORTS OF CHAPTER 03 TO CHINA BY SRI LANKA ..................................................... 90

TOP TEN IMPORTS BY SRI LANKA IN CHAPTER 03 (US$ MN) ............................................. 90
EXPORTS BY CHINA TO SRI LANKA UNDER CHAPTER 03 (US MN) IN 2012 ........................... 91
THE IMPORT TARIFF RATES DISTRIBUTION OF CHINA'S FISH AND FISHERIES PRODUCTS IN 201292
TRADE POTENTIAL FOR SRI LANKAN EXPORTS TO CHINA CHAPTER 03 ............................... 94
IMPORT AND EXPORT OF CHINAS MACHINERY AND ELECTRONIC PRODUCTS ......................... 96
TOP 20 IMPORTS OF CHAPTER 84 AND 85 BY SRI LANKA FROM CHINA IN 2012 .................... 98
THE IMPORT TARIFF RATES DISTRIBUTION OF CHINA'S MACHINERY AND ELECTRONIC PRODUCTS
IN 2012............................................................................................................... 100
IMPORT AND EXPORT OF CHINAS TEXTILE AND CLOTHING PRODUCTS ................................ 103
EXPORT DESTINATIONS AND VALUES OF SRI LANKA APPAREL EXPORTS (US$ MN) .............. 106
TOP EXPORT ITEMS WITH EXPORT POTENTIAL TO CHINA (US MN) ................................... 106
FOCUSED INVESTMENTS IN BACKWARD INTEGRATION ..................................................... 110
IMPORT OF YARN, FABRIC AND APPAREL INTO SRI LANKA ................................................ 111
APPAREL IMPORTS TO CHINA FROM THE WORLD UNDER HS 61-63 .................................. 112
CHINAS ANNUAL IMPORTS OF CHAPTERS 61, 62 AND 63 FROM SRI LANKA IN 2011 AND 2012
............................................................................................................................. 112
THE IMPORT TARIFF RATES DISTRIBUTION OF CHINA'S TEXTILE AND CLOTHING PRODUCTS IN
2012 .................................................................................................................. 113
APPLICABLE IMPORT DUTIES IN SRI LANKA FOR YARN, FABRIC & APPAREL........................... 114
IMPORT AND EXPORT OF CHINAS RUBBER PRODUCTS .................................................... 117
CONTRIBUTION OF RUBBER SECTOR TO GNP (2007 - 2012 (US$ MN)) .......................... 118
KEY INDICATORS OF THE RUBBER INDUSTRY .................................................................. 118
TOP 10 EXPORTS BY SRI LANKA IN 2012 CHAPTER 40 ................................................. 119
TOP 10 EXPORTS BY SRI LANKA TO CHINA CHAPTER 40 ............................................... 119
TOP 10 IMPORTS BY SRI LANKA UNDER CHAPTER 40 (2012) ........................................... 120
TOP 10 EXPORTS BY CHINA TO SRI LANKA UNDER CHAPTER 40 (2012) ............................. 120
THE IMPORT TARIFF RATES DISTRIBUTION OF CHINA'S RUBBER PRODUCTS IN 2012 ............. 121
POTENTIAL EXPORTS TO CHINA UNDER CHAPTER 40 (US$ MN) ....................................... 123
IMPORT AND EXPORT OF CHINAS COCONUT PRODUCTS.................................................. 125
KEY INDICATORS FOR COCONUT PLANTATIONS .............................................................. 125
EXPORT OF COCONUT, COCONUT-RELATED PRODUCTS BY SRI LANKA 2012 ........................ 126
TOP EXPORTS OF COCONUT AND RELATED PRODUCTS TO CHINA 2012 .............................. 126
THE IMPORT TARIFF RATES DISTRIBUTION OF CHINA'S COCONUTS IN 2012 ........................ 127
IMPORT AND EXPORT OF CHINAS GEMS AND JEWELLERY PRODUCTS ................................. 132
EXPORTS OF GEMS AND JEWELLERY BY SRI LANKA (US$ MN) ........................................ 133
TOP IMPORTS BY SRI LANKA IN CHAPTER 71 (US$ MN) ................................................. 134
THE IMPORT TARIFF RATES DISTRIBUTION OF CHINA'S GEMS AND JEWELLERY PRODUCTS IN 2012
.......................................................................................................................... 135
TOP POTENTIAL EXPORTS TO CHINA BY SRI LANKA - CHAPTER 71 (US$ MN) ...................... 136
IMPORT AND EXPORT OF CHINAS FRUITS AND VEGETABLE PRODUCTS ............................... 139
IMPORTS OF CHAPTER 08 FROM CHINA BY SRI LANKA IN 2012 ........................................ 140
IMPORTS OF CHAPTER 07 PRODUCTS BY SRI LANKA FROM CHINA IN 2012 ......................... 141
THE IMPORT TARIFF RATES DISTRIBUTION OF CHINA'S FRUITS AND VEGETABLE PRODUCTS IN
2012 .................................................................................................................. 142
POTENTIAL EXPORTS UNDER CHAPTER 07 BY SRI LANKA TO CHINA (US$ MN) .................... 143
POTENTIAL EXPORTS UNDER CHAPTER 08 BY SRI LANKA TO CHINA (US$ MN) .................... 144
5
TABLE 4-63 POTENTIAL EXPORTS UNDER CHAPTER 20 BY SRI LANKA TO CHINA (US$ MN) .................... 145
TABLE 5-1 THE OUTPUT VALUE AND EMPLOYMENT OF CHINAS SERVICES SECTORS .............................. 146
TABLE 5-2 IMPORT AND EXPORT OF CHINAS TRADE IN SERVICES 2009-2012..................................... 148
TABLE 5-3 FOREIGN DIRECT INVESTMENT IN CHINAS SERVICES SECTORS ............................................ 149
TABLE 5-4 IMPORT AND EXPORT OF CHINAS TRADE IN TOURISM SERVICES, 2009-2012 ...................... 152
TABLE 6-1 SRI LANKAS INWARD FDI FROM INDIA .......................................................................... 172
List of Figures
FIGURE 3-1
FIGURE 3-2
FIGURE 3-3
FIGURE 3-4
FIGURE 4-1
FIGURE 4-2
FIGURE 4-3
FIGURE 4-4
FIGURE 4-5
FIGURE 4-6
FIGURE 4-7
FIGURE 6-1
IMPORTS TO SRI LANKA FROM CHINA (CHAPTER WISE) - IN 2012 ....................................... 33

EXPORTS BY SRI LANKA TO CHINA CHAPTER-WISE (USD MN) ........................................... 36
SECTORAL DISTRIBUTION OF ASSISTANCE FROM CHINA 2008 - 2012 .................................. 43
CHINA OUTBOUND TOURISM (1995-2011) ................................................................... 48
IMPORTS UNDER HS84 AND HS85 FROM CHINA ............................................................. 97
EXPORTS OF CHAPTER 84 BY SRI LANKA ......................................................................... 99
EXPORTS OF CHAPTER 85 ............................................................................................ 99
GROWTH PERFORMANCE (US$ MN) ...................................................................... 105
PRODUCT PROFILE OF EXPORTS................................................................................... 105
COMPOSITION OF MARKETS ....................................................................................... 105
STRATEGIC GROWTH PLAN (2010-2016) US$ MN....................................................... 111
IMPACT OF FTAS ON FDI ......................................................................................... 173
1 Review
1.1
1.1.1
Background and Objective of the Study

Background
The bilateral relations between China and Sri Lanka were deepened through frequent
visits by the leaders of the two States. China and Sri Lanka entered into the SinoLanka Agreement on Rubber-Rice exports on 17th December 1952 which was even
before the two countries established diplomatic relations. In 1957, China established
diplomatic relations with the Democratic Socialist Republic of Sri Lanka. Over more
than half a century, the leaders and people of the two countries maintained close
contacts and achieved fruitful cooperation in various fields.
A Trade and Payment Agreement was signed in 1982, which provided MFN treatment
for products of export and import of both countries. In 1984 both countries signed an
Agreement on Economic and Technical Cooperation and these two agreements were
amalgamated in 1991 establishing the Sri Lanka-China Joint Committee for Trade
and Economic Cooperation. The first session was held in 1992 and thereafter 1996,
2000, 2008 and 2013. Further strengthening economic ties between the two
countries, the first SriLankan Airline flight to Bejing took place in June, 2005.
China always remained a friend of Sri Lanka in hours of need. Demonstrating the
strong ties between the two countries, Premier Wen Jiabao visited Sri Lanka after the
2004 December Tsunami, which devastated Sri Lanka. The Government of China
granted US$ 28 Million for the reconstruction of six fishery harbors and the Fishery
Town in Panadura that was damaged consequent to the 2004 Tsunami. They were
rebuilt with Chinese financial assistance at a cost of Rs. 550 Million.
On May 27 to 30, 2013, the Democratic Socialist Republic of Sri Lanka President
Mahinda Rajapaksa paid a state visit to China at the invitation of the People's
Republic of China President Xi Jinping. The two sides agreed to build strategic
cooperative partnership with sincere and mutual assistance and enduring friendship,
and agreed to establish a joint working group on trade to study feasibility of China-Sri
Lanka Free Trade Agreement and issues of expanding development of Sri Lankas
exports to China promoting trade balance as well as establish working group on
economic cooperation to conduct studies on project cooperation, financing
arrangement and investment cooperation.
In August, 2013, China and Sri Lanka decided to establish the Joint Feasibility Study
Group of China - Sri Lanka Free Trade Agreement (FTA) under the joint working
group on trade, a focused on carrying out feasible study. The Joint Feasibility Study
Group of China - Sri Lanka Free Trade Agreement (FTA) held the first meeting in the
capital, Colombo, Sri Lanka on Oct 17, 2013. The two sides have now agreed on a
joint research framework and model.
1
1.1.2
Objectives of the Study*
*as agreed at the working group meeting held on 17th October 2013 in Colombo
To provide background information to commence negotiations on CSFTA.
Identify specific products sectors for expansion and diversification of trade

between the parties.
Identify specific areas for enhancement of investments and economic

cooperation.
Identify the benefits and challenges that may derive from the proposed FTA.
To make conclusions and recommendations on options for future action

including scope, framework and architecture and FTA for furthering bilateral
trade investment and economic cooperation to expand and enhance the
benefits in these areas.
1.2
1.2.1
The Scope and Structure of the Study

The Scope of the Study
The core objective of the feasibility study on the Free Trade Agreement (FTA) is to
explore the prospects for liberalization of bilateral trade and investment through an
FTA, consistent with the WTO rules. In addition, this study encompasses a wide
range of other areas of mutual interest to enhance economic cooperation between the
two countries. The study will provide the broadest possible basis for consideration of
future actions by the Governments of China and Sri Lanka.
1.2.2
The Structure of the Study
The other chapters of the study have the following structure:

Chapter 2: Overview of the Chinese and Sri Lanka Economies and Foreign
Economic Policies
This chapter will review economic performances of Sri Lanka and China and their
foreign economic policies in terms of implementation of WTO Agreements, Regional
Agreements and other Agreements regarding bilateral trade and investment and
economic cooperation.
Chapter 3: Bilateral Trade and Economic Relations between China and Sri
Lanka
2
This chapter will provide an overview of the bilateral trade and economic relations of
the two countries, two-way trade and investment performances and sets out the
existing legal and institutional framework of bilateral trade and economic cooperation.
Chapter 4: Trade in Goods
This chapter will cover the policies applicable to trade in goods, including tariffs,
non-tariff measures, rules of origin, customs procedures and SPS and TBT measures.
Further, it describes specific product sectors of economic importance to both
countries for the purpose of identifying and deciding on preferential market access.
Chapter 5: Trade in Services
This chapter will describe the overview of trade policies on trade in services and their
trends, as well as prospects of the specific sector of trade in services.
Chapter 6: Investment
This chapter will describe the overview of investment policies, legal framework for
investment including special laws, bilateral investment treaties, Double Taxation
Agreements and specific areas of Investments.
Chapter 7: Strengthening bilateral and economic corporation in key areas
This chapter will identify sectors such as e-commerce, SME for strengthening
corporation and trade and investment promotion and Industry Corporation. It will also
include corporation in other related areas.
Chapter 8: General and Institutional Provisions, Dispute Settlement
This chapter will describe general and institutional provisions on dispute settlement
mechanism.
Chapter 9: Conclusions and recommendations
This chapter will include general and sector specific conclusions and recommen
dations, suggestions including the roadmap.
2 Overview of the Chinese and Sri Lanka Economies and

Foreign Economic Policies
2.1
Chinese Economy and Foreign Economic Policy
2.1.1
2.1.1.1
Chinese Economy
Recent Development of the Chinese Economy
In the last decade, China accelerated its industrialization and globalization steps and has
achieved a successful development. The average annual GDP growth rate between 2002
and 2011 remained at about 9%, and the GDP reached RMB 51.93 trillion in 20121. China is
now the world's second largest economy after the United States. However, Chinas GDP per
capita is still relatively low though it rose from USD 1,263 in 2001 to USD 6,100 in 20122. In
2012, according to the poverty relief standard of annual net income of 2300 RMB per capita,
the rural poverty population of China was 98.99 million. China is the largest developing
economy in the world, yet its per capita GDP in 2012 just ranking the 83rd. Due to the powerful
production capability and comprehensive industries and sectors, Chinese products are able
to fulfil the needs from home and abroad. Meanwhile, some products seriously rely on
imports from other countries.
The average growth of value added of the industrial sector slowed in 2010, 2011 and 2012. It
was 7.9%3 in 2012, but it was still much faster than China's services and agriculture sectors.
In 2012, the share of industry (including manufacturing, mining, and electricity generation) in
GDP amounted to 45.3%, which was higher than that of services (44.6%) and agriculture
(10.1%)4.
Total employment of labour force was 767 million in 2012, with 371.02 million in the towns
and cities. The registered urban unemployment rate was 4.1%5 at the end of 2012, which
was the same in 2011.
2.1.1.2
2.1.1.2.1
Foreign Trade
Trade in Goods
Foreign trade plays an important role in China's economic development. The rapid growth in
trade contributed greatly to the growth of GDP. China's exports maintained the growth rate of
15% between 2005 and 2008. In 2009, under the impact of the international financial crisis,
China's imports and exports fell respectively by 11.2% and 16% (See Table 2-1).Between
1
2
3
4
5
National Bureau of Statistics of China, http://www.stats.gov.cn/tjgb/ndtjgb/qgndtjgb/t20130221_402874525.htm

Ibid.
Ibid.
Ibid.
Ibid.
2010 and 2011, with the world economic recovery, the momentum of China's imports and
exports soared, with an import growth rate of 34.7%, and export growth rate of 22.5%. In
2012, due to the sharp slowdown in world economic recovery, the international market
demand remained weak, and under the situation of greater downward pressure on domestic
economy, China's imports and exports would continue to maintain steady growth. Imports
and exports amounted to USD 3.8668 trillion, up 6.2% from 2011; among which export
volume amounted to USD 2.0489 trillion, up 7.9%; and import volume amounted to USD
1.8178 trillion, up 4.3%. Chinas main exports were machinery products and equipment,
textile and apparel as well as metals and metal products. The main importers of Chinese
products were EU, USA, Hong Kong China, Japan and the Republic of Korea. Chinas main
imports were machinery products, mineral fuel, oils and ores. Chinas main sources of
imports were Japan, EU, the Republic of Korea, Taiwan China and USA.
Table 2-1 Import and Export of Chinas Trade in Goods, 2005-2012
(US Dollars in billions)
Year
Total Trade
Growth
Rate (%)
Export Value
Growth
Growth
Import Value
Rate (%)
Rate (%)
2002
620.8
21.8
325.6
22.4
295.2
21.2
2003
851.0
37.1
438.2
34.6
412.8
39.8
2004
1154.6
35.7
593.3
35.4
561.2
36.0
2005
1421.9
23.2
762.0
28.4
660.0
17.6
2006
1760.4
23.8
968.9
27.2
791.5
19.9
2007
2173.7
23.5
1217.8
25.7
956.0
20.8
2008
2563.3
17.9
1430.7
17.5
1132.6
18.5
2009
2207.2
-13.9
1201.7
-16.0
1005.6
-11.2
2010
2972.8
34.7
1577.9
31.3
1394.8
38.7
2011
3642.1
22.5
1898.6
20.3
1743.5
24.9
2012
3866.8
6.2
2048.9
7.9
1817.8
4.3
Source: China Statistical Yearbook 2002 2013.
2.1.1.2.2
Trade in Services
According to WTO statistics, in recent years, China has always been a net importer of trade in
services. In 2012, China's total exports and imports of services amounted to USD 470.58
billion (statistical calibre: international balance of payment, excluding government services),
an increase by 12.3 % compared to 2011, only accounting for 5.6% of that of the world's and
10.8 % of the total volume of China's foreign trade, among which the imports were USD
280.14 billion and exports worth USD 190.44 billion, resulting in a trade deficit of USD 89.7
billion. The trade deficit came from four major areas: tourism (USD 51.95 billion),
transportation services (USD 46.95 billion), insurance services (USD 17.27 billion), fees of
proprietary rights and royalties (USD 16.71 billion). On the contrary, a large amount of surplus
5
gained in the following two areas: consultation (USD 13.43 billion) and the computer and
information services (USD 10.61 billion) (See Table 2-2).
Table 2-2 Import and Exports of China's Trade in Service Sectors
(US Dollars in 100 millions)
Total Trade
Year
Transport
Services
Travel
Communication
Services
Construction
Services
Insurance
Services
Financial
Service
Computer and
Information
Service
Fee for Patent
or Royalty
Consultation
Advertisement
and Publicity
Movies, Audio
and Video
Other
Commercial
Service
Total
Export Value
Import Value
2011
2012
2011
2012
2011
2012
1160.1
1247.7
355.7
389.1
804.4
858.6
1210.5
1520.1
484.6
500.3
725.9
1019.8
29.2
34.4
17.3
17.9
11.9
16.5
184.5
158.7
147.2
122.5
37.3
36.2
227.6
239.3
30.2
33.3
197.4
206
16
38.2
8.5
18.9
7.5
19.3
151.4
182.9
121.8
144.5
29.6
38.4
154.5
187.9
7.4
10.4
147.1
177.5
469.7
534.7
283.9
334.5
185.8
200.2
67.9
75.2
40.2
47.5
27.7
27.7
5.2
6.9
1.2
1.3
5.6
505.4
479.8
322.8
284.2
182.6
195.6
4190.9
4705.8
1820.9
1904.4
2370
2801.4
Source: WTO International Trade Statistics Database; Ministry of Commerce of the P.R.
China
2.1.1.2.3
Foreign Direct Investment
Since 2002, China has always been one of the major recipients of foreign direct investment
(FDI) coupled with transfer of technology and know-how. Most of the investment was
chandelled into manufacturing sectors. In 2012, under the influence of the slow world
economic recovery, China gave permits to 24,925 enterprises with foreign investment, falling
10.06% year on year, and the FDI inflow reached USD 111.716 billion, 3.7% lower than that
in 2011. (See Table 2-3) The top five economies (in terms of actual investment amount)
directly invested in China are Hong Kong China, Japan, Singapore, Taiwan China and the
United States.
6
Chinas direct investment abroad has increased dramatically since 2003. The outflow was
only about USD 3 billion in 2003, and in 2012 it reached about USD 77.2 billion, an increase
of 28.6% compared to 2011(See Table 2-3). The key areas of Chinas FDI outflow are energy,
raw materials, agriculture, manufacturing, services, as well as infrastructure. Hong Kong
China, South Africa, British Virgin Islands, Australia, Singapore and Cayman Islands are the
main destinations.
Table 2-3 The FDI Inflow and Outflow of China, 2003-20126
Year
Inflow
Growth Rate (%)
Outflow
Growth Rate (%)
2003
535.05
1.44
28.55
5.74
2004
606.30
13.32
54.97
92.54
2005
603.25
-0.50
122.60
123.03
2006
658.21
9.11
161.30
31.57
2007
747.68
13.59
187.20
16.06
2008
923.95
23.58
406.50
116.80
2009
900
-2.6
433.00
6.5
2010
1057
17.4
590
36.3
2011
1160
9.7
601
1.8
2012
1117
-3.7
772
28.6
Source: National Statistics Bureau of China.
2.1.2
Chinese Foreign Economic Policy
China's foreign economic policy is to serve the reform and opening up policy. In November
2013, Certain Decisions on Major Issues about Comprehensively Deepening Reform of the
Central Committee of the Communist Party of China (hereinafter referred to as the Decision)
pointed out that to adapt to the new situation of economic globalization, we must accelerate
the mutual promotion between internal and external opening up, boost the close integration of
bringing in and go-global, promote orderly and free flow of international and domestic key
factors, efficient allocation of resources, in-depth market integration, speed up cultivating
participation in and lead the new international economic cooperation and competition
advantage, and to promote reform through opening up.
2.1.2.1
Policy of Trade in Goods
Chinas policy with regard to trade in goods includes tariffs, licenses, rules of origin and
customs procedures, SPS, TBT, trade remedies, etc. (See Chapter 4)
FDI in this table refers to non-financial FDI.
In November 2013, the Decision points out that we should speed up the construction of free
trade areas. Adhering to the rules of the world trading system, the bilateral, multilateral and
regional sub-regional open cooperation, we should expand areas of mutual interests with all
countries and regions, and speed up the implementation of free trade area strategy with
surrounding economies. The market access, customs supervision, inspection and quarantine
and other administration systems should be reformed; the negotiations on new issues such
as environmental protection, investment protection, government procurement, electronic
commerce should be speeded up, to form a global network of free trade areas with high
standards.
2.1.2.2
Policy of Trade in Services
Under the GATS, China made specific commitments in 9 of the 12 major sectors upon its
accession to WTO in 2001, including business services, communication services,
construction and related engineering services, distribution services, educational services,
environmental services, financial services, transport services, tourism and travel related
services7.
In November 2013, the Decision points out those inland cities should be supported to develop
more international airlines, and multimodal transport, serving as the bridge to connect the
north and south foreign economy. Establish a developmental financial institution, to speed up
interconnected infrastructure with neighboring countries and regions, to promote the
construction of the Silk Road economic belt, maritime Silk Road, and form new pattern of
all-around opening up.
Chinas commitments on trade in services are also scheduled in free trade agreements like
the CEPA, the China-ASEAN, the China-Pakistan, the China-Chile, the China-New Zealand,
the China-Singapore and the China-Peru Agreement. (See Chapter 5)
2.1.2.3
FDI Policy
Major laws and regulations specifically related to FDI include: the Law on Chinese-Foreign
Equity Joint-Ventures, the Law on Chinese-Foreign Contractual Joint Ventures, the Law on
Foreign-Capital Enterprises, and their respective implementing regulations.8 Under the three
laws, types of foreign investment enterprises (FIEs) are equity joint ventures, contractual joint
ventures and wholly foreign-owned enterprises (WFOEs). On 1st March 2010, the newly
7
WTO Document, GATS/SC/135, 14 February, 2002

Other laws, regulations and rules related to FDI include: Provisions on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors; Provisions on Foreign Invested Investment Companies; Interim Provisions on
Foreign Invested Joint Stock Limited Companies; Company Law; Contract Law; Insurance Law; Arbitration Law;
Labour Law; Provisional Regulations on Value-Added Tax; Provisional Regulations on Consumption Tax;
Provisional Regulations on Business Tax; and Law on Protection of Investment by Compatriots from Taiwan
China.
See
website:
Invest
in
China
online
information,
http://www.fdi.gov.cn/pub/FDI_EN/
Laws/GeneralLawsandRegulations/BasicLaws/t20060620_50886.jsp [11 February 2008]).
8
adopted Regulations for the Administration of the Registration of Foreign-invested

Partnership Enterprises came into force. Since then, foreign enterprises or individuals can set
up an enterprise in the legal form of a partnership9 in China.
The Catalogue for the Guidance of Foreign Investment Industries stipulates the basic
principles concerning FDI in China. It classifies foreign investment projects into four
categories: the encouraged, the permitted, the restricted and the prohibited. The current
Catalogue for the Guidance of Foreign Investment Industries entered into force on30th
January, 2012.
In November 2013, the Decision clearly points out that it is advisable to ease investment
access, including unifying the laws and regulations, maintaining stable, transparent and
predictable foreign policy; promote orderly open of the service sectors such as finance,
education, culture, and health care; untie foreign investment access restrictions on services,
such as brood endowment, architectural design, accounting audit, trade logistics and
e-commerce services, and further liberalize the general manufacture. China also encourages
the outflow of FDI. In 1997, the go-global strategy was put forward for the first time and
since then China has enacted a series of policies to encourage investment abroad.
The governmental agencies in charge of the administration of the FDI outflow include the
Ministry of Commerce (MOFCOM), National Development and Reform Commission (NDRC),
State Administration of Foreign Exchange (SAFE), etc. On 1st May 2009, the Measures for
Overseas Investment Management enacted by MOFCOM were implemented. It stipulates the
basic principles for domestic enterprises on the management of overseas investment . In
accordance with the Regulations on Foreign Exchange Administration of Overseas
Investment issued by the SAFE in July 2006, China eliminated restrictions on foreign
exchange with regard to FDI outflow.
In November 2013, the Decision also points out that China should improve the marketization
of formation mechanism for RMB exchange rate, accelerate the marketization of interest rate,
and improve the treasury bonds yield curve showing the relationship between market supply
and demand. To promote two-way open up of capital market, orderly increase the degree of
convertible cross-border capital and financial transactions, China will establish and perfect
the macro-prudential management under the framework of external debt and capital flow
management system, to realize RMB capital account convertibility.
2.1.3
Chinas FTA Practice
Although the multilateral trading system remains the main channel to promote trade
liberalization, China has been intensifying its pursuit of bilateral/regional free trade
agreements with different trading partners over the last decade. Regional trade arrangements
has served as new platform for promoting trade and investment.
9
http://sousuo.mofcom.gov.cn/query/queryDetail.jsp?articleid=20100306818933&query=%E5%A4%96%E5%95
%86%E6%8A%95%E8%B5%84.
Currently, China is working on 18 FTAs with 31economies, among which 12 free trade
agreements have been signed. Another 6 FTAs including China-South Korea FTA, China-the
GCC FTA10, China-Australia FTA and China-Norway FTA, and China-Japan-Korea FTA and
the Regional Comprehensive Economic Partnership Agreement (RCEP) are being
negotiated.
The concluded and signed FTAs are the Mainland and Hong Kong Closer Economic and
Partnership Arrangement (CEPA Mainland-Hong Kong), the Mainland and Macao Closer
Economic and Partnership Arrangement (CEPA Mainland-Macao), the China-ASEAN FTA
(ACFTA), the China-Pakistan FTA, the China-Chile FTA, the China-New Zealand FTA, the
China-Singapore FTA, the China-Peru FTA, the China-Costa Rica FTA, Cross-strait
Economic Cooperation Framework Agreement (ECFA), China - Iceland FTA and
China-Swiss FTA. In addition to the free trade agreements with Iceland and Switzerland
which haven't come into effect, the rest have already been implemented.
Table 2-4 Chinas Signed FTAs and the Main Contents
FTA
The CEPA
Mainland-Hong
Kong
The CEPA
Mainland-Macao
The
China-ASEAN
FTA
The Main Contents

In 2003, the Central Government of China signed the Closer Economic
Partnership Arrangements (CEPA) with the Government of the Special
Administrative Region of Hong Kong. 10 supplements were signed
between 2004 and 2013 respectively. The CEPA was one of the first FTA
implemented in Mainland China.
According to the CEPA, Mainland China gradually eliminated the tariffs
on imports originated from these two Special Administrative Regions
(SAR) since 1st January 2004, completed by 1st January 2006. Under the
CEPA, Mainland China has also gradually liberalized markets in various
service sectors by relaxing market access restrictions.
In 2003, the Central Government of China signed the Closer Economic
Partnership Arrangements (CEPA) with the Government of the Special
Administrative Region of Macao. 10 supplements were signed between
2004 and 2013 respectively. The CEPA was one of the first FTA
implemented in Mainland China.
According to the CEPA, Mainland China gradually eliminated the tariffs
on imports originated from these two Special Administrative Regions
(SAR) from 1st January on, completed by 1st January 2006. Under the
CEPA, Mainland China has also gradually liberalized markets in various
service sectors by relaxing market access restrictions.
On 4th November 2002, China and ASEAN signed the Framework
Agreement on Comprehensive Economic Cooperation.
The Agreement on Trade in Goods and the Agreement on the Dispute
Settlement Mechanism of the Framework Agreement on Comprehensive
Economic Cooperation between ASEAN and China were signed in
November 2004 and entered into force on 1st January 2005. According to
the Agreement on Trade in Goods, China has been gradually reducing
tariffs on thousands of goods to zero originated from ASEAN members.
The Agreement on Trade in Services of the China-ASEAN Free Trade
Area was signed in January 2007 and entered into force on 1st July 2007,
under which China shall lower the market access requirements of some
10
The Gulf Cooperation Council (GCC), the Member States include: United Arab Emirates, the Kingdom of
Bahrain, the Kingdom of Saudi Arabia, Kuwait, the Sultanate of Oman, and Qatar.
10
FTA
The
China-Pakistan
FTA
The China-Chile
FTA
The China-New
Zealand FTA
The
China-Singapore
FTA
The Main Contents

service sectors including construction, environment, transportation,
sporting and business services, etc.
In August 2009, the two Parties signed the Agreement on Investment
which will facilitate the two-way investment and strengthen the relevant
cooperation.
The China-Pakistan Free Trade Agreement was signed on 24th
November 2006 and entered into force on 1st July 2007. According to the
Agreement, China shall follow two phases to reduce the tariffs of all
products. In the first phase when after the enforcement of the Agreement
in five years, China shall reduce the tariffs on the products which take up
85% of the total tariff lines in five categories with different reduction. The
second phase begins from the sixth year of the enforcement of the
Agreement, and since then China shall eventually realize duty-free in
90% of all its tariff lines and trade value as well.
Meanwhile, both sides have reached an agreement on detailed
provisions in investment, rules of origin, trade remedy, TBT and SPS.
On 21st February 2009, China signed the Agreement on Trade in Service
of the China-Pakistan FTA which entered into force on 10th October
2009. According to the Agreement, China shall further open 28
sub-sectors in six main sectors of service in addition to its WTO
commitment.
On 18th November 2005, China and Chile signed the China-Chile Free
Trade Agreement which entered into force on 1st October 2006. Under
the FTA, 63% of China's import tariffs were eliminated in two phases
from 1st October 2006 to 1st January 2007. Most other tariffs are to be
eliminated within five or ten years with the aim of 97% of China's import
tariffs being eliminated by 1st January 2015.
The Supplementary Agreement on Trade in Services of the Free Trade
Agreement between China and Chile was concluded on 13th April 2008.
According to the Agreement, China shall further open 23 services sectors
and its sub-sectors including computer services, air transport services,
sports services, etc. in addition to its WTO commitment.
On 7th April 2008, China signed the China-New Zealand Free Trade
Agreement which entered into force on 1st October 2008. The Agreement
covers areas of trade in goods, trade in services and investment. It is the
first FTA that China has signed with a developed country.
According to the agreement, China shall eliminate tariffs on 97.2% of
imports originated from New Zealand by different phrases. When the
FTA took effect on 1st October 2008, China has immediately eliminated
the tariffs on all the goods of which MFN tariffs were below 5%. The
tariffs of other goods have been gradually reduced since 2008.
Meanwhile, China also made much more liberal commitments than that
of WTO in sectors of business services, environmental services, sports
services, transportation services, etc.
The China-Singapore Free Trade Agreement (CSFTA) was signed on
23rd October 2008 and entered into force on 1st January 2009. The
Agreement covers many areas such as trade in goods, trade in services,
movement of people and customs procedures.
According to the agreement, China committed to eliminate the tariffs on
97.1% of goods imported from Singapore before 1st January 2010.
Meanwhile, the two sides made commitments beyond their WTO
commitments in areas including health services, education services,
accounting services, etc.
11
FTA
The China-Peru
FTA
The China-Costa
Rica FTA
Cross-strait
Economic
Cooperation
Framework
Agreement
The China Iceland FTA
The China Swiss FTA
The Main Contents

The China-Peru FTA was signed on 28th April 2009 and came into force
on 15th January 2010.
According to the agreement, in the area of trade in goods, China shall
through different phases eliminate the tariff on 90% of goods originated
from Peru which include aquatic products, minerals, fruits, etc.
Meanwhile, China also made a commitment to further opening its related
service sectors. In terms of the investment, the two sides shall provide
each other, the investors and their investments, the national treatment,
the most-favoured-nation treatment, and fair and impartial treatment after
the accession, and encourage the bilateral investment and provide
relevant facilitation. Meanwhile, the two sides also reached a wide range
of consensus on issues in terms of intellectual property, trade remedy,
rules of origin, customs procedures, TBT, SPS, etc.
The China-Costa Rica FTA was signed on 8th April 2010.
According to the agreement, in the area of trade in goods, the two sides
shall through different phases implement zero tariffs on more than 90%
goods originated from each other. Meanwhile, in the area of trade in
services, China shall, on the basis of its WTO commitments, further
open in 7 sectors and sub-sectors including computer services, real
estate, market research, translation, interpretation and sports
The two sides also reached broad consensus in intellectual property,
trade remedy, rules of origin, customs procedures, TBT, SPS,
cooperation, and many other areas.
On June 29th, 2010, the cross-strait economic cooperation framework
agreement was signed. The agreement covers the main economic
activities between two sides, including market opening of trade in goods
and trade in services, rules of origin, early harvest program, trade
remedy, dispute settlement, investment and economic cooperation, etc.,
fully reflecting the present situation and characteristics of the cross-strait
economic trade relations and providing an important safeguard
mechanism for the normalization of cross-strait economic ties,
institutionalization and liberalization.
The China-Iceland FTA was signed on 15th, April 2013. This Agreement
is the first FTA that China signed with a European country, covering
areas of trade in goods, services, investment and so on.
According to the Agreement, after the establishment of FTA, China shall
eventually make the zero-tariff products up to 96% counted by the
number of taxable items, or 100% by trade volumes. Besides, Chinas
commitments on trade in services which are higher than that of the WTO
are also scheduled in the Agreement and specific provisions are given to
the issues including investment, natural person movement, SPS, TBT,
rules of origin, customs procedures, competition policy, and intellectual
property rights.
The China-Swiss FTA was signed on 6th July 2013. The Agreement is the
first package FTA China has signed with a continental European country.
Both sides have reached an agreement with high level of trade
liberalization in goods, and a consensus on the government
procurement, environment, labour and employment cooperation,
intellectual property rights and competition rules.
According to the Agreement, Switzerland shall apply zero-tariff on about
99.7% of exports to China from the implementation of the Agreement.
China's exports to Switzerland shall eventually apply zero- tariff on
84.2% of exports to Switzerland. If products of partial reduction in tariff
12
FTA
2.2
2.2.1
The Main Contents

are involved, Switzerland's participation in tariff reduction is 99.99%, and
Chinas is 96.5%. Meanwhile, on the basis of the WTO commitments,
both sides will further reach an agreement to open the relevant service
sectors. Switzerland committed to further open in areas including
travelling, translation and others. China made a commitment to further
open some service sectors, such as securities sector.
Sri Lanka Economy and Foreign Economic Policy

Sri Lanka Economy
The government economic policy framework has been developed based on the key principles
set out in Mahinda Chinthana- towards a new Sri Lanka, 2005 and Mahinda ChinthanaVision for a new Sri Lanka- A ten year horizon Development framework 2006-2016.
Table 2-5 Key Economic Indicators - 2012
Key Economic Indicators
Demography
Population
20.3 Mn
Labour Force
8.5 Mn
Unemployment (% of Labour Force)
4%
National Production & Growth

GDP @ Current Market Price
US$ 59.4 Bn.
GDP Per Capita
US$ 2,923
GDP Growth Rate
6.4%
External Trade
Exports
US$ 9,774 Mn.
Imports
US$ 19,183 Mn.
Trade Balance
US$ -9,409 Mn
Source : Central Bank of Sri Lanka

Sri Lankas Ranking in Some Indexes
Doing Business Index (189 Countries)
81
Global Competitiveness Index (142 Countries)
52
Human Development Index (186 Countries)
92
Logistic Performance Index (137 Countries)
81
13
Global Food Security Index (105 Countries)
62
The Gross Domestic Product (GDP) in Sri Lanka was at US $ 59.42 billion in 2012. The GDP
value of Sri Lanka represents 0.10 percent of the world economy. The Sri Lankan economy
generated a 6.4 percent annual growth in 2012 pursuant to an 8 percent annual growth in the
two preceding years. The countrys per capita income reached near US $ 3,000 level in 2012,
underscoring sustained positive movements in the per capita growth that was witnessed
since 2005, in which year the per capita income was US $ 1,200. Sri Lanka is also a
developing economy and its per capita GDP ranking is 119. While the limited leading export
products of Sri Lanka are competitive in the world, it lacks diversification.
Table 2-6 Sectoral composition of GDP for year 2012
Sector
Agriculture, forestry and Fisheries
Agriculture, Livestock and Forestry
Fishing
Industry
Mining and Quarrying
Manufacturing
Electricity, Gas and Water
Construction
Services
Wholesale and Retail Trade
Hotels and Restaurants
Transport and Communication
Banking, Insurance and Real Estate etc
Ownership of Dwellings
Government Services
Private Services
Gross Domestic Product
Value (US$ Mn) As Share of GDP (%)

2012
2012
2666.3
11.1
2344.3
9.8
322.0
1.3
7286.1
30.4
666.7
2.8
4101.9
17.1
571.9
2.4
1945.6
8.1
14041.9
58.5
5522.9
23.0
165.6
0.7
435872
14.3
269744
8.9
76926
2.5
207559
6.8
70779
2.3
3047277
100.0
Source: Central Bank Report of Sri Lanka
2.2.1.1
Agriculture Sector
The Agriculture sector grew by 5.8 percent in 2012, which contributed for 11.1 percent share
of GDP. Agriculture, livestock, forestry and fishing are the key sub sectors which have
contributed to the performance of this sector.
The contribution from agriculture sector to GDP has played a vital role in Sri Lankas
Economic Development. This sector was the third highest contributor during the last decade
and the second highest contributor to employment, and was at 31.0 per cent in 2012. It is the
main source of livelihood of the rural population, which accounts for 70 per cent of the total
population. Therefore, the Agriculture sector will remain as the largest in absolute terms, and
14
must be strengthened to attain higher growth rates and to play a dynamic role in the overall
Economic Development of the country.
The average growth of the Agriculture sector during the last year was 5.8 per cent compared
with 10.3 per cent in industry and 4.6 per cent in service. Even though its relative position in
the Economy has been declining with the growth of industries and services, because of its
strong linkages with other sectors, agriculture continuous to be the main element of Sri
Lankas economy. Therefore, the Agriculture sector is a significant determinant of national
and provincial GDP.
The agriculture sector will continue to play an important role in the application of strategies
targeted towards a planned socio-economic development of the country. Sri Lanka, as a Net
Food Importing Developing Country (NFIDC), it is essential to target for a rapid growth of the
agricultural sector, particularly the domestic food production, floriculture and export crop
sectors to achieve self-reliance at national level.
2.2.1.2
Livestock Sector
Livestock is an integral part of the agriculture economy of Sri Lanka. The consumption of
livestock produce has increased dramatically over the last two decades. While the
consumption needs of poultry products are supplied from domestic enterprises, milk and
dairy products are sourced in increasing quantities from abroad. The import bill on dairy
products is close upon one fifth of the total import bill on food commodities. The policies and
strategies aim to develop the livestock sector in the pursuit of exploring the contribution of
livestock for the economic development and social stability of the country. The livestock sub
sector contributes around 1.2% of national GDP.
2.2.1.3
Dairy Sector
Dairy sector is the most important of all livestock sub sectors. The domestic milk production
only constitutes about 17 percent of the requirement and the rest is imported. The import bill
on dairy commodities is around 15 billion rupees or approximately US $ 13 million. The
government attention is most focused on the dairy sub sector; to develop this sector into a
local industry and it aims at producing 50% of countrys requirement of milk by the year
2015.
2.2.1.4
2.2.1.4.1
Agriculture and Food Security
Paddy
The paddy sector receives the highest priority in the development agenda because paddy is
the staple food in Sri Lanka. Over the time, the paddy sector has been transformed rapidly
15
from the traditional to commercial status due to the adoption to new methods of cultivation,
and high yielding varieties, and extensive investment in irrigation, and settlement and other
infrastructural developments undertaken at different periods of time. The paddy production
has increased in recent years making the country self-sufficient in rice.
Table 2-7 Paddy Production in Sri Lanka 2010-2012 (Mt000)
Item
Production
2010
4,301
2011
3,894
2012
3,846
Sources: Department of Census and Statistics, Department of Customs, Central Bank of Sri
Lanka
2.2.1.4.2
Domestic Field Crops
Following the government development policy towards making Sri Lanka self-sufficient in
food and agricultural products, various initiatives have been taken through Divi Neguma"
programme to encourage production. The production of field crops, including maize, green
gram, red onion, big onion, chillie, cowpea, kurakkan, black gram and ground nut have
increased significantly in 2012. With the achievement of self-sufficiency in paddy and maize,
the government aims to achieve self-sufficiency in green gram, black gram, cowpea, soya
bean, onion, dried chillie, potatoes ground nut and kurakkan by 2015.
Gross official reserves and total external assets of the country continued to increase in 2012.
The total foreign reserves of the country increased to US $ 8.4 billion at the end of 2012, from
US $ 7.2 billion in 2011.
2.2.2
Trade performance
Sri Lankas exports to the world have increased from US $ 6.3 billion in 2005 to US $ 10.5
billion in 2011, although earnings from exports declined by 7.4 percent in 2012 to US $ 9.8
billion mainly due to the decline of the industrial exports to EU and the USA.
Similarly, imports to the country have also increased from US $ 8.8 billion in 2005 to US
$ 20.3 billion in 2011. India, China, Singapore and UAE continued to be the dominant
suppliers to the country. In 2012, total expenditure on imports declined by 5.4 percent to US
$ 19.2 billion with comparison to 2011. Continuous growth in imports has caused to widen the
trade gap from US $ 2.5 billion in 2005 to US $ 9.4 billion in 2012. In terms of global trade, Sri
Lankas share in exports remains at 0.05 percent while imports remain at 0.1 percent.
The following table illustrates the current trends in exports and imports of Sri Lanka.
Table 2-8 Imports - Exports and Trade Balance (2003-2012)
Year
2002
2003
Export (US $ Mn)

4699.1
5,133.3
Import (US $ Mn)

6104.8
6,671.9
16
Trade Balance (US $ Mn)

-1405.7
-1538.6
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
Export (US $ Mn)

5,757.2
6,346.7
6,882.7
7,640.0
8,110.6
7,084.5
8,625.8
10,558.8
9,773.5
Import (US $ Mn)

7,999.8
8,863.2
10,253.0
11,296.5
14,091.2
10,206.6
13,450.9
20,268.8
19,182.6
Trade Balance (US $ Mn)

-2242.6
-2516.5
-3370.3
-3656.5
-5980.6
-3122.1
-4825.1
-9710.6
-9409.1
2.2.2.1
Direction of Exports of Sri Lanka
The USA and the EU continue to be the major export destinations for Sri Lankan products
accounting for 68 % of its total exports. Sri Lankas exports to the USA demonstrated a
growth of 8.4 % in 2012 compared to 2011. Sri Lankas exports to the USA amounted to US
$ 2.1 billion in 2012. The following table demonstrates the current export destinations of Sri
Lanka and their rankings.
Table 2-9 Direction of Exports of Sri Lanka - 2012
Country
USA
United Kingdom
India
Belgium- Luxembourg
Italy
Germany
Russia
United Arab Emirates
Japan
Iran
France
Netherlands
Canada
Turkey
Australia
China
Hong Kong, China
Syrian Arab Republic
Chile
Singapore
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Value (US $ Mn)

Share %
2,126
21.7
1,059
10.8
576
5.8
533
5.5
508
5.2
455
4.2
262
2.7
223
2.3
217
2.2
196
2.0
177
1.8
159
1.6
144
1.5
139
1.4
135
1.4
113
1.2
110
1.1
107
1.1
104
1.1
100
1.0

17
2.2.2.2
Composition of Exports
The largest contribution to export earnings in 2012 came from industrial exports
(75.4%) followed by agricultural exports (23.9%). Among industrial exports, textile and
garments remained the major contributor. Agricultural exports were mainly driven by tea,
spices, rubber and coconut products. Table 2-10 illustrates the composition of Sri Lankas
exports with its share for 2012.
Table 2-10 Composition of Exports -2012
Category
Value (US$ Mn)
Agricultural Exports
Tea (including packeted)
Rubber
Coconut
Spices
Vegetables
Unmanufactured Tobacco
Minor Agricultural Products
Sea Food
Industrial Exports
Textiles and Garments
Rubber Products
Petroleum Products
Gems, Diamonds and Jewellery
Food, Beverages and Tobacco
Machinery and Mechanical Appliances
Printing Industry Products
Transport Equipment
Leather, Travel Goods and Footwear
Ceramic Products
Other Industrial Exports
Mineral Exports
Unclassified
Total Exports
2,331.5
1,411.9
125.1
208.9
256.1
13.3
42.2
76.0
198.0
7,371.2
3,991.1
859.4
463.0
558.9
284.3
297.5
41.8
164.9
55.4
35.8
619.2
61.3
9.6
9,773.5
Share %
23.9
14.4
1.3
2.1
2.6
0.1
0.4
0.8
2.0
75.4
40.8
8.8
4.7
5.7
2.9
3.0
0.4
1.7
0.6
0.4
6.3
0.6
0.1
100.0
2.2.2.3
Direction of Imports of Sri Lanka
As stated elsewhere in the text, India, China, Singapore, UAE and Malaysia continue to be
the major suppliers of goods to Sri Lanka. The following table illustrates the direction of
imports to Sri Lanka.
18
Table 2-11 Direction of Imports of Sri Lanka - 2012

Country
India
China
Singapore
United Arab Emirates
Malaysia
Iran
Hong Kong, China
Japan
South Korea
Thailand
Rank
1
2
3
4
5
6
7
8
9
10
Value US $ (Mn)
Share %
3,640
19.0
2,667
13.9
1,683
8.8
1,289
6.7
811
4.2
778
4.1
605
3.2
552
2.9
532
2.8
458
2.9
2.2.2.4
Composition of Imports
The share of intermediate and investment goods accounted for 84.2 percent of the
total imports in 2012 due to continuous expansion of economic activities in the country.
Import value of intermediate goods increased mainly due to higher expenditure of
petroleum products, while the investment goods recorded a substantial increase of 21.1
percent. The expenditure on consumer goods imports was partly driven by import of
motor cars and sugar and sugar confectionery products.
The following table illustrates the composition of imports and their share for the year 2012.
Table 2-12 Composition of Imports -2012
Category
Consumer Goods
Food and Beverages
Other Consumer Goods
Intermediate Goods
Investment Goods
Unclassified Imports
Total Imports
Value (US$ mn)
Share %
2,995.2
1,304.4
1,690.8
11,569.9
4,589.8
27.7
19,182.6
15.6
6.8
8.8
60.3
23.9
0.1
100.0
2.2.3
1.
Macro Economic Growth Targets
Per Capita Income (PCI) to reach US $ 4000 by 2016 and export target of US $ 20 billion
by 2020.
Sri Lanka has already graduated from a low income country to a lower middle income country.
The next step, in terms of PCI is the upper middle income country status which Sri Lanka
envisages to attain by 2016. Sri Lanka will continue to monitor a number of key areas to
19
ensure a continuous growth of its per capita income beyond US dollars 4,000. It is also
envisaged to achieve export target of US $ 20 billion by 2020.
2.
FDI inflow target of
US $ 5000 million, to reach by 2016
Foreign Direct Investment (FDI) flows to Sri Lanka, in the first half of 2013, reached US$ 430
million. It is expected to reach US $ 2 billion by end of the year.
2.2.4
Sri Lankas Foreign Economic Policy
The Mahinda Chintana - A Ten Year Horizon Development Framework 2006-2016"

(TYHDF 2006-2016) identifies international trade as one of the significant macroeconomic
instruments to achieve the countrys development goals. It envisages closer integration of
trade promotion in the national development framework by further rationalization of trade and
tariff policies, facilitation of a fair trading environment and encouragement of investment. The
trade objectives within the TYHDF 2006-2016 also focus on increasing integration of the Sri
Lankan economy with global markets.
Sri Lanka is committed to pursue an outward-oriented trade regime following the principles of
the WTO, with a view to enhancing overseas market access for its products and achieving
greater integration into the world economy. Towards achieving the desired objectives, Sri
Lanka continues to simplify her tariff structure and encourage foreign direct investment into
the country for infrastructure development and expanding the output while generating
employment opportunities.
Sri Lanka's unilateral trade liberalization process was initiated in 1977, and successive
governments have continued these policy measures despite the internal conflict of the past
and the recent global economic downturn.
Sri Lanka also actively engages in negotiations at regional and bilateral levels while
maintaining her multilateral commitments and obligations. At multilateral level, Sri Lanka
remains committed to a fair, equitable, transparent and progressively liberalized multilateral
trading system, with due consideration given to the needs of all developing countries. Sri
Lanka actively participates in the negotiations on the Doha Development Agenda (DDA),
particularly in areas such as Agriculture, NAMA, TRIPS, and Trade Facilitation.
Sri Lanka, being a Net Food Importing Developing Country (NFIDC), has placed a great
importance on the need for flexibilities to safeguard rural development, livelihood of farmers
and food security.
At regional level Sri Lanka is a member of the South Asian Free Trade Area (SAFTA) and the
Asia-Pacific Trade Agreement (APTA). Sri Lanka is a founding member of Bay of Bengal
Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) and Indian
Ocean Rim Association for Regional Cooperation (IOR-RAC). She is also a member of the
Global System of Trade Preferences (GSTP).
20
Bilaterally, Sri Lanka has entered into two FTAs with India in 1998 (Indo-Sri Lanka Free
Trade Agreement (ISFTA)) and with Pakistan in 2002 (Pakistan-Sri Lanka Free Trade
Agreement (PSFTA)).
Preferential tariffs are granted for agreed products under regional and bilateral trade
agreements namely; South Asian Preferential Trade Agreement (SAPTA) South Asia Free
Trade Agreement (SAFTA), Asia-Pacific Trade Agreement (APTA)), India-Sri Lanka Free
Trade Agreement (ISFTA), and Pakistan-Sri Lanka Free Trade Agreement (PSFTA) and also
under the Global System of Trade Preferences (GSTP).Trade policy aims at minimizing the
use of non-tariff barriers. A few import restrictions are maintained mainly relating to health,
safety, security, environment and public moral reasons.
In complying with WTO TRIPS Agreement, Sri Lanka enacted new comprehensive
intellectual property legislation in 2003. The new Act covers: copyright and related rights;
industrial designs; patents; marks and trade names; layout designs of integrated circuits;
unfair competition and undisclosed information; and geographical indications. The new Act
has also extended the term of copyright protection, from life plus 50 years, to life plus 70
years. Comprehensive legal provisions have also been introduced to fight against piracy.
The Imports and Exports (Control) Act No. 1 of 1969 and by Special Import Licence
Regulation No. 1 of 1977, as amended, regulate the list of goods subject to import licensing.
Sri Lanka has notified to the WTO of her rules regarding import licensing procedures in May
2003. The Department of Import and Export Control administers the import and export
measures on selected products on the basis of economic, national security, health and
environment reasons. Licenses are processed within two working days. Block Licenses
(valid for 01 year) are issued to importers of pharmaceuticals, who have continuously
imported pharmaceuticals during past three year period.
2.2.5
Sri Lanka FTA Practice
2.2.5.1
Global Level
2.2.5.1.1
Global System of Trade Preferences (GSTP)
Global System of Trade Preferences is a tariff preferential scheme negotiated under the
aegis of the United Nations Conference on Trade and Development (UNCTAD) with a view to
increasing South South Trade and Economic Cooperation. The first and the second round
were concluded and concessions have been exchanged among member countries on a
narrow range of products.
2.2.5.2
2.2.5.2.1
Regional Level
South Asian Free Trade Area (SAFTA)
21
Sri Lanka is a member of the South Asian Association for Regional Cooperation (SAARC).
The eight members of the SAARC namely Afghanistan, Bangladesh, Bhutan, India, the
Maldives, Nepal, Pakistan and Sri Lanka signed the Agreement on the South Asian Free
Trade Area (SAFTA) in January 2004 and it was implemented with effect from 1 January
2006, superseding SAPTA. The Agreement covered goods in the first phase and contained
special and different treatment for LDCs and Sri Lanka was recognized as a small economy
member country for special dispensation.
Since the implementation of SAFTA, US$2.3 billion worth of goods have been traded among
the member states, out of which Sri Lanka has exported US$1.53 million worth of goods to
Bangladesh, India, Maldives, Nepal and Pakistan while Sri Lanka has imported US$4.82
million worth of goods from Bangladesh, India, Maldives and Pakistan during the period of
July 2006 to Dec 2012.
Under the Trade Liberalization Programme of SAFTA, the customs duties on products from
the region will be progressively reduced. The SAARC member countries are in the process of
reducing the existing Sensitive List by 20%, which shall be implemented in the near future.
SAARC Agreement on Trade in Services (SATIS)

The SAARC Agreement on Trade in Services was signed in April 2010 to include Trade in
Services to the SAFTA. Subsequently, it was decided to exchange the initial request and offer
lists amongst its Members, which are currently ongoing. However, Sri Lankas offer remains
limited to what was offered in the DDA.
2.2.5.2.2
Asia-Pacific Trade Agreement (APTA)
Asia-Pacific Trade Agreement (APTA) which is the successor to the Bangkok Agreement (BA)
came into force in November 2005. Three rounds of negotiations have already been
concluded. The six Participating States comprise of Bangladesh, China, India, Laos,
Republic of Korea and Sri Lanka and APTA has formally welcomed Mongolia as the seventh
(7th) Participating State of APTA during its 42nd Session meeting on 25th October 2013.
The fourth round of APTA Negotiation was launched at the Second Session of the Ministerial
Council held on 26th October 2007, with a view to reaffirm commitment to further widening
product coverage and deepening the tariff cuts and to extend negotiations into other trade
related areas such as trade facilitation, services, investment and non tariff measures.
During 4th round, it has been decided to increase product coverage up to 27% of total tariff
lines at 6 digit level with an average Margin of Preference (MOP) not less than 33% with an
exemption for Least Develop Countries (LDCs) to comply with the aforesaid percentages. Sri
Lanka also succeeded in getting the same relaxation negotiated by LDCs.
Sri Lanka's major exports to APTA countries are: natural rubber, desiccated coconut, coconut
fibre, copra, coconut oil, tea, cloves, and crude glycerine.
22
Sri Lanka receives preferential market access to China only through APTA. However, market
access thus provided is limited in terms of product coverage and MOP. Therefore, Sri Lankas
exports to China under APTA are largely concentrated in one tariff line (Coir fiber).
2.2.5.3
Bilateral Level
2.2.5.3.1
Indo-Sri Lanka Free Trade Agreement (ISFTA)
The Framework Agreement of ISFTA was signed on 28th December 1998 and entered into
force with effect from 1st March 2000, provides duty free concessions to a wide range of
products traded between the two countries. The Agreement covers only trade in goods and
requires the two countries to offer market access for each other's exports on duty free basis
and concessionary tariffs. The ISFTA trade liberalization program was fully completed by
November 2008.
Table 2-13 Tariff Liberalization Programme under the ISFTA
India
429 Tariff lines
(at HS 6-digit level)
Zero Duty List
1,351 Tariff lines
(100% immediate duty (at HS 6-digit level)
reduction with effect
from 1st March 2000)
Sri Lanka
1,170 Tariff Lines
342 Tariff Lines
Residual List
2,799 Tariff lines
(50%
margin
of (at HS 6-digit level)
preference(MOP) upon
coming into force of the The MOP in respect of these
Agreement)
items shall be increased
to100% in two stages within
three years of the coming into
force of the Agreement
880 Tariff Lines

Negative List
Phasing out List from 1st N/A

March 2000
The MOP in respect of these

items shall be increased to
-70% at the end of the First year
-90% at the end of the Second
year
-100% at the end of the Third year
2,802 Tariff lines
Tariff shall be brought down by
not less than 35% before the end
of the Third year from date of
entry into force
of the Sixth year from date of
entry into force
of the Eighth year from date of
entry into force
The tariff of two items (HS Codes
2523.21 and 2523.29) reduced at
end of 8 years from the date of
23
India
Tariff Rate Quota
2.2.5.3.2
Sri Lanka
entry into force of the Agreement,
despite their being in the Negative
List of Sri Lanka
Garments , Tea, Pepper, N/A
Desiccated
Coconut
,Vanaspati
and
selected
Textile items are subjected to
the Annual Tariff Quota.
Pakistan Sri Lanka Free Trade Agreement (PSFTA)
The Framework Agreement of PSFTA was signed on 1 August 2002 and PSFTA entered into
force effective from June 12, 2005.
Table 2-14 Tariff Liberalization Program under the PSFTA
PAKISTAN
SRI LANKA
541 Tariff Lines at 6 digits
100% immediate duty

reduction (12.06.2005)
No Concession List
Tariff Rates Quota
Phasing Out List
Apparel and Tea are subject to Basmati and Potatoes are subject
Annual Tariff Quota
to Annual Tariff Quota
-Upon entering into force not less
than 20% (12.06.2005)
-At the end of first year not less
-Upon entering into force not
than 30%
less than 34% (12.06.2005)
-At the end of the second year not
-At the end of the second year
less than 40%
not less than 67%
-At the end of the third year not
-At the end of third year not less
less than 60%
than 100%
- At the end of the fourth year not
less than 80%
- At the end of the fifth year not
less than 100%
PSFTA includes provisions for reviewing all its Annexes every two years.
Standing committees under both ISFTA and PSFTA have been established to review the
progress and address implementation related issues.
Asymmetric nature between Sri Lanka and the other two economies was duly recognized and
reflected in all elements of the agreements. Both agreements were notified to the WTO under
the Enabling Clause of 28th November 1979 of GATT 1947.
24
3 Bilateral Trade and Economic Relations between China and

Sri Lanka
3.1
Overview of Bilateral Trade and Economic Relations
Modern trade relations between Sri Lanka and China began with the signing of Rice Rubber
pact in 1952 and have continued to strengthen since then.
According to statistics of the General Administration of Customs P.R.C., in 2012, the bilateral
trade volume has reached USD 3.171 billion, among which China's exports amounted to USD
3.01 billion, while imports reaching USD 162 million.11
By the end of 2012, the turnover of Chinese contracted projects in Sri Lanka reached USD
1.53 billion with 4390 dispatched labors.12
3.2
Two-way Trade in Goods
According to Chinese Customs, the value of trade between the two countries increased from
USD 1.434 billion in 2007 to USD 3.171 billion in 2012, representing an annual increase of
17.2%. In 2012, China exported products of USD 3.01 billion (+0.67% compared to 2011) to
Sri Lanka, accounting for 0.15% of Chinas total exports. China imported USD 162 million
(+7.1%compared to 2011) from Sri Lanka, accounting for 0.01% of Chinas total imports.
China enjoyed a trade surplus worth of USD 2.848 billion in the bilateral trade with Sri Lanka
in 2012, increasing 0.32 % in comparison with 2011 (See Table 3-1). China's main imports
from Sri Lanka were plant fiber, tea, rubber, ore sand and apparel. China's main exports to
Sri Lanka were machinery, electronic products, and cotton, knitting and chemical fiber.
Table 3-1 Bilateral Trade between China and Sri Lanka
Year
2007
2008
2009
2010
2011
2012
Export
13.86
16.24
15.69
19.95
29.90
30.10
Import
0.48
0.59
0.71
1.02
1.51
1.62
Total Trade
14.34
16.84
16.40
20.97
31.41
31.71
Trade Balance
13.38
15.65
14.99
18.93
28.39
28.48
Source: General Administration of Customs of the P.R.China
11
12
Source: General Administration of Customs P.R.C.

Source: National Bureau of Statistics of China, The 2012 China Statistical Yearbook
25
According to Sri Lanka Customs, China is currently the 2nd largest supplier of goods to Sri
Lanka, accounting for 14% of Sri Lankas total imports of US$ 19.2 billion in 2012. As far as
Sri Lankas exports are concerned, China absorbs 1.2%, becoming the 16th export
destination of Sri Lanka. The imports from China to Sri Lanka which stood at US$ 0. 6 billion
in 2005 accounting for 7.6% of Sri Lankas total imports, surged to US$ 2.6 billion in 2012
accounting for 14%. However, Sri Lankas exports to China remain proportionately at a lower
level. Sri Lankas export to China which stood at US$ 28 Mn in 2005, has only increased up
to US$ 108 Mn over the last 8 years accounting for 1.2% of the Sri Lankas total export to the
world. The balance of trade has been highly in favor of china widening the deficit to US$ 2.5
billion in 2012 from US$ 0.6 billion in 2005 registering more than fourfold increase in the
deficit.
Table 3-2 Overview of Bilateral Trade
Imports
US$ Mn
Period
2005
2006
2007
2008
2009
2010
2011
2012
2013
Jan-Jun
630.6
787.2
930.2
1108.5
881.0
1240.1
2135.4
2568.0
1375.8
Share
of
Total
Sri Exports
Lanka
US$ Mn
imports (%)
7.6
28.4
8.0
25.6
8.2
35.6
8.1
47.8
9.3
59.3
10.0
89.1
10.8
104.1
14.0
108.0
16.6
52.2
Share
of
Balance of Total
Total
Sri
Import
Trade
Trade
Lanka
Coverage
US$ Mn
US$ Mn
Exports (%)
Ratio (%)
0.5
-602.2
658.9
4.5
0.4
-761.6
812.9
3.3
0.5
-894.6
965.8
3.8
0.6
-1060.6
1156.3
4.3
0.8
-821.7
940.3
6.7
1.1
-1151.0
1329.2
7.2
1.0
-2031.3
2239.4
4.9
1.3
-2459.6
2676.1
4.2
1.2
-1323.7
1428.0
3.8
Source: Sri Lanka Customs Statistics
3.2.1
Imports by Sri Lanka from China
The major items Sri Lanka imports from China are mechanical & electronic products,
technological products, textile products, etc. The following table provides detailed information
on imports from China.
26
Table 3-3 Sri Lanka's Imports from China @ 4 digits Level

Serial
HS
Code
Description
No
1
8517
2
3
4
5
6
7
8
9
10
11
6006
5209
5208
3102
5512
8406
8404
3103
8605
8403
12
5513
13
8704
14
8544
15
16
17
18
7308
8528
8502
8474
19
6004
20
8539
27
Telephones sets including telephones for cellular networks of for other

wireless
Other knitted or crocheted fabrics
Woven fabrics of cotton, containing 85% or more by
Woven fabrics of cotton, containing 85% or more by weight of cotton
Mineral or chemical fertilisers, nitrogenous.
Woven fabrics of synthetic staple fibres containing 85% or more
Steam turbines and other vapour turbines.
Auxillary plants for use with boilers of heading no 8402 or 8403
Minaral or chemical fertilisers, phosphatic
Railway or tramway passenger coaches not self prop
Central heating boilers other than those of headin
Woven fabrics of synthetic staple fibres, containing less than 85% by
weight of
Motor vehicles for the transport of goods
Insulated (including enamelled or anodised) wire, cable (including
co-axial cabl
Structured (excluding prefabricated buildings of h
Reception apparatus for television, whether or not
Electric generating sets and rotary converters.
Machinery for sorting,screening, seperating, washi
Knitted or crocheted fabrics of a width exceeding 30cm, containing by
weight 5%
Electric filament or discharge lamps, including sealed beam lamp units
and ultra
2010
2011
2012
US $ Mn
37.7
US $ Mn
112.9
US $ Mn
150.2
2012
5.9
82.1
43.2
42.0
15.3
27.1
0.0
0.0
8.6
0.0
0.0
15.6
132.5
87.3
58.2
60.3
45.4
0.1
5.2
51.6
0.0
10.1
28.3
141.2
95.4
72.0
62.3
57.8
43.8
42.9
39.0
38.5
36.5
35.4
5.5
3.7
2.8
2.4
2.3
1.7
1.7
1.5
1.5
1.4
1.4
6.1
16.8
29.9
20.1
33.3
32.4
1.3
1.3
13.9
4.7
3.2
9.6
8.6
19.8
22.9
11.9
43.7
19.4
28.2
26.7
26.4
25.9
24.2
1.1
1.0
1.0
1.0
0.9
11.0
22.9
23.0
0.9
Serial
HS
Code
Description
No
21
8413
22
6908
23
5205
24
7210
25
26
27
1604
5515
8714
28
8414
29
8503
30
703
31
32
8433
5801
33
5402
34
8603
35
5804
36
5902
37
8426
38
8516
39
8471
Pumps for liquids, whether or not fitted with a measuring device; liquid
elevato
Glazed ceramic flags and paving, hearth or wall tiles; glazed ceramic
mosaic cub
Cotton yarn (other than sewing thread),containing
Flat-rolled products of iron or non-alloy steel, of a width of 600 mm or
more, c
Prepared or preserved fish; caviar and caviar sbst
Other woven fabrics of synthetic staple fibers:
Parts and accessories of vehicles of heading nos. 87.11 to 87.13.
Air or vacuum pumps, air or other gas compressors and fans;
ventillating or recy
Parts suitable for use solely or principally with the machines of
heading no.85.0
Onions, shallots, garlic,leeks and other alliaceous vegetables, fresh or
chilled
Harvesting or threshing machinery, including straw
Woven pile fabrics and chenille fabrics, other tha
Synthetic filaments yarn (other than sewing thread) not put up for retail
sale,
Self-propelled railway or tramway coaches, vans an
Tulles and other net fabrics, not including woven, knitted or crocheted
fabrics;
Tyre cord fabrics of high tenacity yarn of nylon or other polyamides,
polyesters
Ships'derricks; cranes, including cable cranes; mo
Electric instantaneous or storage water heaters and immersion
heaters, etc
Automatic data processing machines and units there
28
2010
2011
2012
US $ Mn
10.9
US $ Mn
6.6
US $ Mn
22.8
2012
0.9
7.4
14.3
22.8
0.9
31.7
7.7
25.4
11.7
22.0
21.7
0.9
0.9
0.5
10.7
25.5
9.3
11.4
21.7
23.6
16.1
21.6
21.4
20.1
19.5
0.8
0.8
0.8
0.8
2.0
1.9
18.8
0.7
31.4
24.4
18.0
0.7
8.1
6.3
15.0
19.1
16.5
23.0
17.7
17.6
17.3
0.7
0.7
0.7
0.0
9.3
0.0
11.3
16.9
16.7
0.7
0.7
8.3
22.9
16.2
0.6
2.2
7.1
13.0
16.9
15.9
15.9
0.6
0.6
1.8
8.3
15.4
0.6
Serial
HS
Code
No
40
8504
41
8481
42
3926
43
8429
44
4011
45
7214
46
8431
47
8507
48
9406
49
3917
50
5509
51
52
53
7217
8419
8537
54
7304
55
5210
56
8708
57
8415
Description
Electrical transformers, static converters and inductors
Taps, cocks, valves and similar appliances for pipes, boiler shells,
tanks, vats
Other articles of plastics and articles of other materials of headings
nos. 39.0
Self-propelled bulldozers, angle dozers, graders, levelers, scrapers,
mechanical shovels, excavators, shovel loaders, tamping machines
and road rollers
New pneumatic tyres, of rubber.
Other bars and rods of iron or non-alloy steel, not further worked than
forged,
Parts suitable for use solely or principally with
Electric accumulators, including separators therefor, whether or not
rectangular
Prefabricated buildings.
Tubes, pipes and hoses, and fittings therefor (for example, joints,
elbows, flan
Yarn (other than sewing thread) of synthetic staple fibres, not put up
for retai
Wire of iron or non alloy steel.
Machinery, plant or laboratory equipment, whether
Boards,panels,consoles,desks,cabinets and other ba
Tubes, pipes and hollow profiles, seamless, of iron (other than cast
iron) or st
Woven fabrics of cotton, containing less than 85% by weight of cotton,
mixed mai
Parts and accessories of the motor vehicles of headings 87.01 to
87.05
Air conditioning machines, comprising a motor driv
29
2010
2011
2012
US $ Mn
8.5
8.0
US $ Mn
18.3
7.7
US $ Mn
15.3
14.2
2012
0.6
0.6
6.8
9.4
13.9
0.5
8.0
31.5
13.7
0.5
11.1
3.6
16.7
4.8
13.4
13.3
0.5
0.5
4.4
2.9
2.8
7.6
13.3
13.2
0.5
0.5
37.0
1.6
1.4
5.7
13.0
12.9
0.5
0.5
9.5
9.5
12.8
0.5
7.6
1.8
7.7
4.5
13.7
3.8
2.1
5.9
12.6
12.5
12.3
11.4
0.5
0.5
0.5
0.4
7.8
12.9
11.2
0.4
4.5
9.8
11.0
0.4
4.9
9.0
10.9
0.4
Serial
HS
Code
Description
No
58
8428
59
8452
60
61
8701
5309
62
7306
63
64
8477
8421
65
8418
66
9028
67
3921
68
8480
69
70
7606
7326
71
5514
72
8901
73
5806
74
75
7318
6116
76
4810
Other lifting, handling, loading or unloading machinery (for example,

lifts, esc
Sewing machines, other than book-sewing machines of heading no.
84.40; furniture
Tractors(Other than tractors of heading 8709).
Woven fabrics of flax.
Other tubes, pipes and hollow profiles (for example, open seams or
welded, rivet
Machinery for working rubber or plastics or for th
Centrifuges, including centrifugal dryers; filteri
Refrigerators, freezers and other refrigerating or freezing equipment,
electric
Gas, liquid or electricity supply or production meters, including
calibrating me
Other plates, sheets, film, foil and strip of plastics.
Moulding boxes for metal foundry; mould bases; moulding patterns,
moulds for met
Aluminium plates, sheets and strip, of a thickness exceeding 0.2 mm.
Other articles of iron or steel
Woven fabrics of synthetic staple fibers, containing less than 85% by
weight of
Cruise ships, excursion boats, ferry-boats, cargo
Narrow woven fabric, other than goods of heading no 58.07; narrow
fabric consist
Screws, bolts, nuts, coach-screws, screw hooks, ri
Gloves, mittens and mitts, knitted or crocheted.
Paper and paperboard, coated on one or both sides with kaolin (china
clay) or ot
30
2010
2011
2012
US $ Mn
2.1
US $ Mn
2.7
US $ Mn
10.9
2012
0.4
4.2
10.5
10.7
0.4
8.5
7.4
8.3
15.7
14.9
9.3
10.5
10.5
10.5
0.4
0.4
0.4
3.6
5.2
4.1
6.5
3.7
7.9
10.2
10.2
10.0
0.4
0.4
0.4
3.8
8.9
9.8
0.4
5.8
3.8
8.6
6.5
9.7
9.6
0.4
0.4
6.1
6.1
2.3
9.4
8.1
7.9
9.6
9.4
9.2
0.4
0.4
0.4
0.4
4.5
1.2
6.7
9.1
9.0
0.4
0.4
5.9
4.1
4.1
7.9
5.6
8.5
9.0
8.9
8.6
0.4
0.4
0.3
Serial
HS
Code
No
77
78
808
902
79
3920
80
8536
81
8483
82
5903
83
6203
84
3812
85
8707
86
87
88
89
90
8308
9405
7216
8501
2922
91
8443
92
2803
93
8467
94
8479
Description
Apples, pears and quinces, fresh.
Tea, whether or not flavoured.
Other plates, sheets, film, foil and strip, of plastics non-cellular and not
rei
Electrical apparatus for switching or protecting electrical circuits, or for
mak
Transmission shafts (including cam shafts and cran
Textile fabrics impregnated, coated, covered or laminated with
plastics, other
Men's or boys' suits, ensembles, jackets, blazers, trousers, bib and
brace overa
Perpared rubber accelerators; compound plasticisers for rubber or
plastics, no
Bodies (including cabs), for the motor vehicles of headings nos.87.01
to 87.05.
Clasps, frames with clasps, buckles, buckle clasps
Lamps and lighting fittings including searchlights
Angles, shapes and sections of iron or non-alloy steel.
Electric motors and generators (excluding generating sets).
Oxygen-function amino-compounds.
Printing machinery,including ink- jet printing machines,other than
those of head
Carbon (carbon blacks and other forms of carbon elsewhere specified
or included)
Tools for working in the hand, pneumatic, hydraulic or with
self-contained non-e
Machines and mechanical appliances having individual functions, not
specified or
Others
31
2010
2011
2012
US $ Mn
8.0
5.5
5.7
US $ Mn
6.6
7.0
7.0
US $ Mn
8.6
8.5
8.3
2012
0.3
0.3
0.3
6.4
8.1
8.2
0.3
1.3
6.8
2.4
8.1
8.2
7.9
0.3
0.3
3.8
6.4
7.8
0.3
5.4
10.7
7.8
0.3
0.5
5.0
7.7
0.3
5.2
3.6
3.1
4.3
4.2
2.8
5.7
5.2
6.3
6.7
5.0
5.4
7.5
7.2
7.2
7.0
6.9
6.8
0.3
0.3
0.3
0.3
0.3
0.3
0.3
3.6
6.7
0.3
5.0
6.9
6.7
0.3
3.5
10.9
6.6
0.3
393.5
624.4
623.3
24.3
Serial
HS
Code
Description
No
Total
Source: Sri Lanka Customs
32
2010
2011
2012
US $ Mn
1240.1
US $ Mn
2134.6
US $ Mn
2568.0
2012
100.0
Table 3-4 Imports to Sri Lanka from China HS Chapter-Wise (US$ Mn)
HS
Description
2010
2011
2012
84
Nuclear reactors, boilers, machinery and mechanic
152.6
311.0
473.7
85
Electrical machinery and equipment and parts thereof;
136.9
295.3
400.2
52
Cotton
128.1
190.2
207.1
60
Knitted or crocheted fabrics
95.3
158.2
174.5
55
Man-made staple fibres
70.0
121.5
143.6
31
Fertilisers
24.1
113.1
103.0
73
Articles of iron and steel
61.5
81.6
99.7
87
Vehicles other than railway or tramway rolling-stock, and parts
54.5
99.6
98.8
72
Iron and Steel
31.1
60.9
74.4
39
Plastics and articles thereof
32.9
54.2
69.2
86
Railway or tramsway locomotivers, rolling-stock & parts
0.3
0.4
55.6
58
23.9
37.4
46.1
15.7
30.8
35.3
69
Special woven fabrics; tufted textile fabrics;lace; tapestries;

Inorganic chemicals; Organic or inorganic compounds of precious
metals,
Ceramic products
16.0
25.5
31.8
94
Furniture; bedding, mattresses, mattress supports, cushions, etc
45.0
14.1
30.6
90
Optical, photographic, cinamatographic, measuring,
14.3
22.6
29.7
48
Paper and paper board; articles of paper pulp, of
18.2
29.3
28.5
54
Man-made filaments
20.0
28.0
26.7
29
Organic chemicals
17.8
21.6
25.4
Others
949.8
855.9
552.8
28

Figure 3-1 Imports to Sri Lanka from China (Chapter Wise) - in 2012
Paper and paper board;

Organic chemicals
articles of paper pulp
1%
1%
Man-made filaments
1%
Optical, photographic,
cinamatographic,
measuring,
1%
Furniture; bedding,
mattresses, mattress
supports, cushions, etc
1%
Inorganic chemicals;
Ceramic products
Organic or inorganic
1%
compounds of precious
metals
Railway or tramsway
1%
locomotivers,
Others
20%
rolling-stock & parts

Special woven fabrics;
2%
tufted textile fabrics;lace; Plastics
tapestries, etc
and
Iron and Steel
2%
articles
3%
thereof
3%
Vehicles other than
Articles of iron and steel
railway or tramway
33 Fertilisers
4%
rolling-stock, and parts
4%
4%
Nuclear reactors, boilers,

machinery and mechanic
18%
Electrical machinery and

equipment and parts
thereof
15%
Cotton
8%
Knitted or crocheted
fabrics
Man-made staple fibres
6%
5%
3.2.2
Sri Lankas Exports to China
Sri Lankas major exports to China are tea, coconut-based products, rubber and rubber products, Garments, some electrical components and
mineral products. The following table provides detailed information on exports from Sri Lanka to China
Table 3-5 Sri Lanka's Exports to China @ 4 digits Level
S/N
HS
Code
5305
2
3
0902
2614
4005
6109
4012
7
8
9
2401
4001
6204
10
6310
11
12
13
14
15
16
17
18
3802
6116
6203
5607
8504
4015
6505
6104
19
6212
Description
Coconut, abaca (manila hemp or musa textile nee), ramie and other vegetable
text
Tea, whether or not flavoured.
Titanium ores and concentrates.
Compounded rubber, unvulcanised in primary forms or in plates, sheets or
strip.
T-shirts, singlets and other vests, knitted or crocheted.
Retreaded or used pneumatic tyres of rubber; solid or cushion tyres,
inter-chang
Unmanufactured tobacco; tobacco refuse
Natural rubber, balata, gutta-percha, guayule, chicle and similar natural gums
Women's or girls' suits, ensembles, jackets, blaze
Used or new rags, scrape twine , cordage, rope and cables and worn out
articles
Activated carbon; activated natural mineral products; animal black
Gloves, mittens and mitts, knitted or crocheted.
Men's or boys' suits, ensembles, jackets, blazers
Twine, cordage, ropes and cables, whether or not plaited or braided
Electrical transformers, static converters (for example, rectifiers) and inductors
Articles of apparel and clothing accessories (including gloves), for all purpose
Hats and other headgear, knitted or crocheted
Women's or girls' suits, ensembles, jackets, dress
Brassiers, girdles, corsets, braces, suspenders, garters and similar
articlesparts thereof
34
Value (US $'000)

%
2010
2011
2012
(2012)
28.33
30.54
27.80
25.71
6.44
1.75
4.64
11.27
3.92
7.86
14.63
13.81
6.89
13.53
12.77
0.94
1.58
2.74
3.53
4.16
3.60
3.84
0.28
2.59
0.33
0.54
0.20
7.76
0.58
1.92
3.37
2.51
2.47
2.18
3.12
2.32
2.28
1.70
0.18
0.14
0.85
1.39
1.48
0.67
0.20
0.10
1.66
0.47
0.42
3.05
1.53
1.58
0.55
1.50
0.52
1.64
1.38
1.20
1.16
1.10
1.07
1.02
1.02
0.81
1.51
1.27
1.11
1.07
1.02
0.99
0.95
0.94
6.37
3.33
2.01
0.74
S/N
20
21
HS
Code
9031
Description
Measuring or checking instruments, appliances and machines
Other
Total
35
Value (US $'000)

%
2010
2011
2012
(2012)
0.45
0.88
0.79
0.73
34.54
21.58
15.54
14.38
89.11
104.06
108.12
100.00
Table 3-6 Exports by Sri Lanka to China Chapter-Wise (US$ MN)
S/N
Chapte
r
53
2
3
4
09
40
26
61
62
24
63
85
10
Description
2010
Other vegetable textile fibres; paper yarn

and woven fabrics of paper yarn
Coffee, tea, mate and spices
Rubber and articles thereof.
Ores, slag and ash
Articles of Apparel and clothing
accessories, knitted or crocheted
Articles of Apparel and clothing
accessories, not knitted or crocheted
Tobacco and manufactured tobacco
substitutes
Other made up textile articles; sets; worn
clothing
Electrical machinery and equipment and
parts thereof; sound recorders and
reprod
Other
Total
2011
28.6
30.6
27.8
25.7
6.6
10.9
3.1
11.4
22.2
6.1
15.3
15.0
14.7
14.1
13.8
13.6
2.3
6.3
8.9
8.3
1.2
2.5
6.1
5.6
0.3
0.2
3.4
3.1
0.7
2.0
2.3
2.1
1.7
2.1
1.8
1.6
33.7
89.1
20.7
104.1
12.9
108.1
11.9
100.0

Figure 3-2 Exports by Sri Lanka to China Chapter-Wise (USD MN)
36
2012
3.3
Two-way Trade in Services
In recent years, China's contracted project in Sri Lanka has developed rapidly whose
turnover reached USD 140 million in 2007. By the end of 2012, the accumulated value
of contracts signed amounted to USD 9.052 billion and the turnover completed
reached USD 5.583 billion, among which in 2012 the newly signed contracts valued
USD 1.047 billion while the turnover completed valued USD 1.53 billion.13 In addition,
the dispatched labor of Chinese contracted projects in Sri Lanka rose to 4390 people
by the end of 2012.14
For Sri Lanka, to undertake an analysis on bilateral Trade in Services, no data are
available.
3.4
Two-way Investment
In recent years, the economic and trade tie between the two countries has become
increasingly closer. Sri Lanka officially declared that China has become the largest
investor in Sri Lanka, particularly in the fields of infrastructure construction, i.e. port,
railway, hotel, etc, as well as fishing and garment processing and so on, leading to a
further development of the cooperation between the two countries in investment. The
Sri Lanka government will offer the Chinese government and individual investors a
wider range of preferential policies, focusing on attracting investment to key areas as
infrastructure, fisheries, electronics, clothing, rubber, computer software, tourism, etc.
By the end of 2012, China's accumulated direct investment to Sri Lanka reached USD
243 million in which the portion of 2012 was USD 80.34 million, while China's total
number of projects invested by Sri Lanka amounted to 67 with the actual total
investment worth of USD 18.91 million.15
For Sri Lanka, after introducing the open economy, FDI inflows to Sri Lanka from
various countries have shown an increasing trend. Chinese investors have also
played a key role in this regard with 24 Chinese projects operating in Sri Lanka as at
end of October 2013 with an estimated investment value of US $ 121.25 Mn. Most of
these investments are in the sectors of Textile & Apparel, Fisheries, and
Manufacturing.
13
Source: China's Ministry of Commerce http:// yzs . mofcom. Gov. CN/article/T/201,302/20.1302 trillion
.shtml
14
Source: National Bureau of Statistics of China The 2012 China Statistical Yearbook
15
Source: China's Ministry of Commerce http:// yzs . mofcom. Gov. CN/article/T/201,302/20.1302 trillion
.shtml
37
Table 3-7 Chinese Projects in Sri Lanka (As at End of October 2013)
No
Name of the Enterprise
5
6
Approved /Awaiting Agreement

Garment Hangers For Export
Apartment Complex At Rajagiriya
Mixed Development Project In Colombo-04
Deep Sea Fishing
Awaiting Implementation
Blue Ocean Fishery (Pvt) Ltd.
Yoshidasha (Pvt) Ltd.
7
8
Kowloon Mining (Pvt) Ltd

Yuhang (Pvt) Ltd.
9
10
11
Awaiting Commercial Operation

Rui Yang Fishery Intl. Company (Pvt) Ltd
Mega Ten Bioenergy (Pvt) Ltd.
Vedanta Lanka (Pvt) Ltd.
12
In Commercial Operation
Ante Leco Metering Company (Pvt) Ltd.
1
2
3
4
13
Product Description
Value
(US$ Mn)
Garment Hangers
Apartment Complex
Mixed Development Project
Deep Sea Fishing
0.73
21.3
11.7
6.9
Deep Sea Fishing

200 Roomed Five Star Hotel In
Kandy
Process Quartz And Rutile
Cocopeat Bricks & Twisted
Fibre
12.6
41.9
1.4
0.8
Process Fresh Fish

0.3
10 Mw Dendro Power Plant
10.3
Tropical Fruits, Vegetables & 1.3
Spices
Energy Meters
0.4
0.7
21
Lanka- Yuncheng Plate Making Company Printing Cylinders

P.L
Creative Cycles (Pvt) Ltd.
Bicycles,Export Bicycle Wheels
Great Cycles (Pvt) Ltd.
Bicycle Frames & Forks,
Assemble Of Bicycle & Wheels
Opel Embroidery Services (Pvt) Ltd.
Provide Embroidery Ser
Textured Jersey Lanka Plc
Fabric & Related Products
Rasuki Apparel (Pvt) Ltd.
Garments
Daiyin Lanka Apparels (Pvt) Ltd.
Apparel & Textile Products
Lisen Lanka (Pvt) Ltd.
Polyethylene
Tereththalate
(Pet) Flakes
C.L. Intl. Consultancy (Pvt) Ltd.
Management Consultants
22
Taian Lanka Steel Company (Pvt) Ltd.
Steel Tubes
0.5
23
24
Taprobane Seafoods (Pvt) Ltd.

Flying Star Lighting (Pvt) Ltd.
Deep Sea Fishing

Cfl Bulbs & Bulb Holders
3.1
0.2
14
15
16
17
18
19
20
Total
0.6
1.6
0.07
3.8
0.1
0.9
0.05
121.25
Source : MIS/Board of Investment of Sri Lanka

38
3.5
3.5.1
Bilateral Economic Cooperation

Economic Cooperation and Development
The economic cooperation between China and Sri Lanka has a long history. There
were a large number of cooperation in infrastructure development and social and
economic development, particularly in the areas of infrastructure construction as the
port aviation, energy development, roads and highways, irrigation, etc.
According to the Joint Communiqu issued in May 2013, the two sides agreed to
further promote the mutually beneficial bilateral cooperation in investment. Chinese
government will continue to promote competitive Chinese enterprises to invest in Sri
Lanka, and to encourage private enterprises of the two sides to strengthen investment
cooperation, with a focus on fields like tourism, infrastructure construction, light
industry, food processing and packaging, agriculture, and export-oriented enterprises.
The two sides also agreed to enhance an all-round cooperation in tourism, laying
foundations to promote the exchange among travel agencies and workers in tourism
industry. China will also continue to encourage Chinese citizens to travel to Sri Lanka
and assist in exploring the Chinese tourism market. To strengthen cooperation under
the framework of the Asia Pacific Trade Agreement, the two sides agreed to launch
the Sino-Sri Lanka FTA negotiations process, to set up an expert group to conduct
feasibility studies, to encourage the use of domestic currency in bilateral trade and
investment. The two sides will work together to upgrade their bilateral economic
cooperation to a new level.
1. Economic and Technical Assistance
The economic and technical assistance from China began in 1957. A series of
projects have been constructed such as the Bandaranaike Memorial International
Convention Hall, the Supreme Court building and the National Performing Arts
Theatre. When the Indian Ocean tsunami occurred at the end of 2004, Chinese
government provided Sri Lanka with tsunami special assistance, relieved a batch of
matured debts, and dispatched medical teams to carry out rescue work. Civil society
in China also donated enthusiastically. As a result, "the China-Sri Lanka Friendship
Village" and "the Red Cross Village were built with the money collected.
2. Transport Facilities Cooperation
In 1999, the Railways Bureau of Sri Lanka bought from China National Machinery &
Equipment Import & Export Hubei Co., Ltd 15 six-section dieselmultiple-units
manufactured by CSR Sifang Co., Ltd whose products were welcomed by Sri Lanka
railway section for a comprehensive merit with high quality and reasonable price. This
39
deal laid a good foundation of the export of Chinese locomotives and carriages to Sri
Lanka.16 After that, China National Machinery Import & Export Corporation and China
National Machinery & Equipment Import & Export Hubei Co. Ltd negotiated
respectively with the Ministry of Transport and the Railways Bureau of Sri Lanka on
their passenger train and diesel multiple units import project from China. By offering
favorable loans that Sri Lanka requested, China signed with Sri Lanka a passenger
train export contract worth of USD 20 million and a multiple unit contract worth of USD
30 million in 2006.17
Chinese companies also involved in the high speed rail project from Colombo to the
Colombo International Airport, mainly including old-line reconstruction over 20 km,
new two-lane railway 11 km, housing construction, communications signal, power,
multiple units, passenger train and viaduct etc., worth of about USD 170 million. A
preliminary consensus was reached in August 2006 on the technical plan, overall
costs, etc., and part of favorable loans and commercial loans were also provided by
China.18
3. Communications Project Cooperation
The cooperation was also conducted in communications projects. In the late 1990s,
Shenzhen ZTE Corporation and Huawei Corporation began to develop the
communications business in Sri Lanka. Two companies broke the long-term
monopoly of foreign companies in Sri Lanka telecommunications area, so that China's
high-end communications technologies and products successfully entered the local
market. In 2005, ZTE and Sri Lanka Telecommunications signed the CDMA contracts,
making the debut of Chinese wireless terminal devices in Sri Lanka
telecommunications companies. By the end of 2009, ZTE's total contracts in Sri
Lanka amounted to USD 70 million. Also in 2005, Huawei realized the first
cooperation with Dialog, the largest mobile operator in Sri Lanka, which shook the
long-term monopoly position of world-renowned telecommunications suppliers Alcatel
and Ericsson, and then Huawei launched CDMA business cooperated with Lanka Bell
and Suntel, selling 170 thousand terminals. By the end of 2009, the total turnover of
Huawei has reached USD 50 million.19
4. Cooperation in Other Projects
Sri Lanka has been actively participating in the South Asian Countries Trade Fair
(SACTF), which is held in China since 2007 and rename as China-South Asian Expo,
and became the theme countries in 2011 fair and the rotating presidency country of
16
http://lk.mofcom.gov.cn/article/ztdy/200902/20090206054357.shtml
17
18
19
40
the South Asia Business and Trade Forum in the same year. With increasingly
frequent high-level reciprocal visits and deepening economic and trade cooperation of
the two sides, the scale of Sri Lanka exhibitions have been expanding year after year.
The number of Sri Lanka exhibitors in 2013 reached to more than 220 people and
booths to 130.20
In November 2011, China CAMC Engineering Co., Ltd. (CAMCE) signed with the
Ministry of Water Resources of Sri Lanka in Colombo a cooperation agreement on the
Yan Oya Reservoir Project worth of USD 175 million. According to the agreement,
CAMCE will build 5 dams and some supporting irrigation canals using loans from
China. The construction period is 4 years. Upon completion, the project can irrigate
7000 hectares crops, give direct benefits to 7000 rural families and at the same time,
create 3000 job opportunities in rural areas.21
In November 2013, China Communications Construction Company Limited and Board
of Investment of Sri Lanka signed an investment agreement on the Port City Project in
Colombo. The first-stage of the Port City Project mainly includes infrastructure
construction like breakwaters, hydraulic reclamation, bank protection, roads, etc.
When completed, it will form a land area of 233-hectare and become a high-end city
complex in South Asia integrated with finance, tourism, logistics, IT, etc. The total
investment of the project is about USD 1.4 billion and the construction period is 3
years. With a planning building area of 5.2 million m2 and a capacity of 160 thousand
people, Port City Colombo, upon completion, will create 83 thousand jobs and
become the central business district of Colombo.
3.5.1.1
The Development Framework
The strategic directives in relation to the economic development of Sri Lanka are well
articulated in the Development Policy Framework of the Government;
MahindaChintana Vision for the Future. The policy document embodies a more
gradual approach to reform, combining the positive attributes of market economic
policies, including encouragement of foreign direct investment (FDI) with support for
domestic enterprises. The core of the MahindaChintana Vision for the Future is to
achieve high growth rates through investment in large scale infrastructure and the
knowledge economy, and focus on rural development to help lagging regions. The
strategy is seen with the commencement of the infrastructure development of Sri
Lanka in the fields of ports, roads and highways, power, public utilities, arts and
culture. It is in this context that the Government embarked on a more rational and
productive journey to create better infrastructure conveniences to the nation that
would bring enormous economic gains in its economic development strategy.
20
http://gb.cri.cn/42071/2013/06/10/6611s4144391.htm
21
http://www.gov.cn/jrzg/2011-11/03/content_1985653.htm
41
The bilateral relationship between China and Sri Lanka has now reached new heights
with China emerged as one of leading development partners of Sri Lanka in the recent
past. In 1971, the Government of Sri Lanka has obtained a loan amounting to US$
6.70 million to import rice. Since then the total assistance extended by China up to
2012 was US$ 5,126 million of which US$ 4,818 million or around 94 percent was
extended during the last 8 years. With the accelerated infrastructure development
programme initiated by the Government of Sri Lanka to build a modern infrastructure
network suitable for an upper middle income economy in 2005, the annual
commitment made by the Peoples Republic of China has drastically increased and
stands at US$ 800-1,000 million at present. The current Chinese loan portfolio
includes 64 loans and the funds received under these loans have been invested in
high priority strategic development areas of roads, aviation, power and energy,
highways, irrigation and ports. The annual disbursements under these loans remain
around US$ 600 million.
During the year 2013, the Government of Sri Lanka was able to secure US$ 749
million under the Preferential Buyers Credit Facility of the EXIM Bank of China for
implementation of Kadawatha to Kerawalapitiya section of the Outer Circular
Expressway Project (US$ 520 million) and the Integrated Water Supply Scheme
covering the Gampaha, Attanagalla and Minuwangoda areas (US$ 229 million). In
addition, US$ 449 million has been secured under the Government Concessional
Loan Facility for implementation of the Kurunegala Water Supply and Sanitation
Project (US$ 77 million), the Hambantota International Hub Development Project
(US$ 252 million) and the building of necessary supportive infrastructure at the
recently commissioned MattalaRajapakse International Airport (US$ 120 million). The
Relocation of Moratuwa University Project will be financed through the loan
assistance of US$ 76 million obtained under the Buyers Credit Facility of the EXIM
Bank of China. Accordingly, the total commitment from the EXIM Bank of China in
2013 is US$ 1,272 million. In addition, the Government has secured financial
assistance of US$ 1,344 million under 2014 lending pipeline for implementation of
road rehabilitation projects in the southern part of Sri Lanka and also for the Extension
of Southern Expressway Project from Matara to Mattala International Airport. These
funds are also mobilized from the EXIM Bank of China under the PBC and GCL
facilities.
Table 3-8 Cumulative Chinese Financial Assistance to Sri Lanka Including
Loans and Grants (1971 -2012)
Sector
Roads & Bridges
Power & Energy
Ports & Shipping
Aviation
Other
Total
No. of Loans & Grants

19
11
5
2
27
64
42
Amount (US$ million)

1,642
1,751
1,183
232
318
5,126
%
32
34
23
5
6
100
Source: Department of External Resources

The Government also held initial discussions with the China Development Bank to
obtain US$ 680 million to finance development projects in the road sector and the
water sector. A Memorandum of Understanding was signed in this regard during the
visit of His Excellency the President Mahinda Rajapaksa to China.
During the past, China had funded several projects including the Supreme Court
Complex, the Central Mailing Exchange, Gin Ganga Flood Protection Scheme and
the redevelopment of the Lady Ridgeway Childrens Hospital. In the aftermath of the
tsunami disaster China helped Sri Lanka build three fisheries harbors for those
affected by the event and extended US$ 300 million worth of support.
The landmark projects implemented with Chinese assistance in the recent past
include Southern Expressway Extension (Galle - Matara), Hambantota Port
Development Project, Norochcholai Coal Power Project (900 MW), Mattala
International Airport Project, Colombo - Katunayake Airport Expressway Project,
Rehabilitation and Reconstruction of Highway Projects, Moragahakanda
Multi-purpose Development Project (Irrigation, drinking water and electricity) and
Matara- Kataragamarailwayline extension project and the NelumPokuna Art Theatre.
Figure 3-3 Sectoral Distribution of Assistance from China 2008 - 2012
Total, Ports &

Shipping,
874,452,594.00 ,
23%
Total, Power &

Energy,
1,194,283,439.00 ,
31%
Total, Aviation,
231,900,067.00 ,
6%
Total, Roads &
Bridges,
1,565,829,421.00 ,
40%
Roads & Bridges
3.5.1.2
Power & Energy
Ports & Shipping
Aviation
Other
Recent Developments
In 2011 Chinese Premier Wen Jiabao met with President Mahinda Rajapaksa in
Beijing where Premier Wen expressed the view that China is ready to help with the Sri
Lankas economic development, promote infrastructure, enlarge trade and investment
43
cooperation and strengthen cultural and personal exchanges. The two countries
signed agreements on a wide range of cooperation that covers infrastructure
development in transport, tourism, telecommunications, and port development.
Agreements for funding several projects including the Colombo Lotus Tower Project
and the Hambantota Port Development Phase II were also signed.
The Fifth Session of the Joint Committee on Trade and Economic Cooperation
between the Government of the Democratic Socialist Republic of Sri Lanka and the
Government of the Peoples Republic of China was held in Colombo on 24th April
2013 following which further financial assistance to Sri Lankas infrastructure
development, enhanced market access in China for Sri Lankas export of high value
garments, manufactured tea and rubber products and industrial goods made out of
primary raw material, greater inflow of Chinese tourists and investors to Sri Lanka
have been explored while strengthening mutual economic cooperation.
3.5.1.3
Grant Assistance
The government of China annually extends Grants Assistance to the tune of RMB 100
Million (US$ 10 15 Million) to Sri Lanka in support of projects in culture, art, health
and other social facilities The BMICH, the Superior Court Complex, the Lady
Ridgeway Childrens Hospital and the Nelum Pokuna Performing Arts Theatre are
landmark projects developed in Sri Lanka, with Chinese Aid. Aid from China
distinguished by its soft terms and its relevance to the development needs of the
country. It is noteworthy that in May 1964 China waived off all the interest on all the
loans given to Sri Lanka.
3.5.1.3.1
The BMICH
The BMICH built at a cost of around Rs. 35 million was handed over to the Sri Lankan
Government as a gift from the Peoples Republic of China in 1971 in memory of S W
R D Bandaranaike, Prime Minister of Sri Lanka from 1956 to 1959. The Non Aligned
Summit was held in Sri Lanka in 1974 and the venue was the BMICH. In 1998 another
Exhibition Centre was built next to the BMICH on the same ground, once again as a
gift from the Peoples Republic of China. It is named the Sirimavo Bandaranaike
Memorial Exhibition Centre. The grant of Chinese aid to Sri Lanka began during Mrs.
Bandaranaikes term of office.
3.5.1.3.2
Lady Ridgeway Childrens Hospital
This Childrens Hospital which was built with grant funds from the Chinese
Government has all medical facilities and has specialized units in varying fields. It is
also one of the well-equipped hospitals in Sri Lanka headed by senior consultants
providing quality service to both inpatients and outpatients.
44
3.5.1.3.3
Superior Courts Complex
The Superior Courts Complex was built with a grant fund of US $15 Million funds,
provided by the Chinese Government on a request made by the late President J.R.
Jayawarden, symbolizes the success of China Sri Lanka relations.
3.5.1.3.4
Nelum Pokuna Performing Arts Theatre
Nelum Pokuna Mahinda Rajapaksa Theatre is a landmark project in the development

of performing arts in Sri Lanka. It is a state of the art performance 5 storied theatre
with a seating capacity of 1,288 and other modern facilities and is situated in
Colombo.
Table 3-9 Projects with Chinese Grants
Project Title
Polonnaruwa Water Supply & sanitation
Maintenance of BMICH
International Study center BMICH
Construction of Exhibition center BMICH
Muthurajawela oil tank farm project
Renovation of fisheries Harbors damaged by Tsunami
Construction of few selected Road Infrastructure
Bandaranaike Memorial International Conference Hall
Superior Court Complex
Lady Ridgeway Hospital
Kandy Road (Kiribathgoda to Kadawatha)
Childcare and Maternal Building- Colombo North Teaching Hospital
Development of Ambulatory Care Center of National Hospital
Provision of Sports Goods for youth in Jaffna
3.5.1.4
3.5.1.4.1
Amount
US$ Million
32.9
2.1
1.5
1.8
3.6
18.2
14.5
15.7
3.6
2.0
10.0
6.5
14.5
0.2
Major Projects Funded with Chinese Assistance
The Second International Airport at Mattala
The Economic Policy Framework of the Government recognizes the establishment of

a second international airport in the South as an alternative international airport to the
Bandaranaike International Airport, Katunayake, to promote aviation connectivity in
the Region. The project was funded by the EXIM Bank of China under a concessional
loan and was constructed by the China Harbour Engineering Corporation. The new
airport adds value to the aviation industry, facilitating economic development,
international trade, tourism, and employment. The new airport is specially designed
as an environmental friendly carbon neutral airport.
45
3.5.1.4.2
International Seaport at Hambantota
The development of a port in the South of Sri Lanka was planned to reap the benefits
of the busy international shipping line which is located close to Sri Lanka. H.E
President Mahinda Rajapaksa, prioritized the development of the Hambantota Port
and Airport Projects and placed same in centre stage in his 10 year development
Framework Mahinda Chintana Vision for the Future. The proposal embodied the
construction of a deep water harbor in Hambantota, being a location just half an hour
off the worlds busiest sea-lane which is used by 100 200 ships a day. The project is
financed through the EXIM Bank of China. The Sri Lankan Government and EXIM
Bank of China entered into an agreement on 30, October 2007 pertaining to the
construction of the Hambantota Harbour which was signed under the patronage of
President Mahinda Rajapaksa, following his State Visit to China in February 2007. It is
expected that at least 20 percent of the shipping traffic, mainly oil tankers, would call
over at the Hambantota Port, while many of the 4,500 oil tankers passing this sea
route annually would anchor in Hambantota for bunkering, ship repairing, to purchase
food, water and medical supplies and for logistic purposes. The main construction
work of Phase I of the project was completed in 2012. The total estimated
construction cost of Phase 1 is US$ 361 Million, out of which, 85 per cent is funded by
the EXIM Bank of China.
3.5.1.4.3
Southern Expressway Extension to Matara
The extension of the Southern Expressway section from Galle to Matara, which is
35km in length is under construction and is scheduled to be completed by 2013. The
Southern Expressway will be extended up to Hambantota connecting Mattala
International Airport in the South.
3.5.1.4.4
Puttalam Coal Power Plant
The 900 MW Coal Power Plant was initiated with long term financial assistance from
China, to reduce dependency on oil for power generation. The investment in this
project includes the construction of a jetty, transmission lines, power stations and an
ancillary administration facility in Puttalam. Phase I of the project targeting the
generation of 300 MW commenced in 2011 and the other 600 MW generation is
expected in early 2014.
3.5.1.4.5
Colombo-Katunayake Expressway
The 25.8-km long, 4 lane expressway was declared open by H.E. the President
Mahinda Rajapaksa on 27th October 2013. This will be the gateway to Sri Lanka
connecting the Bandaranaike International Airport with the Capital City Colombo. This
expressway reduces the travel time from Katunayake to Colombo to around 20
minutes, what usually takes over an hour. The total estimated cost of the project is
46
US$ 292 Million out of which EXIM Bank of China is funding US$ 248.2 Million while
the balance will be borne by the Government.
3.5.1.4.6
Moragahakanda Multi-purpose Irrigation Project
The Moragahakanda Multi-purpose Irrigation Project will provide irrigated water to

81,442 hectares of land in the dry zone in the North Central, Northern. North Western
and Eastern Provinces. It will meet domestic and industrial water requirements of the
townships in Jaffna, Kilinochchi, Anuradhapura, Trincomalee, Polonnaruwa and
Matale. It will also add 25MW of hydropower electricity to the national grid. It is
expected that the related annual agricultural benefits from paddy cultivation will be
around US$ 30.1 Million.
The project is also expected to facilitate the fresh water fish breeding industry and
further contribute to the national economy. The country would annually save around
US$ 2.49 Bn. From power generation. The Moragahakanda Irrigation Project is the
second largest irrigation project, next to the Victoria Reservoir, of the Mahaweli
diversion scheme.
3.5.1.4.7
Reconstruction of the Northern Highway
The Northern Highway (A9) which spans over 153 km was re-constructed with
Chinese assistance of around US$ 166 Million. This will facilitate rapid development in
the North and East for which the Government has accorded highest priority, after the
end of the conflict. A9 provides connectivity to Pulliyankulam - Mulativu road and
Pulmudai Kokkilai road as well.
3.5.1.5
Technical Co-operation
The exchange of education assistance between the two countries began with
providing 7 scholarships to Sri Lankan Students in 1974. Since then the number of
students moving to China for higher education and medicine has increased.
The Chinese Government also provides a large number of long term and short term
annual scholarships to Sri Lanka, to promote public service capacity building. The two
countries have signed a wide range of cooperation agreements. Letters of Exchange
have also been signed between the two countries on many occasions i.e. on
Technical and Support Services for the Sirimavo Bandaranaike Centre for
International Studies, on the donation of a MRI Scanner etc. Further, many joint
workshops have been held at both destinations to strengthen identified areas of
cooperation.
47
3.5.2
Tourism Cooperation
In 2003, the Chinese government officially granted Sri Lanka Approved Destination
Status (ADS). In August 2005, China National Tourism Administration and Sri Lanka
Ministry of Tourism signed the Memorandum of Understanding on Tourism
Cooperation, aiming to further strengthen the existing friendly relations and the
tourism cooperation between the two countries, as well as the mutual understanding
between Chinese people and Sri Lankan people. The two counties encourage and
promote the reciprocal bilateral contacts and exchanges of tourism sectors and
tourism units. Sri Lanka would develop cultural and historical attractions for tourists
from China, and assist Chinese people who were on a trip or on investigation in Sri
Lanka, and hotel management related institutions that launching tourism related
training project. China gave permission to the publicity and promotion activities of Sri
Lanka through Chinese media, exhibitions and trade fairs, and would provide
convenience and preference for those activities. In 2012, Sri Lankan visitors to China
reached 43 thousand person-time (+13% compared to 2011), while the figure of
Chinese citizens who chose Sri Lanka as first visiting spot of their tour accounted to
37 thousand person-time (+130% compared to 2011).
Furthermore, Sri Lanka Tourism Development Authority is expected to conduct a
series of promotional campaigns in China and under this programme, a promotional
event entitled Sri Lanka Week was held in Beijing.
China is also expected to provide professional services to its media channels and
experts to develop international level television programmes for the tourism industry.
To this effect, an Agreement was signed between the Sri Lanka Tourism Promotion
Bureau and China Central Television and a team of officials from China Central
Television is expected to be in Colombo to prepare a series of documentaries to
promote Sri Lanka tourism in China.
3.5.2.1
Outbound Tourism
Figure 3-4 China Outbound Tourism (1995-2011)
48
China Outbound Tourism to Sri Lanka

In 2012, tourist arrivals to Sri Lanka continued to boom with an impressive increase of
58 percent in relation to Chinese tourists standing at 25,781 compare with 16,308
arrivals in 2011.
The improved domestic connectivity and the direct Sri Lankan Airlines flights to
Beijing, Shanghai, Guangzhou and Kunming can now be leveraged to achieve a
substantial boost to tourists from China and to promote Sri Lanka as a popular tourist
destination among Chinese tourists.
3.5.3
Cooperation in Other Fields
In addition to the sphere of economic cooperation, Sri Lanka and China have
excellent relations in a number of sectors which have been cemented through
numerous agreements, MoUs and special arrangements. There have also been a
number of sister city agreements between Chinese cities and counterparts in Sri
Lanka. Through cooperation in the fields of youth affairs and sports these cultural ties
have been further strengthened.
In December 1998, China's State Environmental Protection Administration (SEPA)
and the Sri Lankan Ministry of Forest and Environment signed the Cooperation
Agreement on Environmental Protection with a purpose of practicing and
implementing environmental protection and the rational use of resources by means of
scientific and research exchange and information sharing.
In April 2005, the Ministry of Agriculture of China together with the Sri Lankan Ministry
of Agriculture and Land signed the Memorandum of Understanding on Agricultural
Cooperation, and initiated the Sino-Sri Lanka Agricultural Cooperation Committee to
be responsible for formulating and implementing cooperation projects as the
exchange of agricultural science information, seeds, seedlings and breeding material,
etc. The meeting would be held in China and Sri Lanka alternatively every two years.
Sri Lanka and China have entered in to the following key Memorandums of
Understanding in 2007, for close cooperation in several areas which are important to
both nations.
01. Agreement on Economic and Technical Cooperation Grant Aid from China
between Sri Lanka Foreign Affairs Minister Rohitha Bogollagama and
Chinese Foreign Minister.
02. MOU on Urban development between Chinese Minister of Construction
Wang Guangtao and Sri Lankan Minister of Urban Development and Sacred
Area Development Dinesh Gunawardana.
49
03. MOU on Friendship between Hambanthota District and Guaugzhou City

between Chinese Assistant Minister on Foreign Affairs Cui Tiankai and Sri
Lankan Secretary of the Foreign Ministry Palitha Kohona.
04. Agreement on Cooperation between Film Industries Chinese Bureau Director
Tong Gang and the Sri Lankan Ambassador in China Nihal Rodrigo.
05. MOU for Donation of Eye Corneas between DCE China Red Cross Society
Jiang Yiman and President of Sri Lanka Eye Donation Society Hudson Silva.
06. MOU on Agriculture and Agriculture Mechanization between Chairman of the
Chinese CAAMS Chen Zhi and Sri Lanka Secretary of Foreign Affairs Dr.
Palitha Kohona.
07. MOU for Student Exchange between Kelaniya University and Beijing Foreign
Studies University between the Chairman of the Beijing Foreign Studies
University Hao Ping and the Sri Lankan Ambassador Nihal Rodrigo.
In fields such as defense and education, there is multi-layered cooperation.
Interactions between the respective militaries, strategic studies institutions and
educational establishments have been well established.
Beyond the strict economic purview, there have also been good cooperation in
promoting air services and linkages, immigration, transportation, science and
technical cooperation, agriculture, information technology etc.
3.6
Existing Legal and Institutional Framework of Bilateral Trade

and Economic Cooperation
3.6.1
Legal and Institutional Framework of Bilateral Economic

Cooperation
In January 1980, Chinese government signed the Agreement on Economic and

Technological Cooperation with Sri Lanka to provide interest-free loans and
engineering and technical personnel for technical assistance.
In May 1984, the Governments of the two countries signed the Agreement on the
Establishment of the Joint Committee of Economic and Trade Cooperation and
established the Committee to be responsible for the research, consultation and
investigation of the bilateral economic and trade cooperation, and when necessary,
holding meetings between the two countries alternatively.
In August 2003, the two governments signed the Agreement on the Avoidance of
Double Taxation on Incomes and the Prevention of Tax Evasion in order to avoid
double taxation.
50
In April 2005, the governments of the two countries signed the Agreement on Further
Deepening Bilateral Economic and Trade Cooperative Relations, deciding to set up
an additional division-level consultative committee in line with the Joint Committee of
Economic and Trade Cooperation to further explore economic and technical
cooperation in trade, economy, investment promotion, tourism and other areas.
In September, 2012, the two governments signed the Visa Exemption Agreement on
Holders of Diplomatic, Service (official) and Ordinary Service Passport, and it entered
into force on April 18, 2013.
By jointly announcing the People's Republic of China and Democratic Socialist
Republic of Sri Lanka Joint Communiqu in May 2013, the two countries declared that
they would upgrade the bilateral relation to a strategic partnership and would reach a
series of consensus on specific issues such as sovereign territory, economic and
trade cooperation, investment, etc. The two sides decided to establish a trade working
group and an economic working group under the framework of the Joint Committee of
Economic and Trade Cooperation committed to the study of specific measures to
accelerate trade facilitation and promote investment and financing cooperation and to
a balanced development of bilateral trade.
A general trade agreement signed in 1982 and an Agreement on Economic and
Technical Co-operation signed in 1984, which were amalgamated into the Sri Lanka China Joint Committee for Trade and Economic Cooperation in 1991, provides a
broader framework for economic cooperation. At the fourth Session of the Sri Lanka
China Joint Committee for Economic Co-operation was held in April, 29th 2008 in
Beijing, China, the two sides agreed to co-operate on various fields, including
investment and development projects.
The existing legal framework comprise of a number of Parliamentary Acts including
inter alia the Foreign Loan Act No. 29 of 1957, Appropriation Act, Monetary Law Act
and the Financial Management (Responsibility) Act No. 3 of 2003.
These legislations provide a common framework for Sri Lanka to engage with all
development partners including China. In addition, the Loan Agreements and
Memorandum of Understandings (MOUs) signed between Sri Lankan Authorities and
Chinese Authorities provide more focused framework for cooperation with regard to
specific development initiatives.
3.6.2
Legal and Institutional Framework of Bilateral Investment
On purpose of encouraging enterprises in the two countries to increase mutual

investment and creating a favorable environment for the two-way investment, in
March 1986, the Governments of China and Sri Lanka signed the Agreement on the
Promotion and Protection of Investments, according to which the two counties
51
planned to strengthen cooperation in fields like the infrastructure, production and

processing, energy, jeweler, mineral resource exploration and development,
agriculture and agricultural machinery, fisheries, etc. and push the establishment of
joint venture projects. The agreement entered into force on March 25, 1987.
In the recent past, China and Sri Lanka entered in to the following investment related
agreements for close cooperation.
MOU on Two-way investment Promotion was signed between Director of Investment
Agency of China Mr. Liu Ya Jun and the Secretary to the Treasury Dr. P.B.
Jayasundera in 2007.
An investment facilitation agreement was signed between Development Bank of
China and the Central Bank of Sri Lanka in 2009.
3.6.2.1
Other Legal Framework of Investment of Sri Lanka
The key legislations facilitating investments in Sri Lanka are;
Board of Investment Law No. 4 of 1978
Strategic Development Projects Act No. 14 of 2008
Finance Act (Hub Operations) No. 12 of 2012
3.6.3
Legal and Institutional Framework of Intellectual Property
At present, no bilateral cooperation agreement in the area of intellectual property has

been concluded with China.
3.6.4
Legal and Institutional Framework of Tourism
In November 2002, the government of China officially granted Sri Lanka Approved
Destination Status (ADS) for Chinese citizens. On August 30, 2005, China National
Tourism Administration and Sri Lanka Ministry of Tourism signed the Memorandum of
Understanding on Tourism Cooperation aiming to better promote the bilateral
cooperation in tourism.22
22
http://www.fmprc.gov.cn/mfa_chn/ziliao_611306/tytj_611312/tyfg_611314/t372331.shtml
52
In Sri Lanka, tourism and leisure industry is under the purview of the Ministry of
Economic Development and it has legal entities namely Sri Lanka Tourism
Development Authority, the Sri Lanka Tourism Promotion Bureau and the Sri Lanka
Institute of Tourism & Hotel Management that responsible for Tourism development,
tourism promotion and human resource development for the sector.
3.6.5
Other Legal and Institutional Frameworks
Since the establishment of diplomatic ties in 1957, the friendly relations of the two
countries have developed smoothly in all aspects. After the reform and opening up of
China, the two countries signed the intergovernmental agreements on cultural
cooperation and the annual implementation plan by which the cultural relation has
been strengthened day by day. The latest Sino-Sri Lanka Cultural Cooperation
Agreement was signed in August 2005. In May 2007, a Confucius Institute was
founded in University of Kelaniya. In June 2012, Ministry of Culture of China and
Ministry of Culture of Sri Lanka signed the Memorandum of Understanding on the
establishment of a Chinese Cultural Centre in Sri Lanka.
In the field of environment, in December 1998, China's State Environmental
Protection Administration (SEPA) and Sri Lanka Forest and Environment Ministry
signed the Agreement on Environmental Cooperation.
53
4 Trade in Goods
4.1
Overview of Trade Policies Applying to Trade in Goods
4.1.1
Tariffs
China
According to Chinas WTO accession commitment, all tariffs in China are
consolidated in the WTO. In 2012, the simple average MFN applied rate of China was
9.8%, with agricultural products 15.1% and non-agricultural products 8.9%. China still
remains tariff quotas on part of agricultural products and chemical fertilizer products.
Table 4-1 Tariffs Summary of China
Summary
Year
Simple
Average MFN 2012
Applied
Total
9.8
Ag
15.1
NonAg
8.9
Binding
coverage
Ag
Total
100
Tariff
Quotas
(in %)
5.0
Special
Safeguards
(in % )
Source: WTO, IDB
With respect to industrial products, the highest average MFN of product groups
applied tariffs are levied on Electrical Machinery (24.5%), Leather, Rubber, Footwear,
etc. (13.1%), Transport Equipment (13.1%) and Manufactures, n.e.s. (11.6%). The
lowest average MFN of product group applied tariff on industrial products is on Wood,
Paper and Furniture (4.9%).
For tariffs on other product groups, please refer to Table 4-2.
Table 4-2
Applied Tariffs of China by Product Groups

MFN Applied Tariff
No.
Product Groups
Average of
Duties (%)
Duty-free
in100%
Maximum
Duty (%)
Agricultural Products
15.1
7.8
65
Fish & Fish Products
10.2
8.9
23
54
MFN Applied Tariff

Product Groups
No.
Average of
Duties (%)
Duty-free
in100%
Maximum
Duty (%)
Minerals, Gems and

Precious Metals
11.1
50
Metals
30
Petroleum
6.3
Chemicals
6.6
0.7
47
Wood, Paper, Furniture
4.9
36
20
Textile and Clothing
11.3
38
Leather, Rubber, Footwear,

etc.
13.1
0.4
25
10
Electrical Machinery
24.5
29.4
35
11
Non-electrical Machinery
7.8
13.5
35
12
Transport Equipment
13.1
0.3
45
13
Manufactures, n.e.s.
11.6
10.3
30
Source: Ministry of Finance of the P.R.China
China applies tariff rate quotas on six kinds of agricultural products and two
non-agricultural products including wheat, maize, rice (whether or not husked), sugar,
wool, wool tops, cotton and chemical fertilizer.
Table 4-3 In-Quota Interim Duty Rate on Imported Goods
No.
Description of
Goods
Number of HS-8 Digit

Tariff Lines
M.F.N.
(%)
In-quota Duty
Rate (%)
Wheat
65
1-10
Maize (Corn)
20-65
1-10
Rice, whether or not

husked
14
10-65
1-9
Sugar
50
15
Wool
38
Wool Tops
38
55
No.
Description of
Goods
Number of HS-8 Digit

Tariff Lines
M.F.N.
(%)
In-quota Duty
Rate (%)
Cotton
40
Chemical Fertilizer
50
Sri Lanka
Currently, Sri Lanka has 6,818 tariff lines at the eight- digits level. Over 96% of tariff
lines are ad valorem, levied on the c.i.f. value of imports. Currently Sri Lanka has a
four-band tariff structure with 30%, 15%, 5% and 0%. Except for few items, in
general, raw materials for local industries are kept at low duty rates, while rates for
finished products at higher and intermediate products in between.
Sri Lanka does not have a tariff quota system on any imports under its general tariff
policy. Under the Pakistan Sri Lanka Free Trade Agreement (PSFTA), Sri Lanka
operates a tariff quota system for imports of basmati rice and potatoes, but quota
allocation is undertaken by the Pakistani authorities, which allocate quotas to
exporters of these two commodities. This is the only TRQ system Sri Lanka
operates on imports at present. A limited number of Sri Lanka exports are subject to
TRQs under both the ISFTA and PSFTA. Under the ISFTA, India operates a TRQ
system on apparel, which enjoys duty free access for which quota allocation is
undertaken by Sri Lankan authorities on a first-come, first-served basis, with other
conditions. Export of pepper is also subject to a TRQ which is administered by India.
Under the PSFTA, export of tea, betel leaves and selected apparel items are subject
to TRQ. The Government of Pakistan administers these quotas while Sri Lanka
authorities grant necessary certificates on rules of origin to exporters.
Table 4-4 Tariff Structure in 2012
Duty Rate
Free
5%
15%
30%
75%
100%
Specific
Specific & Ad valorem
Total
No of Tariff Lines (8 Digits Level) As at 31.12.2012

3,024
410
1,587
1,504
04
05
84
200
6,818
56
Table 4-5 Import duties collected 2002 2012 (US$ Mn)

Year
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Govt.Revenue
2.8
2.9
3.1
3.8
4.6
5.2
6.1
6.2
7.3
8.5
7.8
Customs
0.3
0.4
0.4
0.5
0.5
0.5
0.6
0.7
0.6
0.7
0.6
Import Duty
Imports
6.1
6.7
8.0
8.9 10.3 11.3 14.1 10.2 13.4 20.3 19.1
Imports Duty
as a % of
5.0
5.3
5.1
5.2
5.0
4.5
4.2
6.8
4.2
3.4
3.0
Imports
Import Duty
as a % of
11.0 12.2 13.1 11.9 11.0
9.8
9.6 11.3
7.7
8.1
7.3
Total
Revenue
Sri Lankas simple average MFN applied in 2012 was 9.9%; its simple average
applied tariff in agriculture was 25.8% and 7.5% in non-agriculture.
Table 4-6 Summary of Sri Lankas Bound Tariffs and Applied Tariffs in 2011
Agricultural
Products
Non-agricultural
Products
Final
Bound
MFN
Applied
Final
Bound
MFN
Applied
Duty
free
05
5 10
10
15
15
25
25
50
50
100
0.1
0.1
0.1
0.5
95.9
3.1
13.5
2.8
0.6
13.8
64.6
1.8
1.9
0.2
7.4
7.5
0.1
7.2
5.7
0.7
56.5
6.7
24.6
12.2
Source: World Tariff Profiles 2012
Table 4-7 Sri Lankas Bound & Applied Tariffs by Product Categories (2011)
Final bound duties
Product groups
AVG
Duty-free
in %
MFN applied duties
Max
57
Binding
Duty-free
AVG
coverage
in %
Maximum
duty
>100
Final bound duties

Duty-free
in %
MFN applied duties

Maximum
duty
AVG
Animal products
49.9
50
100 28.4
6.8
50
Dairy products
48.5
60
100 27.6
37
Fruit, vegetables,
50.5
plants
77
100 25.4
9.9
77
Coffee, tea
49.8
60
100 29.4
30
50.5
60
100 24.9
7.9
44
49.2
50
98.7 26.4
8.6
63
50.0
50
100 17.8
30
51.1
0 175
100 69.2
175
50.0
50
100
0.0
100.0
60
100 12.6
38.3
30
50
96.5 14.7
5.8
30
Cereals
&
preparations
Oilseeds, fats &
oils
Sugars
and
confectionery
Beverages
&
tobacco
Cotton
Other agricultural
49.6
products
Fish
&
fish
50.0
products
Max
Binding
Duty-free
AVG
coverage
in %
Product groups
Minerals & metals
48.8
3.2
75
6.7
9.4
43.9
38
Petroleum
17.1
45
80.0
9.9
40.9
34
Chemicals
10.3
60
5.7
3.4
83.2
30
Wood, paper, etc.
30.1
2.3
60
17.3 13.3
38.6
30
Textiles
9.9
0.8
50
95.5
3.6
80.5
51
Clothing
17.5
18
100 14.8
1.5
15
50
7.9 19.3
13.4
30
60
84.8
427
Leather, footwear,
50.0
etc.
Non-electrical
7.7
machinery
58
14.1
3.2
Final bound duties

Product groups
Electrical
machinery
Transport
equipment
Manufactures,
n.e.s.
AVG
Duty-free
in %
MFN applied duties

Max
Binding
Duty-free
AVG
coverage
in %
Maximum
duty
34.6
60
12.2
7.5
45.4
30
31.7
45
4.9
8.8
21.1
30
33.6
0 100
18.4 11.1
47.9
30
Source: World Tariff Profiles 2012
4.1.2
Trade Policies of Non-tariff Measures
China
The import licensing regime is regulated by the Foreign Trade Law amended in 2004.
Details of commodities subject to import licensing are published annually by the
MOFCOM in the Catalogue of Goods Subject to Import License Administration19 and
the Catalogue of Goods Subject to Automatic Import Licensing Administration20.
Licenses are not transferable.
Non-automatic import licenses were issued in accordance with Chinas obligations
under international conventions. Applicants must apply for an import permit prior to
applying for an import license. The license is valid throughout the calendar year, and
can be extended once, for a maximum of three months.
Products that are not subject to import restrictions but require import monitoring for
statistical purposes are subject to automatic import licenses, which involve no
restriction in terms of import quantity or value.
Sri Lanka
The use of non-tariff barriers is relatively limited, mainly through the form of import
licenses. Sri Lanka maintains import prohibitions for health, safety, security,
environment, and moral reasons. The list of banned and restricted imports may be
amended by Parliament at any time. Sri Lanka has a Special Import Licensing
Scheme in place; products under this scheme are subject to non-automatic licensing,
as and when the country requires imports of these goods.
59
Details on products covered by the Scheme are available on the website of the
Controller of Import and Export (http://www.imexport.gov.lk)
4.2
Other Trade Policies Affecting Trade in Goods
Other trade policies affecting trade in goods include rules of origin, custom
procedures, TBT, SPS, etc.
4.2.1
Rules of Origin
China
China applies non-preferential rules of origin in accordance with the Regulations on
Rules of Origin of Import and Export Commodities. For goods wholly obtained within
one country or region, that country or region shall be regarded as the origin of the
goods. For goods of which the production involves two or more countries or regions,
the country or region where the last substantial transformation has been made shall
be regarded as the origin of the product. Substantial transformation shall be
determined based on the changes in tariff classification criterion. In cases where the
changes of tariff classification cannot reflect the substantial transformation, the
percentage of ad valorem, working procedures of manufacturing or processing, etc.
shall be used as supplementary criteria. The Regulations on Rules of Origin of Import
and Export Commodities also provides for the legal framework of China on
administration of Rules of Origin matters.
Preferential rules of origin of China are applicable to products originating from
countries or regions with which China has concluded preferential trade arrangements
(PTAs), such as Free Trade Agreements (FTAs) and Regional Trade Arrangements
(RTAs). The primary criteria of Preferential Rules of Origin are the wholly obtained
and substantial transformation criteria. Substantial transformation criteria include
changes in tariff classification criterion, regional value content criterion, manufacturing
process criterion, or combination of the criteria mentioned above. Chinas FTAs with
ASEAN, Chile, Pakistan, Singapore, and RTAs/PTAs with APTA participant countries
and preferential measures (Zero-tariff treatment) for least developed countries mainly
use the regional value content criterion, while Chinas FTAs with New Zealand, Peru
and Costa Rica mainly use the change in tariff classification criterion, supplemented
by the regional value content and the manufacturing process criteria. Regarding the
substantial transformation criteria adopted under various Chinas FTAs, a
product-specific rules-of-origin (PSR) list had been set out for products to be granted
60
originating status. Besides, the imported goods must meet the direct transport rule to
apply for preferential rules of origin.
Preferential rules of origin also cover related operational procedures, including
issuance of certificates of origin, checking of certificate of origin and the goods at the
time of importation and exportation, as the case may be, and verification based on
negotiated procedures between the Parties.
In most FTAs signed by China, a Certificate of Origin serves as the certificating
document of the origin of the imported goods.
Table 4-8 Preferential Rules of Origin of China (2013)
No.
Agreement/Party
Rules
Products must be wholly obtained or produced in the
member country, or the value of non-originating parts or
components used in the manufacture must be no more
APTA
than 55% of the FOB value of the product. The country of
origin is defined as the country where the last processing
operation takes place. In addition, goods must conform to
the rule of direct consignment.
Products must be wholly obtained or produced in a party;
or the content of products originating in - a party should be
no less than 40% of the total value; or the value of the
non-originating parts or components used in the
ASEAN
manufacture of the products must be no more than 60% of
the FOB value of the product. The country of origin is
defined as the country where the last processing
the rule of direct consignment
Products must be wholly obtained or produced in the
country of origin or the value of non-originating parts used
Least Developed
in the manufacture of a good may be up to 60% of the
Countries
FOB value of the product. In addition, goods must conform
to the rule of direct consignment.
Products must be wholly produced in Hong Kong, China
or have Hong Kong, China content of at least 30% of
Hong Kong, China value added; in addition, the final stage of processing
must be carried out in Hong Kong, China. Goods must
enter into Mainland China directly.
Products must be wholly produced in Macao, China or
have Macao, China content of at least 30% of value added
or have resulted in a change in the HS 4-digit tariff
Macao, China
heading; in addition, the final stage of processing must be
carried out in Macao, China. In addition, goods must
conform to the rule of direct consignment.
Products must be wholly obtained or produced in Chile or
China;or the value of non-originating parts or components
Chile
used in the manufacture must be less than 60% of the
FOB value of the product. The country of origin is defined
as the country where the last processing operation takes
61
No.
Agreement/Party
Pakistan
New Zealand
Singapore
10
Peru
11
Costa Rica
12
Iceland
13
Switzerland
Rules
place. In addition, goods must conform to the rule of direct
consignment.
Products must be wholly obtained or produced in China or
Pakistan; or the value of non-originating parts or
components used in the manufacture must be less than
60% of the FOB value of the product. The country of origin
is defined as the country where the last processing
the rule of direct consignment.
New Zealand; or products be produced in New Zealand,
using non-originating materials that conform to a change
in tariff classification(some products must also be conform
to a regional value content or a process requirement). In
addition, goods must conform to the rule of direct
consignment.
Singapore; or the percentage of regional value content
shall not be less than 40% of the product. In addition,
goods must conform to the rule of direct consignment.
Peru; or products be produced in Peru, using
non-originating materials that conform to a change in tariff
classification (some products must also be conform to a
regional value content or a process requirement). In
addition, goods must conform to the rule of direct
consignment.
Costa Rica; or products be produced in Costa Rica, using
non-originating materials that conform to changes in tariff
classification, regional value content, other manufacturing
process or combination of the above rules or other
requirements. In addition, goods must conform to the rule
of direct consignment.
Iceland; or products be produced in Iceland, using
non-originating materials that conform to changes in tariff
classification, regional value content, or other
requirements. In addition, goods must conform to the rule
of direct consignment.
Switzerland; non-originating materials that used in
production or processing substantially changed in China
or Switzerland; or exclusively produced from originating
materials of both parties.
62
Sri Lanka
Under Preferential Agreements, the Department of Commerce is the Issuing Authority
whereas designated trade chambers issue Certificates of Origin for non-preferential
exports. The following table illustrates the Rules of Origin Criteria under Preferential
Trading Agreements in which Sri Lanka is a Member State/Country.
Table 4-9 Summary of Rules of Origin Provisions in Sri Lankas RTAs
Trade
Agreement
ISFTA
PSFTA
SAFTA
SAPTA
APTA
GSTP
General Criteria
Cumulative Provisions
Product
Specific Rules
( PSR)
DVA 35% of FOB
Aggregate
content In
principle
and CTH
-35% of FOB and agreed
Exporting
Country
content-25% of FOB
DVA 35% of FOB
Aggregate
content
and CTSH
-35% of FOB and
exporting
Country
content-25% of FOB
DVA and CTH
Aggregate content
191
DVA
50% of FOB
30% of FOB- LDC
and
40% of FOB - Non Exporting
Country
LDC
content-20% of FOB
35% of FOB - Sri
Lanka
DVA
Aggregate content
40% of FOB - Non 50% of FOB - Non LDC
LDC
40% of FOB LDC
30% of FOB - LDC
DVA
Aggregate content
In
principle
45% of FOB Non 60% of FOB
agreed
LDC
Exporting
Country
35% of FOB LDC
content-nil
DVA
Aggregate content
50% of FOB - Non 60% of FOB
LDC
Exporting
Country
40% of FOB -LDC
content-nil
DVA : Domestic Value Addition

CTH : Change of Tariff Heading
63
CTSH : Change of Tariff Sub Heading

% refers to the minimum value addition
4.2.2
Customs Procedures and Trade Facilitation
China
China joined the International Convention on the Simplification and Harmonization of
Customs Procedures in 1988, and signed the Protocol on its Amendment in June
2000. The procedures of customs clearance, supervision and duty collection adopted
by China are consistent with the Revised Kyoto Convention.
To enforce the Revised Kyoto Convention, China Customs has been taking actions to
simplify its clearance procedures. Since 2005, China has been improving its
supervision to shorten the releasing time of goods and to enhance the clearance in an
efficient manner. The customs procedure reform in China achieved considerable
achievements which was advocated by the World Customs Organization (WCO). On
August 1st 2012, General Administration of China Customs began to launch pilot
program about paperless reforms on clearance in 12 regional customs (Beijing,
Tianjin, Shanghai, Nanjing, Hangzhou, Ningbo, Fuzhou, Qingdao, Guangzhou,
Shenzhen, Gongbei, Huangpu), piloting items extending to all on-site operations and
all experimental ones. The rest regional customs just picked up by themselves one or
two on-site operations or part of operations to carry out pilot program about paperless
reforms on clearance. Piloting enterprises extended to those classified B or a higher
level in accordance with the provisions on customs enterprises classification.
China attaches great importance to international customs practice and is an active
player in relevant international organizations including the WCO and APEC. China
has fully implemented customs-related WTO Agreements and the Collective Action
Plans under the APEC Sub-committee on Customs Procedures (SCCP CAP) items.
The major tasks of China Customs that stressed mutual cooperation are enhancing
efficiency clearance, lowering costs, and backing up export expansion of foreign
trade; unremitting efforts have made for these.
Sri Lanka
4.2.2.1
Legal framework
64
The Sri Lanka Customs Department falls within the jurisdiction of the Ministry of
Finance and Planning and the Ministry is responsible for strategic policy guidance of
the department. Sri Lanka Customs is one of the oldest customs administrations in
the world. It performs its functions mainly within the legal framework of the Customs
Ordinance No 17 of 1869 and subsequent amendments and regulations issued there
under.
Further, the Customs Department meets obligations of other acts and
ordinances belonging to other government entities.
Meeting the obligations of the international conventions and treaties is another
responsibility vested with Customs. CITIES Convention and Basel Convention are
some of the conventions that have international obligations which are implemented at
the port of entry. The Plant Protection Act No 35 of 1999 and Control of Pesticides
Act (Amendment) Act No 6 of 1994 are to name a few of local legislature implemented
at the port of entry (customs). The department is accountable for managing the
broader control and sea operations within its territory.
4.2.2.2
Major functions
In the broader context, main functions of the Customs Department are (a) collection of
government revenue (which is nearly 55% of the total tax revenue of the government),
(b) trade facilitation, (c) law enforcement (d) protection of environment and
biodiversity and (e) management of data (mainly on imports and exports).
Collection of revenue is mainly from imports. Customs import duty (CID) and Port
Authority Levy (PAL) are collected at the point of customs.
Law enforcement is necessary to prevent custom offences and also to take action for
those who have committed customs offences including narcotic offences in land and
in territorial waters. Protection of biodiversity is mainly required to avoid intrusion of
alien species of flora and fauna and related diseases into the country that are harmful
to natural environment, agriculture and biodiversity. Sri Lanka is considered as one of
the world's 25 biodiversity hotspots. Also boarder protection is required to avoid
smuggling of items that are of archeological value.
4.2.2.3
Link with International Trade Organizations
Sri Lanka became a signatory to the International Convention of Harmonized

Commodity Description and Coding System (HS) and a member country to the World
Customs Organization (WCO) and signatory to Kyoto Convention. Sri Lanka
implements WTO agreement on Customs valuation and Sri Lankan tariff
nomenclature is organized at 8 digit level. The Sri Lanka customs applied WTO
65
Valuation Agreement to all the tariff lines before year 2000. Presently, Sri Lanka
customs implements latest version which is 2012 HS code. By now, all the goods are
valued using the transacted value method. However, in order to prevent
undervaluation of goods SL customs uses other measures to verify such situations.
Such measures are training of customs officers, data analysis, access to new
information sources etc., Also, universal application of unit rates for sensitive selected
items are in place to curb undervaluation. This has been introduced to absorb
seasonal variations of agricultural crops.
Sri Lanka Customs maintains close relationship with Regional Intelligence Liaison
Office of WCO in the Philippines. It is one of the WCO's enforcement pillars since
information and intelligence sharing play a significant role in customs administrations.
Further, arrangements are being made to sign an agreement with India for mutual
customs cooperation.
Pre-shipment certificates are used only for importation of used vehicles. Sri Lanka has
a Special Import Licensing Scheme imposed by the Import and Export Control
Department for which the customs is the implementation authority. Products under
this scheme are subject to non-automatic licensing, as and when the country requires
import of these goods.
4.2.2.4
Entry points
Customs entry points are mainly Colombo and Mattala international airports and
Colombo, Galle, Hambantota and Trincomalee sea ports. Due to its geo-strategic
location, amidst maritime routes became attractive since past to many a main
shipping line than any other port in the region. Hambantota, is increasing its potential
in terms of containerization, information technology application and state-of-the-art
technology. Also, the newly built Mattala airport located close to Hambantota sea port
is increasing its potential in terms of passenger and cargo handling within a short
period of time.
4.2.2.5
Trade facilitation
Trade facilitation usually refers to how procedures and controls governing the
movement of goods (imports and exports) across national borders are in place to
reduce cost burdens and maximize efficiency in terms of financial, physical and
human resources while safeguarding legitimate regulatory objectives. Customs taking
action to maximize efficiency by avoiding disturbances that accrue in the form of
delays in cross border checks, time penalties which pave the way for forgone
66
business opportunities and reduced competitiveness are major areas of concern in

this regard.
With the opening of the Sri Lanka economy to world trade in 1977, trade facilitation
became a term that is of significant importance in national economic agenda.
Importance was given to world trade and trade facilitation in varying degrees in
subsequent development plans after 1977. The present regime has put impetus to
trade facilitation by creating a fair trading environment and rationalization of tariff
structure. Encouraging investment through policy measures and introducing structural
changes in the institutional architecture and investment regime has made significant
changes in facilitation of trade. Establishment of Board of Investment (BOI), Export
Development Board (EDB), Free Trade Zones (FTZs), Export Processing Zones
(EPZs), establishment of export villages (to produce export oriented products) are to
name a few such measures.
Sri Lanka became a party to WCO and WTO with a view to enhancing overseas
market access and better integration into world market. Sri Lanka's trade policy
focused on value based measures rather than non-tariff measures thereby
maintaining greater transparency. Sri Lanka simplified its income tax structure to two
digit level of 12% in order to encourage export production and draw more Foreign
Direct Investments (FDIs).
Declaring the Colombo and Hambantota sea ports as free ports is a landmark
decision taken by the government of Sri Lanka.
Automation and simplification of custom processes and procedures, minimum
paperwork and human intervention, and lesser physical inspection of air and sea
cargo relating to imports and exports are measures taken by the customs in terms of
trade facilitation. Facilities provided by the customs are taken into consideration in
calculating ease of doing business indicator along with other measures. Online
information is also available on tariff and non-tariff measures and their effects.
The customs process for imports is channeled through the Customs Declaration
(referred to as CUS$ec), which coincides with the software requirements of the
ASYCUDA system. The Asycuda is the software introduced by the WCO (World
Customs Organization) for customs administrations for international trade.
Presently, an automated system for import cargo clearance is halfway implemented
and will be fully operational by 1st January 2014. Presently, CUS$ecs are processed
by the importers from their offices electronically and payment gateways have been
introduced through state banks, mainly Bank of Ceylon and Peoples Bank to make
their payments. The arrangements are being made to bring the private sector banks
into this network. Low risk cargo is released with less physical verification and high
risk cargo is subject to physical verification.
67
With regard to the exports, in order to ensure speedy clearance, changes have been
made to the export process and are effective from 30th October 2013. With these
changes processing time and cost will be drastically reduced. The declarant
(exporter) shall submit an e-cUS$ec online through the ASYCUDA system and
physical verification will be made only on selected cargo. High compliance exporters
will be receiving greater benefits under this scheme. All these processes apply to both
sea cargo and air cargo as well.
4.2.2.6
Customs risk analysis and post audit
A risk management committee has been established within the department and risk
averment measures are reviewed periodically. Risk averment measures are
implemented on the recommendation of this Committee. A separate division for
intelligence gathering also has been established and expected to develop intelligence
received from parties.
Post audit plays a vital role in securing government revenue and a separate
Directorate has been established for the purpose. It is expected that the revenue
forgone due to various reasons should be collected by this unit. Also it is considered
as a tool for risk management and trade facilitation and to ensure compliance to
customs law.
4.2.3
4.2.3.1
SPS and TBT

Sanitary and Phytosanitary Measures
China
Since accession to the WTO, China has committed to comply with the SPS
Agreement and ensure conformity with the SPS Agreement of all its laws, regulations,
decrees, requirements and procedures related to SPS measures.
The General Administration of Quality Supervision, Inspection and Quarantine of
China (AQSIQ) is responsible for inspection and quarantine concerning the entry and
exit of plants, animals, their products, and food. Based on risk analysis, AQSIQ is
authorized to determine whether the import of a product is permitted, to establish
inspection and quarantine conditions for the entry of imported products, and to sign
with related government authorities of other countries agreements on general SPS
issues or for specific products. At the same time, AQSIQ has the right to raise certain
requirements on entry inspection and quarantine, and to negotiate with related
government authorities of other countries on general SPS issues or detailed
inspection and quarantine requirements for specific products.
68
Sri Lanka
Sri Lanka implements the WTO Agreement on SPS and is a signatory to the
Convention on Bio Diversity, Stockholm Convention on Persistence Organic
Pollutants, Montreal Protocol, Basel convention, Rotterdam Convention for
implementation of prior informed consent procedure on the importation of pesticide.
Ministry of Health is Sri Lanka's enquiry point on SPS matters. Sri Lanka is a
member of the Codex Alimentarius Commission and the World Organization for
Animal Health (OIE), and a contracting party to the International Plant Protection
Convention (IPPC).
Sri Lanka has made 18 notifications to the Committee on Sanitary and Phytosanitary
Measures, covering measures in areas such as foodstuffs covered by SLSI
standards; shelf-life of imported foods; wood packaging material; food packaging
materials and articles; meat and meat products; milk and milk products; plants,
plant products, organisms, soil, and other culture media; food colouring substances;
tea, coffee, cocoa and their products; vinegar; irradiated foods; bottled or
packaged drinking water;
iodized salt;
melamine in food products;
and
genetically modified food. One measure was notified as an emergency measure,
concerning live domestic and wild birds, hatching eggs, table eggs, etc.
Sri Lanka currently does not have recognition of equivalence of other countries' SPS
measures.
Food imports are regulated by the Food Control Act No. 2 of 1950 and its
amendments. The SLSI operates a generalized hazard analysis critical control point
(HACCP) registration scheme to certify food safety. A certificate holder develops
and maintains its food safety assurance programme based on the internationally
accepted principles of ISO 22000. Other legislation covering SPS issues include the
Plant Protection Act No. 35 of 1999, and the Animal Diseases Act No. 59 of 1992.
Under the Animal Diseases Act No. 59 of 1992, the importation of any animal, animal
product, veterinary drug or veterinary biological products, animal semen or embryo
requires a permit issued by the Director General, Department of Animal production
and Health on the recommendation in the Ministry of Livestock Development. To
obtain the permit in the case of animal products, the importer is required to produce a
certificate from the Chief Veterinary Officer of the country of origin of the animal
product, stating that the product is free from any infective substance that is likely to
cause disease in animals as well as Zoonotic diseases.
For live animals, a certificate obtained from the Chief Veterinary Surgeon or
authorized veterinary surgeon of the country of origin of the animal is required. The
certificate must set out: the country of origin of the animal; that the animal is and has
69
been free from disease and has not been in contact with diseased animals for three
months prior to its exportation; that the place of origin of the animal has been free
from disease for three to twelve months (depend on the type of animal) prior to the
date of the departure of the vessel carrying the animal from the port of exit; and that
the animal has been immunized against the specified diseases.
Imports of meat or meat product must be accompanied by a certificate issued by a
competent authority in the country of origin warranting that they are fit for human
consumption and free from any infective substance that is likely to cause disease in
animals. Animal products to be imported into Sri Lanka must be slaughtered and
processed in establishments registered with the veterinary authority in the country of
origin. Imports of live animals for human consumption are prohibited.
All animals imported into Sri Lanka are subject to quarantine for a minimum period of
30 days. The DAPH is responsible for enforcing Sri Lanka's quarantine legislation
with respect to live animals and related products which has the stated purpose of
ensuring that exotic diseases are not introduced through the importation of livestock
and livestock products.
Imports of veterinary drugs or veterinary biological products require a certificate from
the Chief Veterinary Surgeon (or a veterinary surgeon authorized by him/her) in the
country of origin of the product, certifying the safety of such drug or veterinary
biological product. The manufacture of veterinary drugs and veterinary biological
products requires a licence valid for a period of one year from the date of issue.
Department of Agriculture is the body in charge of plant health issues; it has the
responsibility of enforcing the implementation of the Plant Protection Act No. 35 of
1999 and its regulations in relation to plant quarantine activities. Plant imports must
be accompanied by a permit, granted by the Deputy Director of Plant Quarantine or
the Director of Seed Certification and Plant Protection. Permits are issued
immediately for vegetable seeds that are included in an approved list, which is
published in newspapers periodically. Consignments must be accompanied by: a
phytosanitary certificate issued within 14 days prior to dispatch; a declaration stating
that the consignment is free of soil; and a certificate of origin.
Importers of fresh fruits and vegetables for human consumption must produce a
certificate from the plant protection authority of the country of origin stating that the
fruit has been in cold storage for more than two weeks; no certificates are accepted
from countries where there are fruit flies. Upon arrival in Sri Lanka, the consignment
is inspected by a Plant Quarantine Officer and/or a representative from the Seed
Certification and Plant Protection Centre of the Department of Agriculture.
The importation of certain plants is prohibited, except for research. Imports of any
plant, plant material, plant product or seed from "Tropical America" are prohibited to
70
prevent the introduction of the "South American Leaf blight pathogen of rubber".
Imports of soil and living modified organisms (LMOs) are prohibited. Imports of
some live fish are also banned. Since June 2004, imports of animals and animal
products of ruminant origin are allowed only from countries, which have officially been
declared as "BSE Provisional Free Status" by the OIE. Imports from a number of
countries were specifically forbidden.
In 2001, Sri Lanka notified to the SPS Committee restrictions on imports of 21
genetically modified categories of products on the grounds that safety for human
consumption is not known. Sri Lanka banned the importation of genetically modified
(GM) food products on 1 September 2001. Imports of items included on the banned
list must be accompanied by a certificate stating that they do not contain GM
organisms.
4.2.3.2
Technical Barriers to Trade
China
Since its accession into the WTO, China has made great effort in modification of
related laws and regulations in the areas of technical regulation, standards and
assessment, in order to unify the catalogue of products, unify the compulsory
requirements, standards and conformity assessment procedures, unify the label, and
unify charging in the quality and safety permission and certification system for
imported products. By this way, Chinas measures are made consistent with the WTO
Agreement on Technical Barriers to Trade (hereinafter referred to as the WTO TBT
Agreement).
According to the principles set out in the WTO TBT Agreement to protect human
health or safety, animal or plant life or health, or the environment, to prevent deceptive
practice and protect national security, AQSIQ established and published a catalogue
of imported and exported products, which shall go through compulsory examination
required by national technical regulations. Those examinations can be undertaken by
bodies designated by AQSIQ.
The Standardization Administration of China (SAC), working under the AQSIQ, is
responsible for exercising the unified management of standardization in China,
formulating development programs, as well as drafting and revising national
standards. SAC is also responsible for the examination, approval, numbering and
publication of national standards, and for the coordination, guidance and registration
of sector, local and entrepreneur standards. It also stands for China in the
International Organization for Standardization (ISO), the International
71
Electro-Technical Commission
standardization organizations.
(IEC)
and
other
international
or
regional
The Certification and Accreditation Administration of China (CNCA) under the AQSIQ
is responsible for exercise of the unified management, supervision and coordination
of certification and accreditation work in China. China Compulsory Certification (CCC)
system is implemented by CNCA. Products listed in the Catalogue of Products
Subject to Compulsory Certification shall not be sold, imported or used in any
commercial activities without CCC marks. Currently, the Catalogue21 covers 20
groups, consisting of 158 sub-categories, and includes household appliances, motor
vehicles and accessories, fire-fighting products, agricultural machinery, ornaments,
toys, etc.
Sri Lanka
The Sri Lanka Standards Institution (SLSI) is the National Standards Body of Sri
Lanka, established under the Bureau of Ceylon Standards Act No. 38 of 1964. The
SLSI is Sri Lanka's national authority for notifications and its National Enquiry Point.
The SLSI, under the Ministry of Technology, Research and Atomic Energy, is also the
body responsible for the elaboration and dissemination of information on technical
regulations (mandatory standards).
The Sri Lanka Standards Institution (SLSI) is in charge of formulating standards,
certifying products and systems, inspecting imports and exports, and providing
laboratory services such as industrial measurement and calibration services. The
national standards formulated by the SLSI are developed through a committee and
consultative process, with the voluntary involvement of all interested parties
representing consumers, producers, users, public institutions and independent
technical organizations. The SLSI generally appoints technical committees to advice
in the preparation of standards.
The SLSI's policy is to follow as much as possible international standards in the
formulation of national standards; international standards are adopted as Sri Lanka
Standards, whenever feasible. The authorities have noted that, in the selection of
standards formulation projects priority is given to standards that facilitate internal and
external trade and to enhance the international competitiveness of Sri Lanka.
There are over 1,250 Sri Lanka Standards relating to products, commodities,
materials, processes and practices and the majority of these standards are in line with
the international standards. Standards are revised periodically to take into account
the developments of new materials, processes and technologies. Sri Lanka
Standards are voluntary unless made compulsory under the provisions of the Sri
72
Lanka Standards Institution Act or by specific reference to standards in other acts and
regulations.
The "SLS Marks Scheme" is Sri Lanka's product certification scheme. This scheme
enables the SLSI, under the provisions of the Sri Lanka Standards Institution Act, to
grant permits to local and foreign manufacturers producing goods conforming to Sri
Lanka Standards to use the "SLS" mark on their products. The SLS mark certifies
that the product has been manufactured in accordance with the relevant Sri Lanka
Standards specification and verified by regular inspections and tests by the SLSI.
Although product certification is essentially voluntary, the certification of 20 locally
manufactured or produced products is mandatory under the Directions issued by the
Commissioner of Internal Trade. Permits are valid for three years and may be
renewed; they may be revoked if production stops, if fees are not paid or if the product
does not conform.
Apart from the SLSI, the Telecommunication Regulatory Commission (TRC) sets
quality regulations and technical specifications for equipment and quality of service
(QAS) standards. Telecommunications equipment, including imports, requires type
approval from the TRC. Provisional type approval based on sample test results is
initially granted for six months; this may be extended for another six months. Subject
to satisfactory performance (including after-sales service), full type approval is issued,
generally for five years.
The SLSI is a member of the International Organization for Standardization (ISO).
The main piece of legislation is the Sri Lanka Standards Institution Act No. 6 of 1984.
Since 1996, Sri Lanka has made about 30 notifications to the Committee on Technical
Barriers to Trade. It has accepted the WTO TBT Code of Good Practice.
There were about105 trade related technical regulations in place and most of them
102 are included in the Imports (Standardization and Quality Control) Regulations
2006, framed under the Imports and Exports (Control) Act, No. 1 of 1969 as amended
by Act No. 28 of 1987, which specify a list of products that must conform to a Sri
Lanka Standard (SLS) to be allowed to be imported. These goods are subject to the
Import Inspection Scheme (IIS) to ensure their conformity with the relevant SLS. In
formulation of national standards (SLS), the Institution always takes into account all
the equivalent standards established by other countries and International
Organizations such as ISO, IEC, ASTM & Codex.
For inspection purposes, goods are classified under five categories of consignments.
Goods classified under categories 1 to 4 carry some kind of certificate of compliance
with the stipulated standard, issued by a body recognized by the Sri Lanka Standards
Institution (SLSI). However, with respect to Category 4, if the two standards are fully
compatible, a quality certificate need not be submitted and, in instances where only a
73
particular requirement of a national standard deviates from the Sri Lanka Standard, a
test certificate is required to certify that the particular requirement complies with the
Sri Lanka Standard. The inspection of products in these categories is done through
samples drawn from the consignments, which are subject to testing either randomly or
when there is a reasonable doubt regarding the quality of the consignment.
Consignments classified under Category 5 are sampled at the port, and will not be
released until the test report is available, or where facilities are available, the SLSI
may release the goods to a customs bonded warehouse, until clearance.
The Sri Lanka Accreditation Board for Conformity Assessment (SLAB) is the National
Accreditation Authority for Sri Lanka. The SLAB was established under Act No. 32 of
2005. The Board functions as an autonomous body under the purview of the
Ministry of Science and Technology.
The SLAB conducts four accreditation schemes. Their purpose is to allow bodies
both in the public and private sector, once they have been assessed for competence
and credibility by the SLAB, to perform the necessary conformity assessment for the
different regulatory authorities. The accreditation scheme for testing and calibration
laboratories is based on ISO/IEC 17025 (General requirements for the competence of
testing and calibration laboratories). All types of laboratories covering chemical
testing, biological testing, physical and mechanical testing and calibration laboratories
are included under this scheme. The accreditation scheme for medical/clinical
laboratories is based on ISO 15189 (Medical laboratories. Particular requirements
for quality and competence), and covers clinical pathology, clinical biochemistry,
haematology, microbiology and serology, histopathology, immunology, molecular
biology, pharmacology and nuclear medicine. The accreditation scheme for
inspection bodies is based on ISO/IEC 17020 (General criteria for the operation of
various types of bodies performing inspection) and provides a formal recognition to
organizations required to conduct various types of inspections for regulatory
purposes.
The fourth accreditation scheme is the most relevant for international trade. The
accreditation scheme for Certification Bodies (CBs) covers systems and product
certification, and is based on ISO/IEC 17021 (Conformity Assessment: requirements
for bodies providing audit and certification of management systems), and on ISO/IEC
Guide 65 (General requirements for bodies operating product certification systems),
respectively. The certification provided by these CBs includes certification of Quality
Management Systems (QMS), Environmental Management Systems (EMS), Food
Safety Management Systems, and Occupational Health and Safety Management
Systems.
There were about ten laboratories and institutions accredited for chemical testing, two
for mechanical testing, six for biological testing, and two for calibration, all operating
from Sri Lanka.
74
Sri Lanka has no Mutual Recognition Agreements (MRAs) with third countries on
issues related to technical regulations, standards, or conformity assessment
procedures have been reached.
SLAB is a full member of the Asia Pacific Laboratory Accreditation Corporation
(APLAC) and is a signatory to the APLAC's MRA (since December 2009), which
covers testing laboratories (ISO 17025) and medical laboratories (ISO 15189). The
APLAC is a cooperation of accreditation bodies in the Asia-Pacific region that accredit
laboratories, inspection bodies and reference material producers. Accreditation
bodies in 24 economies in the region are members of APLAC. SLAB is also a full
member of the International Laboratory Accreditation Cooperation (ILAC), and a
signatory to ILAC's MRA (also since December 2009). The ILAC MRA covers
testing laboratories including medical testing laboratories.
SLAB also has full membership status in the Pacific Accreditation Council (PAC), an
association of accreditation bodies whose objective is to facilitate trade and
commerce among economies in the Asia Pacific region by promoting the international
acceptance of the accreditations granted by its members. SLAB is also in the
process of seeking membership of the International Accreditation Forum (IAF).
SLAB also has a technical co-operation programme with the Swedish Board for
Accreditation and Conformity Assessment (SWEDAC). Technical assistance for
development of SLAB accreditation activities is provided by SWEDAC and funded by
the Swedish International Development Agency (SIDA).
Technical regulations from trading partners are accepted as equivalent after
evaluation of a declaration of conformity and a technical dossier. The certificates,
tests, and inspection reports issued by conformity assessment bodies that are not
accredited by SLAB may be recognized based on the equivalence of accreditation
procedures and on the basis of technical soundness and capability of the bodies
issuing the certificates.
Testing and/or inspection are carried out by SLSI or laboratories and institutions
accredited by SLAB in accordance with national or international standards.
4.2.4
Trade Disciplines/Trade Remedies
Trade disciplines (or trade remedies) refer to trade policy tools that allow governments
to take remedial action in exceptional situations against imports causing predefined
difficulties to the domestic economy. Trade remedies mainly include anti-dumping
measures, countervailing measures and safeguard measures. According to relevant
WTO rules, such measures are subject to procedural and substantive conditions (e. g.
cause of serious injury to domestic industry).
75
China
4.2.4.1
Anti-dumping
China takes anti-dumping measures according to the provisions of Foreign Trade Law
of the People's Republic of China and the Regulations of the People's Republic of
China on Anti-dumping.
According to WTO statistics, as of 31st December 2012, there had been totally 916
cases initiated against China by other members of the WTO, including India (154
cases), United States (112 cases), European Union (111 cases), Argentina (89
cases), Brazil (62 cases), mainly targeting products of base metals and articles of
base metal (232 cases, Catalogue fifteenth) ,the chemical or allied industries (179
cases, Catalogue sixth), machinery, electrical equipment and relevant parts (114
cases, Catalogue sixteenth), textile articles (78 cases), and foot-wear products(66
cases, Catalogue seventh), ceramics and glass products (61 cases, Catalogue
thirteenth) etc. According to the statistics from WTO, as of 31st December 2012, China
had totally initiated 200 cases, mainly targeting products of the chemical or allied
industries (116 cases, Catalogue sixth), Resins, plastics and articles; rubber and
articles thereof (39 cases, Catalogue seventh), Paper, paperboard and articles (13
cases, Catalogue tenth), Base metals and articles (13 cases, Catalogue fifteenth) etc.
In the FTAs China has signed, the issue of anti-dumping measures was addressed.
The relevant parties usually promised that potential anti-dumping measures should be
first handled through consultations and negotiations. Bilateral and multilateral
anti-dumping measures should not be adopted simultaneously.
China has not initiated any anti-dumping investigation against Sri Lanka.
4.2.4.2
Countervailing Measures
China undertakes countervailing measures under the provisions of the Foreign Trade
Law of the People's Republic of China and the Regulations on Countervailing
Measures of the People's Republic of China.
According to WTO statistics, as of 31st December 2012, 62 cases had been initiated
against China by other members of WTO, including United States (33 cases), Canada
(14 cases), Australia 7 cases), European Union (5 cases), Mexico (1case), India (1
case), and South Africa (1 case). The relevant products are mainly base metals and
articles of base metals (34 cases, Catalogue fifteenth), machinery and electrical
equipment (3 cases, Catalogue sixteenth), products of the chemical or allied
industries (3 cases, Catalogue sixth), articles of paper (3 cases). According to the
statistics from WTO, as of 31st December 2012, China had initiated 6 countervailing
76
investigations, 2 cases against European Union and 4 cases against the United
States. The relevant products are mainly Grain Oriented Flat-rolled Electrical Steel,
potato starch, White Feather Broilers, sedans and cross-country vehicles with engine
displacements of 2.0 litres and above, solar-grade polycrystalline silicon etc.
In the FTAs China has signed, the issue of countervailing measures was addressed.
The relevant parties usually promised that potential countervailing investigation
should be first handled through consultation and negotiation. Bilateral and multilateral
safeguard measures should not be adopted simultaneously.
China has not initiated any countervailing investigation against Sri Lanka.
4.2.4.3
Safeguard Measures
China undertakes safeguard measures under the provisions of Foreign Trade Law of
the People's Republic of China and Regulation of the People's Republic of China on
Safeguard Measures. According to the statistics of WTO, in the aspect of global
safeguard measures, as of 31st March 2013, there were 255 cases of Safeguard
initiations by Reporting Members. China had initiated only one safeguard measure on
steel products as of 31st March 2013.
In the FTAs China has signed, the issue of safeguard measures was addressed. The
relevant parties usually promised that possible safeguard measures should be first
handled through consultation and negotiation. Bilateral and multilateral safeguard
measures should not be adopted simultaneously.
Sri Lanka
Sri Lanka currently has no laws or regulations governing anti-dumping or
countervailing actions. Sri Lanka notified the Committee on Anti-Dumping Practices
that it had not established an authority competent to initiate and conduct an
investigation within the meaning of Article 16.5 of the Agreement and thus had not, to
date, taken any anti-dumping actions within the meaning of Article 16.4. Sri Lanka
also stated that it did not anticipate taking any anti-dumping actions for the
foreseeable future.
A similar notification was made in respect to countervailing measures to the
Committee on Subsidies and Countervailing Measures on 20 October 2009.
Sri Lanka also has no laws or regulations relevant to safeguard measures.
77
However, Sri Lanka is in the process of submitting draft bills on anti-dumping and
countervailing measures, and on safeguard measures. These were originally
gazetted in 2005 and submitted for approval to Parliament in 2006. Following
discussions on various provisions of the bills, revised texts are expected to be
submitted again for approval in the near future. The Department of Commerce
would be the investigating authority and main body in charge of implementing this
legislation once parliamentary approval is obtained.
4.3
4.3.1
4.3.1.1
Trade in Specific Sectors

Tea
Description of the Sector
China
1. Overview of the Industry
As the home of tea, China is the first country to discover and make use of tea, with its
areas of tea plantations and total consumption topped the world. In 2012, the global
production of tea reached 4.528 million tons, among which China's tea production
reached 1.761 million tons, accounting for 38.89% of the world total volume. The
plantation of tea is widely spread with a large number of varieties in China. The tea
producing regions cover 19 provinces, municipalities and autonomous regions all over
the country, from Shandong Peninsula in the north to Hainan Island in the south, and
from Taiwan in the east to Tibet in the west. The highest tea producing area stands
2600 meters above sea level, and the lowest just dozens of meters or hundreds of
meters from the sea level. According to different origin and craft, Chinese tea is
classified into six categories, namely black tea, green tea, Oolong tea, white tea,
yellow tea and dark tea.
As one of the major tea categories in China, the production of green tea is the highest
among six categories of tea in China. In 2012, the production of green tea was 1.18
million tons accounting for 67% of China's total production of tea. The range of the
plantation of tea in China is very wide, and the major provinces include Henan,
Guizhou, Jiangxi, Anhui, Zhejiang, Jiangsu, Sichuan, the Southern Shanxi, Hunan,
Hubei, Guangxi, and Fujian. Chinese green tea is of high quality and varied brands.
More than 100 brands are well-known home and abroad, such as the West Lake
Longjing, Dongting Biluochun, Huangshan Maofeng Tea, Xinyang Maojian and so
on. To promote the development of Chinese tea industry, China has focused on
intensification, ecologization and mechanization during the production process. While
increasing its production, Chinese tea industry also advocates the idea of green,
78
organic and sustainable development to improve the comprehensive utilization by

deep processing.
Oolong tea is Chinas second main tea category, and it is typical for China. In 2012,
the production of Oolong tea reached 215 thousand, accounting for 12.2% of the total
production. Oolong tea is mainly produced in Fujian, Guangdong and Taiwan. In
recent years, Sichuan, Hunan and other provinces also have a small amount of
production. According to the producing area, Oolong tea are divided into Guangdong
Oolong Tea, Taiwan Oolong Tea and Fujian Oolong Tea. The Dahongpao, called
"king of tea", enjoys the top place among Fujian tea, 4% of Oolong tea production in
China is exported abroad mainly to Japan, Southeast Asia, Hong Kong and Macao.
Black tea is China's third main tea category, most of which is grown in tropical or
subtropical hilly region with weak acidic soil, mainly including Hunan, Yunnan,
Chongqing and some economically backward areas in western China. The black tea
plays a very important role in adjusting the economic structure, increasing local
farmers' income and promoting rural employment. Farmers there have more
enthusiasm to plant black tea and thus the quality of black tea has also been
improved significantly. In 2012, the production of black tea reached 181 thousand,
accounting for 10.28% of the total production. Tongmuguan, Wuyi Mountain of Fujian
Province in China is the cradle of black tea, Produced here, Lapsang Souchong Black
Tea is the originator of world black tea. Lapsang Souchong Black Tea can be dated
back to the late Ming Dynasty and so far has about 400 years of history. 20% of black
tea production in China is exported to more than 60 countries and regions. Qimen
black tea is most famous among them and is one of the world's four most famous
black tea.
2. The Foreign Trade
The tea is an advantaged agricultural product in China. And China is one of the main
tea exporting countries in the international market. In recent years, the scale of
Chinese tea products in foreign trade expands year by year. In 2012, the volume of
exports of Chinese tea reached USD 1.121 billion, a year on year increase of 10.2%;
the volume of imports USD 80 million, 15.8% and trade surplus USD 1.04 billion, 9.8%.
Chinas major import partners of the products in this sector are Sri Lanka, India and
Taiwan China, accounting for 67.94% of the total import. And the major export
partners in this sector are Kingdom of Morocco, USA and the EU, accounting for
33.92% of the total import.
Tea products are the major goods of the bilateral trade between China and Sri Lanka.
In 2012, China exported USD 8 million of tea products to Sri Lanka, accounting for
0.27% of China's total exports to Sri Lanka. In the same year, China imported USD 22
million of tea products from Sri Lanka, accounting for 13.53% of China's total imports
from Sri Lanka.
79
In terms of the market share, although tea products accounted for a small proportion
of bilateral trade between China and Sri Lanka, Sri Lanka still remains one of major
importing sources of China as the proportion of imports increasing year by year. From
2010 to 2012, the proportion of tea products from Sri Lanka in China's total imports of
this sector increased from 23.21% to 28.31%. In 2012, Chinese tea products exported
to Sri Lanka accounted for 0.72% of the total exporting volume of tea products from
China to the world.
Table 4-10 Import and Export of Tea Products of China
China's Trade with the

World
Year
2010
8.25
Export Value
Percentage of the
0.0524
Total Export(%)
0.57
Import Value
Percentage of the
0.0042
Total Import(%)
8.82
Total Trade
7.68
Trade Balance
China's Trade with Sri

Lanka
The Ratio between

Lanka and China's Trade
with the World (%)
2011
10.18
2012
11.21
2010
0.06
2011
0.07
2012
0.08
2010
0.70
2011
0.67
0.0537
0.0547
0.2916
0.2284
0.2701
0.67
0.77
28.31
10.84
11.98
0.22
13.528
1
0.30
24.14
0.0044
0.16
10.501
4
0.23
23.21
0.0039
0.13
12.995
6
0.19
2.17
2.11
2.50
9.51
10.44
-0.07
-0.09
-0.14
Sri Lanka
The tea sector is one of the most important sectors for Sri Lankas economy. The
sector contributes around 2% to the countrys GDP, and provides direct and indirect
employment to around 2 million people.
In 2012, total product of tea amounted to 328 million kg, over an extent of almost
222,000 hectares. The contribution of tea to total GNP in 2012 was Rs.28 billion.
Table 4-11 Key Indicators for the Tea Industry
Item
1. Production
a. High grown
b. Medium grown
c. Low grown
unit
Mn. kgs
Mn. kgs
Mn. kgs
Mn. kgs
2009
291.1
73
44.8
173.3
80
2010
331.4
79.1
56.1
196.2
2011
327.5
78.2
52.6
196.7
2012
0.72
2. Extent
a.Total Extent
b.Extent in bearing
'000 hec.
'000 hec.
212.7
181.4
212.7
181.4
206.1
197
3.Yield
kg/ha
1,312.00
1,478.00
1,475.60
Source: Ministry of Plantations
In 2012, Sri Lanka was the third largest producer of black tea in the world, and the top
exporter of black tea. Furthermore, Sri Lankan tea under the mark of Pure Ceylon
Tea has long established itself as a quality premium product in the global tea market.
Sri Lanka has continued to develop this brand, and has made strong inroads into high
end value added teas.
The import and export of tea are governed by regulations imposed by the Sri Lanka
Tea Board. Sri Lanka Tea Board issues exports licenses for tea based on
regulations governing quality of the tea. Similarly, all tea importers must be
registered with the Sri Lanka Tea Board and imports must be done under a permit
issued by the Sri Lanka Tea Board.
4.3.1.1.1
Exports
Black tea (bulk and packeted) remained Sri Lankas top export in 2012, with exports
totaling US$ 1.4 billion, amounting to 14.5% of Sri Lankas total exports. The five top
destinations for black tea in 2012 were Russia, Iran, Syria, Turkey and Iraq, while
China ranked 21st in export destinations for Sri Lankas black tea. Sri Lanka
remained the top supplier of black tea to China with a share of 22% of Chinas
imports.
The following table gives the composition of exports of tea to China from 2006 to 2012
in metric totals and value in US$ Million. The table further shows that while bulk tea
continues to dominate exports to China, there has been some improvement in the
export of value added teas.
Table 4-12 Sri Lanka Tea direct exports to China in MT, US$ MN (2006 to 2012)
Category
Bulk
Packets
Tea Bags
2006
2007
2008
2009
2010
2011
2012
441
680
761
714
940
2089
2635
6
14
40
26
281
223
222
44
53
66
48
90
149
168
81
Instant Tea
Green Tea
Others
Total (MT)
Value
in
million
US$
0
37
51
578
1.8
0
173
43
964
2.8
75
63
59
969
3.6
0
17
46
852
3.4
3
1
25
1341
5.7
0
0
0
2461
11.1
4.3.1.1.2
Imports
Sri Lanka imported US$19.6 million worth of tea in 2012, with bulk black and green
tea composing the majority of the imports. These imports are mostly for blending
purposes.
The top exporters to Sri Lanka were China, India, Kenya, UAE and Iran, with China
enjoying 43.6% share of Sri Lankas imports. Chinas main export to Sri Lanka has
been 0902.20, with a value at US$7.4 million.
4.3.1.2
Tariffs Applying to Tea Products
China
According to the statistics of Customs P.R.C., in 2012, the tea sector had 12 8-digit
tariff lines, which belonged to the ad valorem duty. Among them, there were 11 tariff
rates of APTA, representing 91.67% of the total tariff lines in this sector. China's
average import tariff level is only 8.42% with the highest tariff rate at 16%, including
21012000(Extracts, essences, concentrates & preps of tea or mate). And there is no
Zero-tariff in this sector. The tariffs of most products are 7.5 % (See Table 4-13).
Table 4-13 The Import Tariff Rates Distribution of China's Tea Products in
2012
China
Distribution of Tariffs
No.
Percentage of the Total Sector(%)
30<T50
0.00
20<T30
0.00
15<T20
8.33
10<T15
5<T10
0
11
0.00
91.67
2<T5
0.00
82
0
59
0
3084
13.5
China
No.
0<T2
0.00
T=0
Total
0
12
0.00
100.00
Sri Lanka
There are 48 lines at 8-digit level under 0902 of Sri Lanka Customs Code.
lines under 0902 incur a 30% duty.
4.3.1.3
All tariff
Impact of Trade Liberalization
China
A China- Sri Lanka FTA would further promote the development of the bilateral trade
in tea products. The results of a China-Sri Lanka FTA hypothesis in the partial
equilibrium model can be summarized as follows: Sri Lanka's exports to China would
increase. Sri Lanka's share in China's imports of tea products would increase mainly
regarding products where Sri Lanka has a comparative advantage such as black tea.
According to the partial equilibrium model came up by Chinese Side, the total trade
liberalization of tea would let China's tea imports from Sri Lanka increase by USD
12.38 million, including trade creation of USD 4.13 million and trade diversion of USD
8.26 million. On the basis of USD 21.89 million which created by China's tea imports
from Sri Lanka in 2012, China's tea imports from Sri Lanka will increase by 56.56%
after the trade liberalization of tea between China and Sri Lanka. Because China's tea
import tariffs on average is only about 8.42% (including the Asia-pacific trade
agreement rate), there will be no barriers to imports. Chinas tea production is main
economic sources for farmers in the barren mountainous and hilly regions in southern
China. Cancelling the tea tariffs will have negative impacts on the black tea production
in Yunnan, Guangxi, Hunan, Chongqing and China's main black tea producing areas
that are relatively backward and on the farmers' income.
At the same time, tea is a kind of goods that relies on ones hobby. And consumption
habits and cultural traditions play an important role in the consumption. Sri Lanka
gives priority to consumption of black tea. Therefore, if Sri Lanka eliminates the
Chinese green tea tariffs, it will not result in a great increase in imports of green tea.
83
Sri Lanka
Currently, Sri Lanka applies a 30% duty on tea from China. It is anticipated that
given Chinas strength in this sector, liberalization of duties on tea by Sri Lanka will
cause a surge in imports, particularly given that China is presently Sri Lankas top
supplier of 0902. As indicated above, the tea sector is an important one for Sri
Lankas economy, providing as it does employment for over 2 million people. In
addition, the sector is also one of Sri Lankas major exports.
Currently, China applies a preferential duty of 7.5% under APTA, against the MFN
duty of 15%. A preliminary analysis of the potential impact of tariff liberalization by
China projects a potential increase of 40% in total exports under 0902, with a 64%
increase in Sri Lankas main export line, 0902.40.
Table 4-14 Import of 0902.40 by China
World
India
Sri Lanka
Kenya
Indonesia
Viet Nam
Imported
Share in Imported
value 2012 China's
growth
in
(US$ mn)
imports
value between
(%)
2008-2012
(%, p.a.)
38.8
100.0
54.0
15.9
40.9
221.0
12.2
31.3
45.0
4.5
11.5
24.0
2.4
6.3
64.0
1.0
2.6
93.0
Imported
growth
in
value between
2011-2012
(%, p.a.)
18.0
70.0
26.0
-30.0
-8.0
31.0
Tariff
(estimated)
applied
by
China (%)
Source: ITC Trade Map
As the above table shows, Sri Lanka is currently the 2nd supplier of bulk black tea to
China, and is well behind India in terms of both total exports to China and its growth
during the period 2008 2012 and 2011-2012. At present, Sri Lanka enjoys the
same duty as India under APTA and a better rate of preferential import duty than
Kenya, yet Sri Lanka remains less competitive vis--vis its competitor countries.
Table 4-15 Imports of 0902.30 by China in 2012
Exporters
World
Sri Lanka
Taipei,
Imported
value
2012 (US$
mn)
22.4
9.1
6.5
Share in Imported
China's
growth in value
imports
2008-2012
(%)
(%, p.a.)
100.0
47.0
40.5
61.0
29.2
54.0
84
Imported
growth in value
2011-2012
(%, p.a.)
7.0
51.0
-9.0
Tariff
(estimated)
applied by
China (%)
7.5
8.3
7.5
7.5
15.0
0.0
0.0
Exporters
Chinese
India
Poland
USA
Imported
value
2012 (US$
mn)
Share in Imported
China's
growth in value
imports
2008-2012
(%)
(%, p.a.)
Imported
growth in value
2011-2012
(%, p.a.)
Tariff
(estimated)
applied by
China (%)
3.5
1.0
0.6
15.8
4.4
2.6
-24.0
215.0
-6.0
7.5
15.0
15.0
54.0
10.0
As the above table shows, Sri Lanka is currently the top supplier of 0902.30, with
40.5% share of Chinas current imports of this line. However, packeted tea
continues to be a growing sector for Sri Lanka, and diversification into critical market
will ensure its continued development. Therefore, the liberalization on this line by
China would contribute to the sustained growth of this value added sector.
4.3.2 Fish and Fisheries Products

4.3.2.1
China
The fisheries sector is one of the key industries in China's agricultural development.
Considering that the export of Chinese aquatic product are mainly focus on
processing on giving materials and the workers involved in the processing enterprises
are almost migrant workers, hence the fisheries sector is the important way to transfer
the surplus labour. In 2012, the output value of this sector reached RMB 870.6 billion,
up by RMB 113.8 billion year on year. The total output of aquatic products stood at
59.07 million tons, with an increase of 5.4% over the previous year. Among them, the
seawater aquatic products produced 30.33 million tons. Among the seawater aquatic
products, the production of artificial cultivation stood at 16.44 million tons, and the
natural products reached 13.9 million tons. In the fishery production, the output of the
fish had 11.01 million tons, including 3.46 million tons of shrimp and crab, 12.65
million tons of shellfish, 1.79 million tons of algae and 1.43 million tons of other types.
In recent years, the healthy aquaculture of China is continuing to develop rapidly.
From place to place, people boost the standardization renovation of the breeding
ponds, establish the healthy demonstration aquaculture farm, promote the concept
and technique of Eco-Aquaculture, actively develop the methods of prevention and
control of aquaculture disease and are trained to regulate medicine, supervise the
85
aquaculture and the quality safety of products as well as develop the project of fishery
technology to farmers. All these help to raise the level of modernization of the facilities,
equipment and technology of Chinese aquaculture industry.
Since the reform and opening-up, the scale of China's fisheries products in foreign
trade has expanded rapidly year by year and runs the trade surplus all the time.
Especially in 2012, the total volumes of exports and imports increased 137% and 222%
respectively over the previous year. In 2012, the volume of exports of China's fish and
fisheries products reached USD 18.160 billion, accounting for 0.89% of China's total
exports. In the same year, the volume of imports of those products reached USD
5.666 billion, accounting for 0.32% of China's total imports. The export of Chinas
fisheries products rise from about USD 40 to 50 million annually in the beginning of
the reform and opening-up to USD 18.16 billion in 2012. The growth speed of its
annually amount of exports are higher when compared with the other agriculture
products in the same period. With the expansion of the export scale, Chinas fisheries
products gradually occupy an important position in the international market. The rapid
development of Chinas fisheries products in foreign trade plays an important role in
broadening the development space of Chinas fisheries, creating more jobs,
generating fishermens income, accelerating the modernization of fisheries, enriching
the domestic consumer market of aquatic products as well as stimulating the
development of the domestic aquatic product processing industry and the aquatic
feedstuff industry.
The major import partners of Chinas fish and fisheries products were Russia, USA
and Norway, accounting for 50.42% of the total import. And the major export partners
in this sector were Japan, USA and the EU, accounting for 50.11% of the total
imports. The major product categories with trade surplus in favour of China were
16041700(Prepared or preserved eels, excl, minced), 03047500(Frozen fillets of
Alaska Pollack). The major product categories with trade deficit in favour of China
were 03036700(Frozen Alaska Pollack, excluding fillets, livers and roes),
03036300(Gadus morhua, Gadus ogac, Gadus macrocephalus, frozen, excluding
fillets, livers and roes).
Although the bilateral trade volume of fisheries products is relatively small between
China and Sri Lanka, it still expands its trade scale year by year. In 2012, China's
volume of exports towards Sri Lanka in this sector reached USD 43 million,
accounting for 1.43% of China's total volume of exports towards Sri Lanka. In the
same year, China's volume of imports from Sri Lanka in this sector reached USD 4
million, accounting for 2.70 % of China's total volume of imports from Sri Lanka.
In terms of market share, although fish and fisheries products account for a small
proportion of the bilateral trade between China and Sri Lanka, the share still rises year
86
by year. In 2012, China's imports of fish and fisheries products from Sri Lanka in this
sector accounted for 0.08% of China's total imports towards the world. At the same
time, China's exports towards Sri Lanka in this sector accounted for 0.24% of China's
total exports towards the world.
Table 4-16 Import and Export of Chinas Fish and Fisheries Products
The Ratio between
with the World(%)
2010
2011
2012
0.09
0.40
0.24

World
China's Trade with

Sri Lanka
Year
2010
2011
2012
2010
2011
2012
Export Value
43.83
56.34
181.60
0.04
0.22
0.43
Percentage of the
Total Export(%)
0.28
0.30
0.89
0.20
0.75
1.43
Import Value
16.69
23.92
56.66
0.00
0.04
0.04
0.02
0.16
0.08
Percentage of the
Total Import(%)
0.12
0.14
0.32
0.41
2.58
2.70
Total Trade
60.51
80.26
238.27
0.04
0.26
0.47
0.07
0.33
0.20
Trade Balance
27.14
32.42
124.94
0.04
0.18
0.39
Sri Lanka
The fisheries sector plays an important role in the national economy of Sri Lanka. It
contributes to the GDP by about 2% and provides direct and indirect employment to
nearly 2.6 million of the population. It ensures food security by contributing 70% to the
animal protein intake of the masses (MFARD 2012). The fisheries sector attracts
considerable amount of foreign exchange earnings to the country.
The sector, which accounted for 1.3 percent of the GDP in 2012, grew by 9.3 percent
following a 15.5% and 12.2% growth recorded in the previous two years.
Table 4-17 Contribution of Fishery Sector for GDP from 2002-2012
Year
2007
2008
2009
2010
As a % of Agricultural Sector
9.2
9.4
9.8
10.3
87
As a % of GDP
1.1
1.1
1.2
1.2
Year As a % of Agricultural Sector As a % of GDP

2011 11.7
1.3
2012 12.1
1.3
In Sri Lanka the fisheries sector is divided into three sub sectors such as coastal
fisheries, offshore fisheries and inland fisheries and aquaculture. The coastal fisheries
are confined to conduct within the continental shelf area (i.e. area of 30,000km2) by
the fishing crafts in single day fishing operations while offshore fisheries extend from
outer edge of continental shelf up to the outer limit of the EEZ and beyond by the multi
day fishing boats (MFARD 2010).
Production increase in inland fishing by 14.3 percent and marine fishing by 8.5
percent during the year contributed for this expansion although inland fishing
contracted by 36 percent in the fourth quarter due to third and fourth quarter drought.
The growth in marine fishing production which accounted for 1.2 percent of GDP has
revived with the resumption of fishing industry in liberated areas, development of
fishery industry infrastructure throughout the country by developing fishery harbors,
provision of vessels and other equipment as relief assistance for those in liberated
areas.
4.3.2.1.1
Exports
The export of sea food, including fresh and frozen fish, increased by 6.9 percent to US
$ 198 million in 2012 while the import of sea food, including fresh fish and dried fish,
declined by 8.5 percent to US $ 136.4 million in 2012 in comparison to 2011.
Table 4-18 Fish Imports and Exports from 2002-2012
Year
2007
2008
2009
2010
2011
2012
Exports
Value US$ (million)
173
176
183
175
198
207
88
Quantity (mt)
21,423
20,593
18,714
18,325
18,462
18,631
Table 4-19 Fisheries Contribution in Export Earnings and Balance of Fish

trade
Year
Import Value of
Fish & Fishery
Products (US$ Mn)
2007
Export Value of
Fish & Fishery
Products (US$
Mn)
172.9
108.1
Fisheries sector
Contribution in
National Export
Earnings (%)
2.25
Balance of
External
Trade of Fish
(US$ Mn)
+64.7
2008
2009
176.1
182.8
115.6
121.3
2.15
2.57
+60.5
+61.6
2010
2011
2012
175.4
197.9
206.6
125.3
146.9
136.4
2.14
2.01
2.2
+50.2
+51.0
+70.2
Source: Custom Returns/ Statistics Unit - Ministry of Fisheries and Aquatic Resources
Development
The composition of Sri Lankas top 10 fisheries exports to the world in 2008 to 2012
were as follows.
Table 4-20 Top 10 Fisheries Exports by Sri Lanka to the World (US$ million)
HSCO
30419
30349
30232
30499
30613
30614
30429
Description 2
Fish fillets and other fish meat
(whether or not m
Fish, frozen, excluding fish fillets
and other fish meat of heading
no.03.04.
Fish, fresh or chilled, excluding
fish fillets and other fish meat of
heading no
(whether or not minced), fresh,
chilled or froz
Crustaceans, whether in shell or
not, live, fresh, chilled, frozen,
dried, salte
Crustaceans, whether in shell or
not, live, fresh, chilled, frozen,
dried, salte
(whether or not m
89
2008
27.5
2009
45.4
2010
48.7
2011
51.9
2012
42.8
32.7
37.2
37.8
30.7
40.8
12.5
8.0
5.6
13.7
30.7
19.6
16.7
15.5
9.5
11.8
9.7
12.3
12.0
14.8
11.2
3.4
5.8
5.0
10.1
10.7
10.1
12.7
8.4
6.8
8.9
HSCO
Description 2
30110
Live fish.
Fish, frozen, excluding fish fillets
and other fish meat of heading
no.03.04.
Molluscs, whether in shell or not,
live, fresh, cjilled, frozen, dried,
salted o
30379
30799
2008
9.0
2009
8.5
2010
8.1
2011
10.0
2012
6.5
14.1
9.6
1.9
10.1
6.2
3.0
2.2
5.7
7.1
5.4
The top destinations for Sri Lankas exports in 2012 were the EU, Japan, US, Hong
Kong China and Canada, while China was the 29th export destination. Sri Lanka
exported just US$ 359,000 worth of exports to China in 2012.
Table 4-21 Top Exports of Chapter 03 to China by Sri Lanka
Product
code
'030621
'030622
'030617
'030389
'030449
'030459
'030811
'030624
'030487
Product label
Value in
(US$ mn)
Rock lobster and sea crawfish not frozen, in shell/not 3.49
including boiled in shell
Lobsters nes, not frozen, in shell or not, including 0.549
boiled in shell
Other frozen shrimps and prawns
0.095
Frozen fish, n.e.s.
0.090
Fresh or chilled fillets, n.e.s.
0.029
Fresh or chilled meat, whether or not minced, n.e.s.
0.004
Sea cucumbers : Live, fresh or chilled
0.003
Crabs, not frozen, in shell or not, including boiled in 0.002
shell
Frozen fillets, Tunas, skipjack or stripe-bellied bonito
0.001
2012
4.3.2.1.2
Imports
In 2012, Sri Lanka imported around US$ 94 million under Chapter 03, the majority of
which was canned fish and dried fish. Table 4-22 gives the composition of Sri
Lankas top ten imports under Chapter 03.
Table 4-22 Top Ten Imports by Sri Lanka in Chapter 03 (US$ Mn)
90
Hsco
30559
30349
30239
30379
30342
30749
30329
30361
30110
30741
Description
Fish, dried, salted or in brine;
smoked fish whether or not
cooked
Fish, frozen, excluding fish
fillets and other fish
Fish, fresh or chilled,
excluding fish fillets and
other fish meat of heading no
fillets and other fis
fillets and other fis
Molluscs, whether in shell or
not, live, fresh, cjilled, frozen,
dried, salted o
fillets and other fish meat of
heading no.03.04.
fillets and other fish meat of
heading no.03.04.
2008
57.8
2009
68.4
2010 2011 2012

67.1 75.9 69.9
6.2
1.9
7.3
4.6
6.1
0.0
0.4
0.1
2.1
4.7
1.8
2.8
6.6
6.6
2.9
2.4
3.5
1.3
2.7
1.5
0.1
0.3
0.3
0.3
1.2
0.6
0.2
0.6
1.0
1.2
1.0
1.2
1.8
0.4
0.8
0.3
0.5
0.6
1.2
0.7
0.5
0.8
0.6
0.3
0.7
---- Other
-- Other
-- Other
- Other
- Yellow fin
tunas
-- Other
-- Other
- Swordfish
Ornamental
fish: Other
Live fish.
Molluscs, whether in shell or
not, live, fresh, chilled, - Cuttle fish &
frozen, dried, salted o
squid; Other
Sri Lanka imported US$ 11.6 million under Chapter 03 from China.
below gives the main composition of exports by China to Sri Lanka
Table 4-23
Table 4-23 Exports by China to Sri Lanka under Chapter 03 (US Mn) in 2012
Product code
'030749
'030559
'030539
'030353
'030389
Product label
Value
Cuttle fish and squid,shelled or not,frozen,dried,salted
5.1
or in brine
Fish nes, dried, whether or not salted but not smoked
2.4
Fish fillets, dried, salted or in brine, but not smoked, nes
1.7
Frozen Sardines , sardinella, brisling or sprats
0.8
Frozen fish, n.e.s.
0.7
91
Product code
'030354
'030381
'030355
Product label
Frozen Mackerel
Frozen Dogfish and other sharks
Frozen Jack and horse mackerel
Value
0.6
0.2
0.1
4.3.2.2
Tariffs Applying to Fisheries Products
China
According to the statistics of Customs P.R.C., in 2012, the fisheries sector had 297
8-digit tariff lines, which belonged to the ad valorem duty. Among them, there were
144 tariff rates of APTA, representing 48.48% of the total tariff lines in this sector.
China's average import tariff level reached just 8.61% with the highest tariff rate at
23%, including 16030000(Extracts & juices of meat, fish & aquatic invertebrates). And
there are 27 Zero-tariff, accounting for 9.09%of the total tariff lines in this sector.
Among them, the tariff of most products ranges from 5% to 10 %(See Table 4-24).
Table 4-24 The Import Tariff Rates Distribution of China's Fish and Fisheries
Products in 2012
China
No.
30<T50
20<T30
15<T20
0
1
18
0.00
0.34
6.06
10<T15
5<T10
2<T5
57
146
47
19.19
49.16
15.82
0<T2
T=0
1
27
0.34
9.09
Total
297
100.00
Sri Lanka
There are 196 lines at 6- and 8-digit level in this Chapter. All lines incur 15%
customs duty, 12% VAT, 5% PAL and 2% NBT. In addition, cess is imposed on 17
lines, at Rs.10 per kg, at Rs.20 per kg or 30% or Rs.100 per kg.
92
4.3.2.3
China
A China- Sri Lanka FTA would further promote the development of the bilateral trade
in fisheries products. The results of a China-Sri Lanka FTA hypothesis in the partial
equilibrium model can be summarized as follows: Because the average tariff rates of
China's fisheries products is 8.61% (including the tariff rates in Asia-Pacific Trade
Agreement), with the trade liberalization of fisheries products , Sri Lanka's exports to
China would increase. According to the partial equilibrium model came up by the
Chinese Side, the total trade liberalization would let China's fish and fishery imports
from Sri Lanka increase by USD 2.07 million. On the basis of USD 4.37 million which
created by China's fish imports from Sri Lanka in 2012, China's fish imports from Sri
Lanka will increase by 47.45% after the trade liberalization of fisheries products
between China and Sri Lanka.
China and Sri Lanka further opening the aquatic product market to each other will
contribute to promoting the aquatic product trade and enriching the market of the two
sides. Firstly, the aquatic product is the superior product of both sides and the export
products of them are obviously complementary. Secondly, as an island country lying
in Indian Ocean with rich fishery resources, Sri Lanka enjoys huge potential for fishery
development. Thirdly, the export of Chinas aquatic product faces greater challenge
for reasons like, the slowdown of global economic, the significantly increasing of labor
costs, a longer time to pass through the customs caused by export quarantine, etc.
Domestic concerns need to be taken into account in the liberalization of this sector.
Sri Lanka
The fisheries sector is one of the key sectors providing livelihood for Sri Lankans. As
indicated above, the sector provides livelihood to almost 3 million people.
Furthermore, almost all the domestic requirement is provided by the domestic
fisheries sector. Almost 70% of the nutritional requirement is met by the domestic
sector. Liberalization of this sector needs to take into account domestic sensitivities.
China currently applies a wide range of tariffs on Sri Lanka under Chapter 03, from
3.75% to 16%. A preliminary simulation based on 2010 data indicates a potential
growth of over 20%.
Presently, there is substantial trade potential for Sri Lanka to export to China under
Chapter 03, based on the trade patterns of both countries, as indicated in the below
table.
93
Although Sri Lanka receives a margin of preference under APTA, it still remains less
competitive vis--vis competitor countries.
Table 4-25 Trade Potential for Sri Lankan Exports to China Chapter 03
Product
Code
'030499
'030613
'030614
'030429
'030379
'030799
'030749
'030559
'030624
'030110
'030622
'030623
'030269
US$ Mn
Product Label
China's
SL
Chinas Indicative
imports
Exports World
potential
from SL
to World Imports trade
Frozen fish meat whether or not
0.0
11.8
57.1
11.8
minced
(excl.
swordfish,
toothfish and
Shrimps and prawns, frozen, in
0.1
11.2
232.3
11.1
shell or not, including boiled in
shell
Crabs frozen, in shell or not,
0.0
10.7
206.6
10.7
Frozen
fish
fillets
(excl.
0.0
8.9
32.2
8.9
swordfish and toothfish)
Fish nes, frozen, excluding
0.1
6.2 1487.5
6.1
heading No 03.04, livers and
roes
Molluscs
nes,shelld
o
0.0
5.4
89.5
5.4
not&aquatic
invert
nes,fz,drid,saltd o in brine
Cuttle fish and squid,shelled or
0.0
4.4
407.7
4.4
not,frozen,dried,salted or in brine
Fish nes, dried, whether or not
0.0
3.7
3.4
3.4
salted but not smoked
Crabs, not frozen, in shell or not,
0.0
2.6
252.7
2.6
Ornamental fish, live
0.0
6.5
2.1
2.1
Lobsters nes, not frozen, in shell
0.6
2.1
46.3
1.5
or not, including boiled in shell
Shrimps & prawns,not frozen,in
0.0
1.5
70.3
1.5
shell or not,including boiled in
shell
Fish nes, fresh or chilled excl
0.0
1.3
4.3
1.3
heading No 03.04, livers and
roes
94
4.3.3 Machinery and Electronics

4.3.3.1
China
After maintaining a rapid growth for many consecutive years, China's machinery
industry move into the medium-growing period and the new age of sound and fast
development featured in transformation and upgrading. Currently, the number of
China's machinery industrial enterprises above designated size reaches 76 thousand,
with a total asset of RMB 14 trillion. The total labour force of machinery industry
reaches 18.7 million. In 2012, both the production and selling of the whole industry
exceeded RMB 18 trillion, playing a leading role in the world for many consecutive
years. The niche industry of machinery and electronics industry shows that the
situation in the industries of agricultural machinery, instrument, and general
machinery of petrochemical industry, basic parts and automobile is relatively good.
However, the engineering machinery and office machinery experience a negative
growth. And the trade of the internal combustion engine obviously recovered
compared with the last year. The trade and demand are still sluggish in the industry of
heavy machinery, electrical appliance and machine tools. Even though China has
become a big country of manufacturing industry, its weak foundation is still prominent,
which mainly reflected in the unreasonable industrial structure, the lack of the
capability of independent innovation, the low development quality and benefit, the low
status in industry chain and the unsustainable traditional mode for development.
The electronic information manufacturing industry mainly includes telecommunication
equipment industry, consumer electronics industry, computer industry, electron
components industry and so on. Currently, China has become the biggest
manufacturing base of electronic information products in the world. In 2012, the sales
revenue of Chinas IT Industry reached RMB 11 trillion, growing by 15% year on year.
And the manufacturing above designated size obtained RMB 8.4619 trillion, up 13.0%
over the same period. In 2012, value added of China's electronic information
manufacturing industry above designated size increase by 12.1%, 2.1% higher than
the industrial average level over the same period.
Machinery and electronic products belong to important industries in China's foreign
trade with relatively large trade scale and relatively large proportion of the total import
and export volume. In 2012, the volume of exports of Chinas machinery and
electronic products reached USD 936.34 billion, accounting for 45.70% of China's
total exports. In the same year, the import volume of those products reached USD
669.897 billion, accounting for 38.31% of China's total import. The major import
95
partners in this sector were Republic of Korea, Japan and Taiwan China, accounting
for 44.52% of the total imports. And the major export partners of this sector were
Hong Kong China, USA and the EU, accounting for 57.71% of the total import. The
major product categories with trade surplus in favour of China were
84713000(Portable ADP, weight10kg, with at least CPU/keyboard/display),
85171210(Radio
telephone
handsets,
including
vehicle
installed),
84733090(Parts/accessories of other machines of heading 84.71) and
85414020(Solar cells). The major product categories with trade deficit in favour of
China were 85423100(Processors and controllers of electronic integrated circuits),
85423900(Other electronic integrated circuits), 85423200(Memories of electronic
integrated circuits) and 90138030(Liquid crystal display panel).
In the bilateral trade between China and Sri Lanka, machinery and electronic products
occupy a relatively large scale and proportion. Besides, China runs the surplus all the
time, especially in the scale of exports, accounting for nearly 30% of China's exports
towards Sri Lanka. In 2012, China's volume of exports towards Sri Lanka in this sector
reached USD 882 million in this sector, accounting for 29.32% of China's total volume
of exports toward Sri Lanka. In the same year, China's volume of imports from Sri
Lanka in this sector reached USD 15 million, accounting for 9.44% of China's total
volume of imports from Sri Lanka.
In terms of market share, although this sector rendered as one of the pillar industries
in the bilateral trades between China and Sri Lanka, the share was still small
compared to the overall size of Chinas foreign trade in the sector. In 2012, China's
exports towards Sri Lanka in this sector accounted for 0.0942% of China's total
exports towards the world. And China's imports from Sri Lanka accounts for 0.0023%
of China's total imports.
Table 4-26 Import and Export of Chinas Machinery and Electronic Products
China's Trade with the World
Year
Export Value
Percentage of the
Total Export(%)
Import Value
Percentage of the
Total Import(%)
Total Trade
China's Trade with

Sri Lanka
The Ratio between

Lanka and China's
Trade with the World(%)
2010
2011
2012
2010
2011
2012
2010
2011
2012
7,374.51
8,472.59
9,363.40
4.15
8.89
8.82
0.0563
0.1049
0.0942
46.78
44.69
45.70
20.82
29.74
29.32
5,602.45
6,376.42
6,698.97
0.11
0.14
0.15
0.0019
0.0022
0.0023
40.66
37.64
38.31
10.46
8.99
9.44
12,976.96
14,849.00
16,062.37
4.26
9.02
8.98
0.0328
0.0608
0.0559
96
Year
Trade Balance
China's Trade with

Sri Lanka
The Ratio between

Lanka and China's
2010
2011
2012
2010
2011
2012
2010
2011
2012
1,772.05
2,096.17
2,664.43
4.04
8.75
8.67
Sri Lanka
Figure 4-1 Imports under HS84 and HS85 from China
Imports under HS 85
Imports under HS 84
700
1000
900
600
800
500
400
300
700
China
600
China
Other
500
Other
400
300
200
200
100
100
0
2005 2006 2007 2008 2009 2010 2011 2012
2005 2006 2007 2008 2009 2010 2011 2012
According to the Sri Lanka China Trade Statistics during the past 8 years 2005-2012,
Sri Lankas imports from China under the above two HS Codes consists of 25% of its
total imports from China.
As the above graphs show, Sri Lankas imports of Chapter 84 and 85 from China
against imports from the world have been steadily increasing since 2010.
97
Table 4-27 Top 20 Imports of Chapter 84 and 85 by Sri Lanka from China in
2012
Product
code
'8517
'8406
'8404
'8605
'8403
'8704
'8544
'8528
'8502
'8474
'8539
'8413
'8714
'8414
'8503
'8433
'8603
'8426
'8516
'8471
Product label
Sri Lanka's imports

from China (US$ Mn)
Electric app for line telephony, incl curr line system
150.2
Steam turbines and other vapour turbines
43.8
Auxiliary plant for boiler of hd 8402/03,condenser for steam
42.9
power uni
Railway passenger and special purpose coaches, not
38.5
self-propelled
Central heating boilers (other than 84.02)
36.5
Trucks, motor vehicles for the transport of goods
33.3
Insulated wire/cable
32.4
Television receivers (incl video monitors & video projectors)
26.7
Electric generating sets and rotary converters
26.4
Machinery for sorting/screening/washing, agglomerating/shaping
25.9
mineral products
Electric filament or discharge lamps
23.0
Pumps for liquids; liquid elevators
22.8
Parts and accessories of motorcycles & cycles
20.0
Air, vacuum pumps; hoods incorp a fan
19.5
Parts suitable for use solely/princ with machines of hd no
18.8
85.01/85.02
Harvesting/threshing machinery, hay mower,etc
17.7
Self-propeled railway/tramway coaches
16.9
Derricks; cranes; straddle carriers & works trucks fitted with a
15.9
crane
Electric instantaneous water heater, space heating; hair dryer
15.9
Automatic data processing machines; optical reader, etc
15.4
98
In 2012, Sri Lanka exported around US$ 1.4 million in Chapter 84, though only a
negligible value of US$ 155,000 was exported to China.
Figure 4-2 Exports of Chapter 84 by Sri Lanka
Exports of Chapter 84 by Sri Lanka (US 000)

160000
140000
120000
100000
80000
60000
40000
20000
0
2010
2011
China
World
2012
Potential
Similarly, exports in Chapter 85 to China amounted to a negligible share of Sri

Lankas total exports to the world, totalling US$ 2.1 million out of total exports of
US$ 213 million in 2012.
Figure 4-3 Exports of Chapter 85
Exports of Chapter 85 by Sri Lanka (US 000)

250000
200000
150000
100000
50000
0
2010
2011
China
World
99
Potential
2012
4.3.3.2
Tariffs Applying to Machinery and Electronic Products
China
According to the statistics of Customs P.R.C., in 2012, the machinery and electronics
sector had 1740 8-digit tariff lines, which belonged to the ad valorem duty. Among
them, there were 568 tariff rates of APTA, representing 32.64% of the total tariff lines
in this sector. China's average import tariff level reached 7.18% with the highest tariff
rate at 35% in total of 7 tariff lines, including instantaneous gas water heaters, other
electric water heaters, storage type radiators, other haircut instruments, hand driers,
electric irons and cartridges. Their tariff lines are 84191100, 84191990, 85162100,
85163200, 85163300, 85164000, and 85221000 respectively. And there are 316
Zero-tariff, accounting for 18.16% of the total tariff lines in this sector. Among them,
the tariff of most products ranges from 5% to 10 % (See Table 4-28).
Table 4-28 The Import Tariff Rates Distribution of China's Machinery and
Electronic Products in 2012
China
No.
30<T50
16
0.92
20<T30
15<T20
32
62
1.84
3.56
10<T15
197
11.32
5<T10
778
44.71
2<T5
0<T2
295
44
16.95
2.53
T=0
316
18.16
Total
1740
100.00
Sri Lanka
Under the chapter 84, out 84 products at four digit level 73 products are duty free
(86%) and only 11 products are dutiable. Under chapter 85, out of 44 products at four
digit level only 12 items are duty free and 32 products (73%) are dutiable.
4.3.3.3
China
100
The results of a China-Sri Lanka FTA hypothesis in the partial equilibrium model can
be summarized as follows: Because the average tariff rates of China's machinery and
electronic products is 7.18% (including the tariff rates in Asia-Pacific Trade
Agreement), with the elimination of tariffs on machinery and electronic products in Sri
Lanka, Sri Lanka's exports to China would increase. According to the partial
equilibrium model came up by the Chinese Side, the total trade liberalization would let
China's imports on machinery and electronic products from Sri Lanka increase by
USD 4.48 million. On the basis of USD 15.27 million which created by China's
imports on machinery and electronic products from Sri Lanka in 2012, China's imports
on machinery and electronic products from Sri Lanka will increase by 29.32% after the
trade liberalization of machinery and electronic products between China and Sri
Lanka.
In the China-Sri Lanka FTA will exert positive impact on the trade development of
machinery, electronics, instruments and equipment, so as to enhance the
competitiveness in this sector between the two countries, boost the bilateral trade, as
well as improve the environment of international cooperation among enterprises.
Sri Lanka
Tariff liberalization in Chapters 84 and 85 may likely result in increase in imports from
China, and subsequent revenue loss.
While Sri Lankas exports in this sector to China are presently comparatively small, as
the above graphs show, there is substantial potential for Sri Lanka to export
specialized products to China. Liberalization of this sector would increase therefore
opportunities for new innovative products of Sri Lanka under these Chapters for
export to China, e.g. electrical panel boards, transformers, electrical conductors, and
machinery parts such as those for turbines, under preferential market access to
China.
4.3.4 Textile and Clothing

4.3.4.1
China
The textile industry is a traditional pillar industry in China, and the export of textiles is
also an important driving force of China's foreign trade export. In 2012, China's textile
and clothing industry maintained a general steady trend. The production scale
continued to expand, while its speed was slowing down. And the investment also
experienced a slowdown. The regional structure adjustment was still strengthening. In
101
2012, the number of China's textile and clothing enterprises above designated size
reaches 41thousand, with industrial total output of RMB 5.976 trillion, up 8% over the
same period. Among it, the industrial total output of clothing industry was about RMB
1.8253 trillion, accounting for 30.6% of the industrial total output of textile industry. In
2012, China's textile and clothing industry and the export kept a small growth. Besides,
the domestic selling speeded up. Chinas trade surplus in textile and clothing products
reached USD 205.423 billion in 2012.
Currently, due to the influence of many aspects at home and abroad, the survival and
development of China's textile industry experiences severe tests. The following
factors began to hinder the development of China's textile industry: small demand of
the international market, relatively big difference of the cotton at home and abroad,
continuous increasing of labour costs, accelerating international competitiveness and
so on. For those problems China's textile industry encountered, Chinese government
has made plans to speed up the pace of industrial transformation and upgrading,
boost technical progress and technical innovation, strengthen the construction of
brands, comprehensively raise the quality and added value of products, the efficiency
, as well as enhance the core competition of the China's textile industry.
Textile and clothing products play a very important role in China's foreign trade with
relatively rapid growth of the scale in exports and imports. China runs persistent trade
surpluses all the time with the relatively large amount of surplus. In 2012, the volume
of exports of China's textile and clothing products reached USD 246.126 billion,
accounting for 12.01% of China's total export. In the same year, the volume of imports
of those products reached USD 40.704 billion, which accounted for 2.33% of China's
total import. The major import partners in this sector were USA, India and Japan,
accounting for 32.37% of the total import. And the major export partners of this sector
were the EU, USA and Japan, accounting for 43.89% of the total imports in this
sector. The major product categories with trade surplus in favour of China were
61103000(Jerseys, pullovers, etc, of man-made fibres, knitted or crocheted) and
61102000(Jerseys, pullovers, etc, of cotton, knitted or crocheted). The major product
categories with trade deficit in favour of China were 52010000(Cotton, not carded or
combed).
Textile and clothing products are among main products in bilateral trade between
China and Sri Lanka with the stable growth of scale in bilateral trades. And China
experiences the trade surplus. In recent years, the proportion of China's imports from
Sri Lanka in China's total imports in this sector has increased, but the export
proportion reduced slightly.
In 2012, China's volume of exports towards Sri Lanka in this sector reached USD 876
million, accounting for 29.09% of China's total volume of exports towards Sri Lanka. In
102
the same year, China's volume of imports from Sri Lanka in this sector reached USD
31 million, accounting for 19.29 % of China's total volume of imports from Sri Lanka.
In terms of the market share, even though textile and clothing products accounted for
relatively large and stable proportion of the bilateral trade between China and Sri
Lanka, its market share was still small comparing with the overall scale of China's
foreign trade in this sector. In 2012, China's exports towards Sri Lanka in this sector
accounted for 0.36% of China's total exports towards the world, and China's imports
from Sri Lanka accounted for 0.08% of China's total imports.
Table 4-29 Import and Export of Chinas Textile and Clothing Products
Year

Lanka
The Ratio between

Lanka and China's
2010
2011
2012
0.34
0.41
0.36
2010
2011
2012
2010
2011
2012
1,982.20
2,392.09
2,461.26
6.72
9.88
8.76
Percentage of the
Total Export(%)
12.58
12.62
12.01
33.69
33.07
29.09
Import Value
292.16
372.46
407.04
0.14
0.25
0.31
0.05
0.07
2.12
2.20
2.33
14.13
16.44
19.29
Total Trade
2,274.36
2,764.54
2,868.30
6.86
10.14
9.07
0.30
0.37
Trade Balance
1,690.04
2,019.63
2,054.23
6.57
9.63
8.44
Export Value
Percentage of the
Total Import(%)
Sri Lanka
4.3.4.1.1
Evolution of the Sector
The export-oriented production of clothing (readymade garments) began in 1970s

and expanded rapidly after the liberalization of the economy in 1977. When Sri Lanka
liberalized its economy in 1977 the countrys garment industry took off mainly as the
quota hopping East Asian garment exporters who were attracted by the countrys
liberal trade regime relocated their already well-established garment business to Sri
Lanka. This relocation encouraged local business community to commence its own
garment enterprises to exploit markets guaranteed by quotas assisted by the liberal
trade regime for importations.
103
0.08
0.32
During 1980s garment exports were growing rapidly and by 1986 garment exports
accounted for the largest share of all exports (27%). In 1992, most garment
manufacturers move into the rural areas of Sri Lanka under 200 garment factory
programme which is considered as the turning point of the apparel industry. By 1992,
the garment industry had become the largest foreign exchange earner in the country
(US$ 400mn) overtaking the tea industry.
A major development in the industry was the end of MFA quota system in 2005.
Although only half of its exports were based on quotas, the dismantling of the system
in the absence of a vertically integrated manufacturing base exposed Sri Lanka to stiff
international competition particularly from low cost manufacturers in the region.
To respond to these challenges, Sri Lankan manufacturers set up the Joint Apparel
Association Forum (JAAF) in 2002 and implemented a 5 year strategy to consolidate
the industry and strengthen its international competitiveness to face global
competition in post 2005 era. The strategy included shifting from the low end of the
market to middle and upper levels, promoting product specialization, upgrading
technology and strengthening market networks.
Thus industry adjusted, evolved adopting new business models and the apparel
sector continues to be the highest foreign exchange earner and industrial employment
generator. The total export income from the sector in 2011 reached US$ 4bn level.
Though exports were at US$ 3.9bn in 2012, exports are expected to perform at
US$ 4bn in 2013. Thus, the apparel sector occupies the prominent position in the
economic sector of Sri Lanka providing employment exceeding 350,000 with a factory
population of 325. It should be noted that over the decades the industry evolved from
being a sewing machine operator (contract manufacturer) which depended on textile
quotas offered by USA and EU to transform itself into supply chain management and
then to a total sophisticated solution provider and moving into innovation and
designs. Furthermore, the apparel industry also has now become a flagship in green
destination embracing the concept of sustainable manufacturing with a number of
factories being converted to green plants. Sri Lanka was also the worlds first green
factory which obtained LEEDS Platinum and Gold certification; there are many more
now.
104
Figure 4-4 Growth Performance (US$ MN)
Figure 4-5 Product Profile of Exports

2004
2012 (+50% growth in total)
Although Sri Lanka in 2004 concentrated more on woven apparel exports which
accounted for 63%, by 2012 the composition changed in that; while knits accounted
for 51% woven garments contributed 47%.
Figure 4-6 Composition of Markets
105
Currently Sri Lankan apparel exports depend on major two markets namely US and
EU which accounts for 90% exports, although in the recent past exports to BRICS
plus Japan has shown an increased trend. The following table provides the top 25
export markets of Sri Lankas apparel exports for the period 2010 to 2012.
Table 4-30 Export Destinations and Values of Sri Lanka Apparel Exports (US$
MN)
COUNTRY
2010
2011
2012
Value
Value
Value
United States
United Kingdom
801.0
922.6
Italy
349.6
Germany
COUNTRY
2010
2011
2012
Value Value Value
1295.5 1573.2 1517.2 14 Japan
18.8
23
27
881.2 15 Slovakia
18.3
28.3
18
480.8
412.1 16 Russian Federation
7.9
14.5
17.3
174.5
208.2
10.9
21
17.1
Belgium
75.5
125.8
187.5 17 Spain
117.4 18 Mexico
10.1
16
15.7
France
55.0
81.5
91.6 19 China
3.2
8.8
14.9
Canada
52.7
72.2
76.9 20 Austria
5.6
11.9
14.4
UAE
25.7
46.0
13
13.6
Netherlands
88.2
69.9
43.4 21 Korea South

6.2
(Korea, Republic of)
42.7
10 India
12.3
26.6
38.8 22 Saudi Arabia
5.1
11.7
10.2
11 Sweden
19.1
35.2
29.1 23 Poland
2.1
9.2
10.1
12 Australia
13.0
23.2
29.0 24 Turkey
45.6
27.7
9.6
13 Hong Kong, China
16.2
26.8
27.3 25 Singapore
6.3
9.7
9.2
4.3.4.1.2
Main Categories of Apparel Exports
Whilst Sri Lankan apparel exports consists of both knitted and woven, it manufactures
a range of products sportswear, casual wear, lingerie, loungewear, bridal wear,
work wear, bed linen, swimwear and childrens wear, etc.
The following are the top export items with export potential to China.
Table 4-31 Top Export Items with Export Potential to China (US MN)
Code
Description
2008
6204
-Women's or girls' suits, ensembles,

jackets, blazers, dresses, skirts, divided
608.7
skirts, trousers, bib and brace overalls,
breeches and shorts (other than
106
2009
2010
2011
2012
522.1
485.3
564.1
529.0
Code
Description
2008
2009
2010
2011
2012
340.0
361.0
435.1
398.1
298.4
302.3
376.0
393.1
292.8
313.4
372.0
340.5
317.5
304.7
371.5
311.5
222.6
215.4
306.8
292.8
98.2
78.1
121.8
161.6
148.6
115.8
123.3
114.0
136.2
138.0
swimwear).
6108
6212
-Women's or girls' slips, petticoats, briefs,

panties,
nightdresses,
pyjamas,
363.1
negligees, bathrobes, dressing gowns and
similar articles, knitted or crocheted.
-Brassieres, girdles, corsets, braces,
suspenders, garters and similar articles
263.5
and parts thereof, whether or not knitted or
crocheted.
-Men's or boys' suits, ensembles, jackets,
blazers, trousers, bib and brace overalls,
298.8
swimwear).
-T-shirts, singlets and other vests, knitted
335.6
or crocheted.
-Women's or girls' suits, ensembles,
jackets, blazers, dresses, skirts, divided
skirts,trousers, bib and brace overalls, 218.5
swimwear), knitted or crocheted.
6203
6109
6104
6116
-Gloves, mittens and mitts, knitted or

crocheted.
6205
-Men's or boys' shirts.
6107
-Men's or boy's underpants, briefs,

nightshirts, pyjamas, bathrobes, dressing
gowns and similar articles, knitted or
crocheted.
75.5
69.6
80.9
117.8
121.9
10
6110
-Jerseys, pullovers, cardigans, waistcoats

133.0
and similar articles, knitted or crocheted.
120.7
122.6
127.2
104.2
11
6206
-Women's or girls' blouses, shirts and

shirt-blouses.
92.2
90.8
89.2
112.2
98.6
12
6111
-Babies'
garments
and
clothing
accessories, knitted or crocheted.
62.9
62.5
67.5
84.9
92.8
13
6112
-Track suits, ski suits and swimwear,

knitted or crocheted.
59.2
81.0
64.9
92.7
88.8
14
6105
-Men's or
crocheted.
75.5
55.0
55.9
64.6
60.0
boys'
shirts,
knitted
107
or
Code
Description
2008
-Men's or boys' suits, ensembles, jackets,

blazers, trousers, bib and brace overalls,
swimwear), knitted or crocheted.
-Women's or girls' singlets and other
vests, slips, petticoats, briefs, panties,
nightdresses,
pyjamas,
negligees,
bathrobes, dressing gowns and similar
articles.
15
6103
16
6208
17
6209
-Babies'
garments
accessories.
18
6106
-Women's or girls' blouses, shirts and

shirt-blouses, knitted or crocheted.
and
clothing
-Panty hose, tights, stockings, socks and

other
hosiery,
including
graduated
compression hosiery (for example,
stockings for varicose veins) and footwear
without applied soles, knitted or
crocheted.
-Men's or boys' singlets and other vests,
underpants, briefs, nightshirts, pyjamas,
bathrobes, dressing gowns and similar
articles.
2009
2010
2011
2012
42.2
34.0
36.5
48.1
51.4
41.4
32.7
28.1
44.2
38.0
30.9
23.9
21.0
24.5
27.9
37.2
25.9
24.1
27.5
27.4
24.2
22.0
21.3
25.9
20.8
15.5
11.8
11.6
13.1
14.0
6.9
8.2
8.7
4.9
9.6
0.3
0.3
3.9
6.8
7.8
19
6115
20
6207
21
6211
22
6202
23
6216
-Gloves, mittens and mitts.
2.7
5.5
4.7
5.9
6.7
24
6114
-Other garments, knitted or crocheted.
3.0
4.2
3.1
5.6
4.7
2.7
1.8
0.9
4.2
3.8
0.6
6.5
1.6
1.6
2.8
25
6217
26
6102
-Track suits, ski suits and swimwear; other

garments.
-Women's or girls' overcoats, car-coats,
capes,
cloaks,
anoraks
(including
ski-jackets), wind-cheaters, wind-jackets
and similar articles, other than those of
heading 62.04.
-Other made up clothing accessories;

parts of garments or of clothing
accessories, other than those of heading
62.12.
-Women's or girls' overcoats, car-coats,
capes,
cloaks,
anoraks
(including
108
Code
Description
2008
2009
2010
2011
2012
and similar articles, knitted or crocheted,

other than those of heading 61.04.
27
6201
28
6210
-Men's or boys' overcoats, car-coats,

capes,
cloaks,
anoraks
(including
and similar articles, other than those of
heading 62.03.
-Garments, made up of fabrics of heading
56.02, 56.03, 59.06 & 59.07.
-Other made up clothing accessories,
knitted or crocheted; knitted or crocheted
parts of garments or of clothing
accessories.
-Men's or boys' overcoats, car-coats,
capes,
cloaks,
anoraks
(including
and similar articles, knitted or crocheted,
other than those of heading 61.03.
29
6117
30
6101
31
6113
Garment, made up of knitted/crocheted

fabric of hd no 59.03,06,07
32
6213
Handkerchiefs
33
6214
Shawls, scarves, mufflers, mantillas, etc
34
6215
Ties, bow ties and cravats
1.6
1.7
2.1
2.0
2.6
0.2
0.2
0.2
0.4
1.2
1.5
0.1
0.3
0.4
0.8
0.2
0.4
0.3
0.0
0.5
4.3.4.1.3
Supply to International Brands
Sri Lankas apparel industry has become an internationally reputed and a mature
industry which has earned a name for itself in the international market place. It has
become a supplier to leading brands with whom the industry has strategic alliances.
These major brands include Victorias Secret, Nike, Speedo, GAP, Tommy Hilfiger,
Abercrombie & Fitch, Liz Claiborne, C & A, Lands End, Jones New York, NEXT,
Triumph, Marks & Spencer, Ann Taylor. In addition, Sri Lanka also has its own brands,
namely Avirate, Amante, Arugambay, Reborn, Emerald and many more domestic
brands.
109
It is therefore, amply evident that Sri Lanka is in a position to manufacturer

international brands as well as for local Chinese brands with their manufacturing base
in Sri Lanka.
Backward Integration
While the apparel industry evolved over the last three decades, in the absence of a
vertically integrated industry, it has heavily dependent on import of fabric and
accessories. Therefore, it has embarked upon a backward integration programme and
has developed a base for fabric manufacturing, trims and other processing facilities
though these meet only 1/3rd of requirements of the industry. Following table
illustrates the products being manufactured or services provided under the backward
integration programme.
Table 4-32 Focused Investments in Backward Integration
Focused Investments in Backward Integration
Fabrics :
Trims :
Packing materials
Woven (Dyeing/finishing
only),
Thread, Buttons
Hangers, Zippers,
Labels, Elastics,
Bra Components,
Warp Knit, Weft Knit,

Lace,
High Quality Foam
Narrow Fabrics
110
Processes
Garment Dyeing,
Specialized
Washing, Fabric
Printing, Transfer
Prints, Lamination &
Moulding, Bra
Moulding,
Embroidery & other
Embellishments
4.3.4.1.4
Import of Yarn, Fabric and Apparel into Sri Lanka
Table 4-33 Import of Yarn, Fabric and Apparel into Sri Lanka
In US $ Mn
2011
2012
Apparel Exports
4038.0
3823.0
Fabric Imports Global
1876.0
1771.0
Yarn Imports Global
298.0
266.0
Fabric Imports China
493.0
558.0
49.0
50.0
Yarn Imports China

Apparel (Chapter 61 & 62) Imports Global
143.0
144.0
Apparel Imports China
34.0
42.0
Share of China
31.0%
18.0%
29%
It would be observed from the above that while Sri Lanka exported apparel close to
US $ 4 billion in 2012, Sri Lanka also imported in 2012, fabric worth US $ 1771 Million,
Yarn to a value of US $ 266 million and made up garment worth US $ 144 million of
which combined import of Yarn, Fabric and apparel imports from China amounted to
US $ 650 million.
Figure 4-7 Strategic Growth Plan (2010-2016) US$ Mn
Strategic growth plan announced by the apparel sector to meet governments export
targets of US $ 5.25 billion by 2016, entails organic growth to come through capacity
111
expansion from existing plants and also establishing new plants in emerging
provinces outside Colombo district including that of North and the East. Furthermore,
penetration into emerging markets including that of China and Hub activities to be
undertaken under the recently announced amendments to the Finance Act will
contribute to realize these growth targets by 2016.
4.3.4.1.5
Importance of Chinese market for the growth strategy
According to Chinese Customs, China imported US $ 4.4 billion worth of apparel

whereas imports from Sri Lanka was only US $ 17.5 which amply demonstrate the
export potential for Sri Lanka apparel to China for which grater market access
opportunities needs to be provided as current average MFN Tariff is 16%. It is
observed currently apparel imports from Least Developed Countries including
Bangladesh has duty free access and under China - ASEAN FTA while apparel
imports from Indonesia, Malaysia, Philippines and Thailand enter on duty free basis
the newer ASEAN member states namely Cambodia, Myanmar and Vietnam will
receive duty free access under China ASEAN FTA. Pakistan too enjoy duty free
access under China Pakistan FTA. The margin of preference granted under APTA
does not provide a competitive edge to Sri Lanka as margins are very low.
Table 4-34
Apparel Imports to China from the World under HS 61-63
HS
Code
Product
Import Value Unit US$ Mn

2008
2009
2010
853.5
633.2
815.5 1187.0 1344.7
61
Articles of apparel and clothing

accessories, knitted or crocheted
62
Articles of apparel and clothing 1219.1

accessories, not knitted or
crocheted
Other made up textile articles;
217.9
sets; worn clothing and worn
textile articles; rages
2290.5
63
2011
2012
1018.6 1418.4 2386.0 2663.1
241.1
261.0
410.4
393.9
1892.8 2494.9 3983.4 4401.6
Source: China Customs
Table 4-35 Chinas Annual Imports of Chapters 61, 62 and 63 from Sri Lanka in
2011 and 2012
HS Codes
61, 62, 63
Values US $ Mn
2011
2012
10.8
17.3

112
In order to improve market access it is important to address non-tariff measures that

effect apparel exports to China. Exporters of apparel have informed that testing
standards for China, are mostly in par with EU & USA standards, which technically
should help the exporter. However, the barriers seems to be the fact that China
independently tests garments at 2 points, at port & random testing in the market place.
The fines for any non-compliant product is extremely high, which makes China a high
risk export destination of brands & exporters. There is also requirement for far more
detailed test reports in comparison with EU/USA. For example, China needs
composition test report even for 100% cotton fabric, whereas EU/USA only needs this
test for blended fabrics. EU/USA requires a positive/negative test report for
formaldehyde where as China requires the numeric value of formaldehyde which is
very costly. While EU/USA do not require Azo test if the fabric is produced from an
accredited mill, China requires this test regardless, and test to be carried out on a
finished garment.
It is also reported that the biggest stumbling block is the independent test carried out
by China & the imposition of heavy fines & penalties and the large number of
incidences of such fines imposed.
4.3.4.2
Tariffs Applying to Textile and Clothing Products
China
According to the statistics of Customs P.R.C., in 2012, the Textile and Clothing sector
had 1138 8-digit tariff lines, which belonged to the ad valorem duty. Among them,
there were 449 tariff rates of APTA, representing 39.46% of the total tariff lines in this
sector. China's average import tariff level reached 9.73% with the highest tariff rate at
40% in total of 2 tariff lines, including 52010000(Cotton, not carded or combed) and
52030000(Cotton, carded or combed). And there is no Zero-tariff in this sector. The
tariff of most products ranges from 5% to 10 %. (See Table 4-36) We need to notice
that wool, wool tops and cotton products under HS Code 51011100, 51011900,
51012100, 51012900, 51013000, 51031010, 51051000, 51052100, 51052900,
52010000 and 52030000 in this sector are the quota products with 1% of the in quota
tariff lines. The out of quota tariff lines applied to the import goods exceed the quota.
Table 4-36 The Import Tariff Rates Distribution of China's Textile and Clothing
Products in 2012
China
No.
30<T50
11
0.97
20<T30
0.00
113
China
No.
15<T20
83
7.29
10<T15
5<T10
338
480
29.70
42.18
2<T5
224
19.68
0<T2
T=0
2
0
0.18
0.00
Total
1138
100.00
Sri Lanka
Table 4-37
4.3.4.3
Applicable Import duties in Sri Lanka for Yarn, Fabric & Apparel
Chapter
Customs Import Duty
Yarn & Fabric

Chapter 50, 51,52,53,54,55,56,58,59,60
Free
In Chapter All Tariff Lines free except 56.7

all tariff line in Chapter 57
15% - 30%
15%
Clothing Chapter 60,61,63

62.17
63.09
15%
Free
15% -30%
China
The results of a China-Sri Lanka FTA hypothesis in the partial equilibrium model can
be summarized as follows: Because the average tariff rates of China's textile and
clothing products is 9.73% (including the tariff rates in Asia-Pacific Trade Agreement),
with the liberalization of textile and clothing products, Sri Lanka's exports to China
would increase to a relatively large extent. According to the partial equilibrium model
came up by the Chinese Side, the total trade liberalization would let China's imports
on textile and clothing products from Sri Lanka increase by USD 35.07 million. On the
basis of USD 31.21 million which created by China's imports on textile and clothing
products from Sri Lanka in 2012, China's imports on textile and clothing products from
Sri Lanka will increase by 112.37% after the trade liberalization of textile and clothing
products between China and Sri Lanka.
114
The China-Sri Lanka FTA will exert positive impact on the trade development of textile
and clothing sector, so as to enhance the competitiveness in this sector between the
two countries, boost the bilateral trades, as well as improve the environment of
international cooperation among enterprises. Due to Sri Lankas advantages in labor
force, land, raw materials and so on, many more textile enterprises (including Chinese
textile and clothing enterprises) will invest in Sri Lanka to further strengthen Sri
Lanka's competitiveness in textile and clothing sector when they are faced with the
large market in China.
Sri Lanka
As import of yarn and fabric are currently subject to Lower rate of duty / duty free
liberalization will not have a negative impact. On the other hand when apparel imports
to China are liberalized for Sri Lankan, imports and consumption of yarn and fabric will
increase as more fabric would be required to meet increased demand for apparel
exports.
As far as garment imports are concerned, although Sri Lanka exports annually US $ 4
billion worth of apparel is imported US $ 144 million worth of made up garments
which are subject to 15% import duty, of which US $ 42 million is imported from
China. The local apparel industry which cater to domestic market in particular SME
sector could be negatively affected if low cost garment enter the market. However,
large scale exporters anticipate high growth prospects in their exports to Chinese
market. However, to realize the anticipated growth prospect of the apparel exports to
China not only elimination of tariff but applicable non-tariff measures, if any, also need
to be considered.
On the other hand liberalization by China will not only increase apparel exports but
also will open new areas for Chinese investors to manufacture Chinese local brand in
Sri Lanka to export to China. These investment opportunities are available in
particular in the emerging provinces of the country. The recently announced import
replacement scheme is also an open investment opportunity for fabric manufacturing
to cater to the demand of the apparel export sector to enhance backward integration.
4.3.5 Rubber Products

4.3.5.1
China
The industry of natural rubber is typically resource-constrained. Restricted by regional
conditions, most of the natural rubber trees are planted in Southeast Asia and part of
115
Africa. Only a few places in China are fit for planting it. Through more than six-decade
of adjustment and improvement, the production of China's natural rubber is gradually
concentrated in favourable regions, where the climate is suitable and the comparative
advantage is obvious. The regional distribution has become more rational and
provinces like Hainan, Yunnan and Guangdong have become three major favourable
regions for natural rubber. In 2012, the planting area of natural rubber in China was
16.96 million mu, ranking third in the world.
Between 2005 and 2012, Chinas annual output of natural rubber grew from 510
thousand tons to 800 thousand tons, an increase of 57%. With an increase of 13% in
per unit area yield, from 72 kg/mu to 82 kg/mu, and an increase of 144% in output
value, from RMB 7.45 billion to RMB 18.16 billion, China became one of the fastest
growing natural rubber-producing countries. At the same time, with the rapid
development of China's economy, the demand for rubber from industry expanded
unceasingly both in range and quantity so that the demand of natural rubber rose
perpendicularly. At present, China's natural rubber production accounts for only 7.6%
of the world's total output, and consumption 20% of the worlds total consumption. The
growth rate of domestic production takes up only 1/3 of that of consumption. The gap
between demand and supply is widening, which could only meet about 1/5 of the
domestic consumption. In 2001, China's natural rubber import began to surpass the
United States, turning to be the world's first majority importer of natural rubber. As
one of the most important strategic materials, natural rubber has been paid great
importance by the successive governments in China sincethe establishment of the
P.R.C. The development of rubber industry promoted the development of related
industries and created jobs and economic benefits for farmers in tropical regions. The
per capita net incomes of rubber farmers in tropical regions were above RMB 10
thousand when the last decade witnessed the rapidest growth rate of the incomes of
them. Over more than 60 years, rubber reclamation zones in Hainan, Yunnan and
Guangdong provided jobs for large amount of people. Currently the rubber industry
has involved about 3 million people, where those from the private sectors absorbed
the largest quantity of labor. Over the last decade, Hainan and Yunnan provinces saw
a rapid growth of the private planting areas that absorbed over 600 thousand labor
forces, which, effectively alleviated the employment pressure and produced
remarkable social effect.
China abolished the import quotas on natural rubber after its accession to the WTO.
Since 2010, it has lowered the tariff rate of some import rubbers such as standard
natural rubber. Some large trading companies embarked on the purchasing and
processing of the rubber raw materials. Those companies, with a high degree of
marketization and internationalization, enjoy large business scope. They also hold the
end-users and put competitive pressure on the companies of the same industry.
116

In recent years, the scale of the foreign trade of Chinas rubber and rubber products
has increased year by year, with USD 31.822 billion in 2010. And in the year 2012, the
total imports and exports reached USD 42.811 billion, attaining a favorable trade
balance in foreign trade. The export of China's rubber and rubber products was USD
22.158billion, accounting for 1.08% of the total export. In the same year, the import of
the like products was USD 20.654 billion, accounting for 1.18% of the total import. The
major import sources in this sector were Thailand, Malaysia, the European Union,
Japan and Indonesia, accounting together for 73.24% of the total import. The major
export destinations in this sector were the European Union and America, accounting
for 34.71% of the total exports. And the major product categories with trade surplus in
favour of China were 40112000(New pneumatic tyres, of rubber of a kind used on
buses or lorries), 40111000(New pneumatic tyres, of rubber of a kind used on motor
cars). The major product categories with trade deficit in favour of China were
40012200(Technically specified natural rubber, in primary forms or in plates, sheets
or strip), 40059100(Plates, sheets & strip of unvulcanized, compounded rubber, nes)
and etc.
Rubber and rubber products was one of the main products in China and Sri Lanka
bilateral trade. The scale of bilateral trade and the proportion of imports and exports of
China in the sector declined slightly in 2012. And China was in a surplus position.
Chinas exports to Sri Lanka in 2012 in this sector were USD 31 million, accounting for
1.03% of China's total exports to Sri Lanka. In the same year, China imported USD 18
million of products in this sector, accounting for 11.4% of China's total imports from Sri
Lanka.
Table 4-38 Import and Export of Chinas Rubber Products
The Ratio between
World
Lanka
Lanka and China's
Year
2010
2011
2012
2010
2011
2012
2010
2011
2012
148.96
209.25
221.58
0.26
0.44
0.31
0.18
0.21
0.14
Export Value
Percentage of the
0.95
1.10
1.08
1.32
1.46
1.03
Total Export(%)
169.26
230.62
206.54
0.14
0.25
0.18
0.08
0.11
0.09
Import Value
Percentage of the
1.23
1.36
1.18
13.67
16.56
11.40
Total Import(%)
318.22
439.86
428.11
0.40
0.69
0.49
0.13
0.16
0.11
Total Trade
-20.30
-21.37
15.04
0.12
0.18
0.13
Trade Balance
117
Sri Lanka
The rubber sector is one of the three most important sectors in the plantation industry.
Both raw rubber and value added rubber products make up Sri Lankas exports under
Chapter 40. Since 2010, the sector has contributed 6% to 7% of the total
contribution of agriculture to the GNP. In addition, the manufacture and export of
rubber products and supply to the domestic market has contributed over US$ 1 billion
to the countrys GDP.
Table 4-39 Contribution of Rubber Sector to GNP (2007 - 2012 (US$ Mn))
Agriculture
Rubber
% GNP
2008
2009
2010
2011
2012
4539.3
4720.7
5522.4
6095.8
6445.3
215.6
148.3
339.2
482.5
386.6
4.8%
3.1%
6.1%
7.9%
6.0%
Source: Central Bank
The following table provides a summary of the key indicators of the rubber industry in
Sri Lanka over the past five years.
Table 4-40 Key Indicators of the Rubber Industry
Item
Area, Hectares 000
Under Cultivation (b)
Under Tapping (b)
Area Replanted, Hectares
Area Newly Planted, Hectares
Total Production, Mn. kgs.
Smoked Sheet
Sole Crepe
Scrap Crepe
Latex Crepe
Latex
Technically Specified Rubber
Local Consumption, Mn. kgs.
Stocks, Mn. kgs.
2008
2009
122
94
6,105
2,436
129.2
55.0
3.9
2.7
21.0
35.6
11.0
80.1
11.5
Source: Ministry of Plantation Industries
118
124
95
1,002
715
136.9
54.6
5.4
3.5
31.7
29.9
11.8
84.9
7.4
2010
126
98
5,941
1,413
153.0
59.3
6.7
1.8
52.5
24.3
8.3
107.2
1.7
2011
129
101
3,050
3,004
158.2
60.7
3.4
1.3
59.9
24.9
8.0
111.7
5.5
2012(a)
131
104
2,161
2,449
152.0
59.2
1.9
1.3
36.5
44.4
8.7
110.0
10.2
4.3.5.1.1
Exports
In 2012, Sri Lanka exported around US$983 million under Chapter 40, which
accounts for 10.5% of Sri Lankas total exports to the world. As far as selected
rubber items are concerned, the products coming under HS No. 4012.90 (solid rubber
tyres) have been able to secure a world share of 21.6% and products under HS No.
4011.99 (pneumatic tyres) have secured a world market share of 7.3%.
Table 4-41 Top 10 Exports by Sri Lanka in 2012 Chapter 40
HS Code
'401290
'401199
'401519
'400129
'401699
'401511
'400599
'400121
'401120
'401193
Description
Value US$ Mn
Solid or cushiond tires,interchangeable tire treads&tire flaps of
331.1
rubber
Pneumatic tires new of rubber nes
143.9
Gloves nes of rubber
131.7
Natural rubber in other forms nes
65.6
Articles of vulcanised rubber nes, other than hard rubber
52.4
Gloves surgical of rubber
45.1
Compounded rubber, unvulcanised in primary forms nes
38.7
Natural rubber in smoked sheets
37.7
Pneumatic tires new of rubber for buses or lorries
24.2
Pneumatic tyres, new, of rubber, of a kind used on construction
18.7
or ind
Sri Lanka exported just around US$ 18 million to China, which accounts for around
0.1% of Chinas total imports.
Table 4-42 Top 10 Exports by Sri Lanka to China Chapter 40
Value in 2012,
US$ Mn
'400510 Rubber compounded with carbon black or silica (unvulcanised)
'401290 Solid o cushiond tires,interchangeable tire treads&tire flaps of
rbr
'400129 Natural rubber in other forms nes
'401693 Gaskets, washers and other seals of vulcanised rubber
'401519 Gloves nes of rubber
'400122 Technically specified natural rubber (TSNR)
'400121 Natural rubber in smoked sheets
'401169 Pneumatic tyres, new, of rubber, having a "herring-bone" or
similar tr
119
6.8
4.6
2.5
2.2
1.0
0.6
0.3
0.2
Value in 2012,
US$ Mn
0.2
'401162 Pneumatic tyres, new, of rubber, having a "herring-bone" or

similar tr
'400811 Plates, sheets and strip of cellular rubber (vulcanised)
0.0
4.3.5.1.2
Imports
Sri Lanka imported around US$ 265 million under Chapter 40, mostly from India,
Malaysia, China, Korea and Thailand.
The following were the top 10 imports by
Sri Lanka under Chapter 40.
Table 4-43 Top 10 Imports by Sri Lanka under Chapter 40 (2012)
HS Code
'400121
'400219
'401120
'401110
'400251
'400220
'400110
'401693
'400599
'400259
Description
Value US$ Mn
Natural rubber in smoked sheets
36.5
Styren-butadien
rubber(SBR)/carboxyltd
styren-butadien
26.4
rubbr(XSBR) nes
23.8
Pneumatic tire new of rubber f motor car incl station wagons&racg
21.1
cars
Acrylonitrile-butadiene rubber (NBR), latex
17.1
Butadiene rubber (BR)
15.7
Natural rubber latex, whether or not prevulcanised
9.9
Gaskets, washers and other seals of vulcanised rubber
9.1
Compounded rubber, unvulcanised in primary forms nes
8.9
Acrylonitrile-butadiene rubber (NBR) nes
7.9
China was Sri Lankas 3rd biggest supplier under this Chapter, mainly tyres, exporting
around US$24 million and accounting for 9.1% of Sri Lankas total imports.
Table 4-44 Top 10 Exports by China to Sri Lanka under Chapter 40 (2012)
HS
Code
'401120
'401110
'400251
Description
Pneumatic tire new of rubber f motor car incl station wagons&racg
cars
Acrylonitrile-butadiene rubber (NBR), latex
120
Value
(US$ Mn)
10.3
4.9
4.0
HS
Code
'401699
'400300
'401692
'401012
'401511
'400219
'401610
Description
Value
(US$ Mn)
Articles of vulcanised rubber nes, other than hard rubber
1.0
Reclaimed rubber in primary forms or in plates, sheets or strip
0.8
Erasers (vulcanised rubber)
0.8
Conveyor belt textile reinforced vulcanised rubber
0.7
0.7
Styren-butadien rubber(SBR)/carboxyltd styren-butadien rubbr(XSBR)
0.6
nes
Articles of cellular rubber
0.5
4.3.5.2
Tariffs Applying to Rubber Products
China
According to the statistics of Customs P.R.C, in 2012, there were 110 tariff lines of 8
digits in China's rubber industry, which were all ad valorem duties. The duty rates of
21 tariff lines were agreed on in the Asia-Pacific Trade Agreement, accounting for
19.09% of the total tariff lines in this sector. Average rate of import tariff in the sector
of China was 11.17%. The highest tariff rate was 25%, which were levied on products
of 6 tariff lines, namely, new rubber pneumatic tyres, used pneumatic tyres of rubber
used on automobiles, and other products under HS Code 40119200, 40119300,
40119400, 40119900, 40122010 and 40122090. One product has the duty of zero,
accounting for 0.91% of the total tariff lines in the sector. As for most products, the
tariff range is between 5 and 10 %(See Table 4-45).
Table 4-45 The Import Tariff Rates Distribution of China's Rubber Products in
2012
China
No.
30<T50
0.00
20<T30
15<T20
7.27
20
18.18
10<T15
14
12.73
5<T10
2<T5
0<T2
53
48.18
12
10.91
1.82
T=0
Total
0.91
110
100.00

121
Sri Lanka
There are presently 129 lines in this Chapter at 6 and 8 digit level. Of these 26 lines
incur 30% customs duty, 66 lines incur a duty of 15% and the remainder are duty free.
4.3.5.3
Impact of Trade liberalization
China
Influence of partial equilibrium model on China-Sri Lanka Free Trade Agreement: as
average of import tariff on Chinas rubber products was 11.17% (including the
Asia-Pacific Trade Agreement rates), Sri Lankas exports to China will greatly
increase with liberalization of trade in rubber products. According to the partial
equilibrium model simulation did by the Chinese Side, Chinas imports of rubber
products from Sri Lanka will increase USD 22.09 million after the complete
liberalization of trade. In 2012, Chinas imported USD 18.45 million rubber products
from Sri Lanka and the imports will increase 120% comparing with it after the
complete liberalization.
Since 2011, the price of Chinas natural rubber has been falling. At the same time,
influenced by natural conditions and economic development, its production cost
continued to rise, and all these produced a huge pressure on the cultivation industry.
Price inversion appeared in natural rubber cultivation industry in which the cost is
much higher than the sales price. After its entry into the WTO, China has eliminated
the natural rubber tariff quota management measures and replaced it by selective
provisional tariff, thus the actual import tax rate was declining. If China reduces or
eliminates tariffs on natural rubber products imported from Sri Lanka will further
enhance trade competitiveness of Sri Lankas rubber and rubber products, and the
imports from Sri Lanka will increase as well. That will have a certain impact on the
natural rubber producers, especially rubber farmers, in China, which is also a matter
of development of China's natural rubber industry. Domestic concerns need to be
taken into account in the liberalization of this sector.
Sri Lanka
Preliminary analyses show that tariff liberalization by Sri Lanka could lead to exports
from China increasing by 17%. The rubber sector is an important sector for Sri
Lanka for its substantial contribution in the agriculture and small holder plantation and
livelihood of small entrepreneurs and domestic concerns need to be taken into
account in the liberalization of this sector. Furthermore, this sector is one in which Sri
Lanka has a relatively strong advantage, given the production of high quality natural
rubber, which has led to the development of the sector from traditional commodity
exports to a value added sector, exporting such items as tyres, gloves, apparel
122
accessories and machinery parts made from rubber. A review of potential trade
indicates that liberalization by Sri Lanka could lead to an import surge over US$100
million, particularly given that China is the worlds top supplier of products under
Chapter 40, holding a 10% share of global exports.
A preliminary analysis shows that there is potential for an overall growth of almost
30% in Sri Lankas exports to China and growth between 20% and 50% for each line,
should China provide duty free access to Sri Lanka.
The following table also shows a number of lines in this Chapter which has substantial
export potential, based on Sri Lankas exports to the world and Chinas imports from
Sri Lanka and the world.
Table 4-46 Potential Exports to China under Chapter 40 (US$ Mn)
Product
Code
'401519
'400129
'401699
'400599
'400121
'401290
'401120
'401150
'401693
'401199
'400122
'401511
Product Label
China's
Sri Lanka's China's
Indicative
imports from exports
to imports
potential
Sri Lanka
world
from world trade
Gloves nes of rubber
1.0
131.7
85.8
84.8
Natural rubber in other forms
2.5
65.6
75.9
63.1
nes
Articles of vulcanised rubber
0.0
52.4
670.6
52.4
nes, other than hard rubber
Compounded
rubber,
0.0
38.7
1654.1
38.7
unvulcanised
in
primary
forms nes
Natural rubber in smoked
0.3
37.7
714.2
37.5
sheets
Solid
o
cushiond
4.6
331.1
29.1
24.5
tires,interchangeable
tire
treads&tire flaps of rbr
Pneumatic tires new of
0.0
24.2
101.2
24.2
rubber for buses or lorries
0.0
16.6
15.6
15.6
rubber for bicycles
Gaskets, washers and other
2.2
15.4
1115.6
13.3
seals of vulcanised rubber
0.0
143.9
12.7
12.7
rubber nes
Technically specified natural
0.6
12.2
5338.8
11.6
rubber (TSNR)
0.0
45.1
11.4
11.4

123
4.3.6 Coconut Products

4.3.6.1
China
Coconut is an important cash crop in the tropics. It achieves fully utilization as ITS
flesh and juice are edible or processed into food; besides the nutshell can be made
into fibrous raw material, activated carbon etc.
Impacted by climate and geographical conditions, most of the coconuts of China are
produced in Southeast Hainan province, a few in other areas such as Yunnan and
Guangxi province. In China, enterprises, which process coconuts with advanced
technology, are mainly grouped in Hainan province. Therefore, although coconut
processing industries in China are relatively in large scale, they still can't meet the
need of the domestic production and consumers demand. Every year, our country
has to import a large number of coconuts and coconut products.
The plantation areas and conditions are limited, which mainly constrains the planting
of coconuts in China. Cocos are always planted separately by individuals with low per
unit area yields and are difficult to plant on a large scale. Coconut processing product
types are single. Except for coconut food, most of the rest are preliminary products
with low added value.
The scale and proportion of importt and export in total imports and exports of coconut
products maintained a general steady trend in China; and China has been in a deficit
position. In 2012 the export of China's coconuts was USD 449 million, accounting for
0.02% of the total export. In the same year, the import of the like products was USD
1.04 billion, accounting for 0.06% of the total import. The major import sources of this
sector were Indonesia, America, Malaysia and the European Union, accounting
together for 54.82% of the total import in this sector. The major export destinations in
this sector were the European Union and Japan, accounting for 36.78% of the total
export. And the major product categories with trade surplus in favour of China were
38021090(Activated carbon) while the major product categories with trade deficit in
favour of China were 34021300(Non-ionic surface-active agents, (excl. soap),
whether or not put up for retail sale), 54050092(Coconut fabrics, tow, noils and waste,
raw or processed but not spun) etc.
Coconut products are one of the important trade products in bilateral trade between
China and Sri Lanka. Furthermore, the imports of Chinas coconuts from Sri Lanka
accounted for a large part of imports of such products. And China has been in a deficit
position. In 2012, Chinas exports to Sri Lanka in this sector were USD 2 million,
accounting for 0.05% of its total exports to Sri Lanka. In the same year, Chinas
124
imports from Sri Lanka reached USD 33 million, accounting for 20.42% of its total
imports from Sri Lanka.
Table 4-47 Import and Export of Chinas Coconut Products
China's trade with

the world
China's trade with

Sri Lanka
Year
2010
2011
2012
2010
2011
2012
Export Value
3.12
4.02
4.49
0.00
0.01
0.02
Percentage of the
Total Export(%)
0.02
0.02
0.02
0.02
0.02
0.05
Import Value
10.72
12.41
10.40
0.34
0.36
0.33
Percentage of the
Total Import(%)
0.08
0.07
0.06
33.29
23.51
20.42
Total Trade
13.84
16.43
14.89
0.34
0.37
Trade Balance
-7.60
-8.39
-5.91
-0.34
-0.35
The ratio between

China's trade with Sri
Lanka and China's trade
with the world(%)
2010
2011
2012
0.13
0.18
0.33
-
3.18
2.90
3.18
0.35
2.49
2.23
2.32
-0.32
Sri Lanka
Coconut plays a dominant role in the domestic food sector as a food crop with an
average per capital annual consumption of 116 nuts (coconut oil and other culinary
products), providing 15% of the calories and 5% protein to the daily diets of Sri
Lankan. Around 5% of the population of Sri Lank relies on coconut as the main
source of income.
In addition, the coconut sector has developed from a commodity export to a value
added sector, which substantial foreign exchange earnings through a number of value
added products such as coconut oil, desiccated coconut, copra, activated carbon,
products for horticulture such as coir pads and beds, and brushes and mats.
Table 4-48 Key Indicators for Coconut Plantations
Area under coconut
Total Area (Ha)
394,836
Total Nut Production (Mn)

Use by industry
Number of employees
2939.53
1066.93
Estate 100,000, Industry 35,000, Livelihood
700,000 - 835000
Source: Ministry of Plantations

125
4.3.6.1.1
Exports
Sri Lanka exported around US$ 383 million worth of coconut products to the world,
including coir fibre, activated carbon, desiccated coconuts, processed food products
from coconuts, etc.
Table 4-49 Export of Coconut, Coconut-Related products by Sri Lanka 2012
HS Code
530500
380210
080111
200819
960310
140490
151311
560790
080119 23
230650
570220
440290
531100
940429
151319
530810
120300
220890
Description
Coconut, abaca (Manila hemp/Musa te
Activated carbon
Coconuts, desiccated
Nuts (excl. ground-nuts), incl. mix
Brooms & brushes, consisting of twigs
Vegetable products.(excl. of 1404.2
Coconut (copra) oil, crude
Twine, cordage, ropes & cables of
Coconuts, other than desiccated
Oil-cake & other solid residues, wh
Floor coverings of coconut fibres
Wood charcoal (including shell/nut
Woven fabrics of vegetable textile
Mattresses of other materials (excl
Coconut (copra) oil, other than cru
Coir yarn
Copra.
Undenatured ethyl alcohol of an alc
Value (US$ Mn)

112.4
77.0
67.6
38.5
24.8
14.2
8.8
8.2
7.8
6.5
5.0
3.8
3.0
2.3
1.2
1.0
0.7
0.1
Source: UN Comtrade
Sri Lanka exported US$31 million to China in 2012, mostly concentrated in coir fibre
(5305.00) and activated carbon (3802.10).
Table 4-50 Top Exports of Coconut and Related Products to China 2012
HS Code
Description
Trade Value (US$ Mn)
530500
Coconut, abaca (Manila hemp/Musa te
27.80
380210
Activated carbon
1.64
560790
Twine, cordage, ropes & cables of
1.15
200819
Nuts (excl. ground-nuts), incl. mix
0.08
140490
Vegetable products.(excl. of 1404.2
0.05
151311
Coconut (copra) oil, crude
0.02
960310
Brooms & brushes, consisting of twi
0.01
Source: UN Comtrade
126
4.3.6.2
Tariffs Applying to Coconut Products
China
digits in China's coconut industry, which were all ad valorem duties. The duty rates of
13 tariff lines were agreed on in the Asia-Pacific Trade Agreement, accounting for
81.25% of the total tariff lines in this sector. Average rate of import tariff in the sector
of China was only 6.09%. The highest tariff rate was 14%, which were levied on
products 57022000(Floor coverings of coconut fibres). One product has the duty of
zero, accounting for 6.25% of the total tariff lines in the sector. For most products, the
tariff range is between 5 and 10 % (See Table 4-51).
Table 4-51 The Import Tariff Rates Distribution of China's Coconuts in 2012
China
No.
30<T50
0.00
20<T30
15<T20
0.00
0.00
10<T15
6.25
5<T10
2<T5
0<T2
50.00
37.50
0.00
T=0
Total
6.25
16
100.00
Sri Lanka
There are 61 tariff lines that have been identified in this sector from 13 chapters.
Thirety two lines incur a duty of 30%, 12 lines incur a duty of 15% and 10 lines are
duty free. Seven lines have specific duties.
HS Code
0801.11.10
0801.11.90
0801.19.10
0801.19.20
0801.19.31
1203.00.00
1404.90.30
Product
Edible copra
Desiccated Coconut - Other
Husked or partially husked coconuts
Seed Coconut
King coconut
Copra
Coconut shell pieces
127
Duty
30
30
30
30
30
0
15
HS Code
1404.90.40
1404.90.50
1404.90.60
1513.11.11
1513.11.19
1513.11.21
1513.11.29
1513.19.10
1513.19.90
2008.19.20
2008.19.30
2008.19.40
2008.19.90
2208.90.10
2209.00.00
2306.50.10
2306.50.20
2306.50.90
3802.10.10
3802.10.21
3802.10.22
3802.10.23
3802.10.24
3802.10.25
3802.10.29
4402.90.10
5305.00.11
5305.00.12
5305.00.13
5305.00.14
5305.00.21
5305.00.22
5305.00.23
5305.00.30
5305.00.41
5305.00.42
5305.00.50
5305.00.61
5305.00.69
Product
Coconut shell powder
Coconut husk chips
Coconut Ekels
Crude oil in bulk: Other : Virgin Coconut Oil
Crude oil in bulk: Other : Other
Other: Virgin Coconut Oil
Other: Other
Other: In bulk
Other: Other
Liquid Coconut Milk
Coconut Milk Powder
Coconut cream
Other
Coconut base arrack
Vinegar
Defatted Coconut
Poonac
Other
Activated Carbon
Other granular of Coconut Shell Spent
Other powdered of Coconut Shell
Other Extruded/Palletized of Coconut shell
Other washed and purified of coconut shell
Other chemically impregnate of coconut Shell
Other
Coconut shell charcoal
Raw bristle fibre of coconut (coir) twisted
Raw bristle Fibre of coconut (coir) not twis1ed
Raw bristle Fibre of coconut (coir) bleached
Raw bristle Fibre of coconut (coir) dyed
Raw mattress fibre of coconut coir mixed with animal hair
and twisted
Other mattress fibre of coconut (coir) twisted
Other raw Mnuress fibre of coconut coir not twisted
Raw mixed fibre of coconut (coir) twisted
Raw omatt fibre of coconut (coir) twisted
Raw omatt fibre of coconut (coir) noi twisted
Fibre Pith - Raw fibre pith of coconut (raw format, not
processed)
Other raw fibre of coconut (coir) twisted
Other raw of coconut (coir)
128
Duty
15
15
15
30% or Rs.60/kg
30% or Rs.60/kg
30% or Rs.60/kg
30% or Rs.60/kg
30% or Rs.55/kg
30% or Rs.55/kg
30
30
30
30
Rs.1500/l
30
15
15
15
0
0
0
0
0
0
0
15
30
30
30
30
30
30
30
30
30
30
30
30
30
HS Code
5305.00.71
5305.00.72
5305.00.79
5308.10.00
5311.00.10
5607.90.20
5607.90.30
5701.90.10
5702.20.10
5702.20.20
5702.20.90
9404.29.10
9404.29.20
9404.29.90
9603.10.10
9603.10.20
9603.10.30
9603.10.40
9603.10.50
9603.10.60
4.3.6.3
Product
Moulded products of coconut (coir) for use in horticulture
Other, tow, noils and waste of coconut (coir)
Other of coconut coir
Coir yarn
Geotextiles
Coir twine
Coir rope
Carpets and other textile floor coverings, knotted: Coir
mats and rugs
Floor coverings, woven : Coir mats and rugs
Floor coverings, woven : Coir mattings
Floor coverings : Coir - Other
Unused rubberized coir pads, below 60mm in thickness
Unused rubberized coir pads for bedding, above 60mm in
thickness
Rubberized coir pads : Other
Brooms made of coconut fibre
Brooms made of other fibre
Other brushes made of coconut fibre
Tawashi brushes made of 100% coconut fibre
Tawashi brushes made of coconut fibre mixed with other
vegetable fibre
Tawashi brushes made of coir fibre mixed with artificial
fibre
Duty
30
30
30
0
0
30
30
15
15
15
15
30
30
30
30
30
30
30
30
30
China
Chinas average import tariff on coconut products was only 6.09% (including the
Asia-Pacific Trade Agreement rates), there has no barriers to imports. With the
liberalization of coconut products, Sri Lankas exports to China will increase. According
to the partial equilibrium model simulation did by the Chinese Side, Chinas imports of
coconut products from Sri Lanka will increase USD 10.05 million after the complete
liberalization of trade. Sri Lanka will get great benefits during the process of trade
liberalization. In 2012, Chinas imported USD 37.04 million coconut products from Sri
Lanka and the imports will increase 30.41% comparing with it after the liberalization.
At the same time, China is a major consumer of coconuts and only a few places in
China are fit for planting of coconut because of the constraints of climate and
geographical features. Therefore, the coconuts industry is the important pillar industry
129
for farmers in Hainan to increase their incomes. After the coconut trade liberalization,
China's import of coconut products from Sri Lanka will increase and that will have
negative impacts on coconut farmers in China.
Sri Lanka
With respect to imports, import of coconut based products from China is either
non-existent or at negligible level. Therefore, it is unlikely that serious impacts due to
trade liberalization on domestic industry.
A preliminary analysis indicates that there is potential for overall growth of 50% in this
sector, particularly in value added products in this sector, particularly desiccated
coconut, coconut powder, coir fibre products, coconut oil, activated carbon, brushes
and mats. The Provision of liberalization by China will improve exports in this sector,
as well as encourage further development of production of value added products.
4.3.7 Gems and Jewellery

4.3.7.1
China
During the past 50 years, China's gems and jewellery industry has undertaken a
development process of start, growth, stability and take-off. Jewellery industry gained
remarkable achievement, especially in the last decade. Industrial chain continued to
improve, industrial concentration strengthen, consumer market mature, brandbuilding and integrity- construction get results, industry become normal, industry team
expand and staffs' quality enhance- all these laid the foundation of the continuous
development of the jewellery industry.
With the sustainable development of economy and the rapid increase of national
income levels, China's jewellery industry has developed rapidly, especially after its
accession to WTO when the jewellery industry began to open to foreign companies.
China has become not only the world's biggest platinum and gold consumer, but also
Asia's largest consumer of diamonds and world's largest consumer market for jade
and emeralds. In 2002, the retail sales of China's jewellery topped RMB 100 billion for
the first time, reached RMB 220 billion in 2009 and RMB 250 billion in 2010.
According to the data of Gems & Jewellery Trade Association of China, up to 2011 the
gross sales of China's jewellery industry reached RMB 380 billion, an increase of
52%. During the last decade, the annual compound growth rate was 28%.
130
At present, China's domestic high-end markets are monopolized by several

international jewellery tycoons such as Tiffany & Co. and Cartier. The mid-market is
mainly captured by Chinese domestic brands, such as Hong Kong's Chow Tai Fook,
Chow Sang Sang, TSL, Luk Fook Jewellery and the mainland's Laofengxiang,
Laomiao Gold, First Asia, CHJ, and Mingr. From the perspective of the types of sales,
the main products for the high-end market are inlaid jewellery and diamond jewellery
with higher gross profit margins while the main products for the middle market are
gold and platinum jewellery with relatively low gross profit margin.
The foreign trade of China gemsand jewellery products has grown rapidly, especially
in the exports volume. And trade surplus has expanded greatly. In 2012, China's total
trade of these products was USD 12.835 billion and reached USD 33.895 billion in
2012. The exports was USD 26.569 billion, accounting for 1.3% of China's total
exports and imports amounted to USD 7.326 billion, accounting for China's total
imports of 0.42%.The major import sources in this sector were the European Union,
Belgium, South Africa, India, Israel, accounting together for 98.55% of the total import.
The major export destinations in this sector were Hong Kong, China, accounting for
82.67% of the total export. And the major product categories with trade surplus in
favour of China were 71131919(Jewellery & parts thereof of gold, nes),
71131911(Jewellery & parts thereof of gold, plated with diamond mounted) etc. while
the major product categories with trade deficit in favour of China were
71023100(Diamonds non-industrial unworked or simply sawn, cleaved or bruted),
71023900(Diamonds non-industrial nes excluding mounted or set diamonds) etc.
In China and Sri Lanka bilateral trade, the scale of import and export of gemsand
jewellery products is relatively small and most of them are Chinas imports from Sri
Lanka. Chinas imports are stable. In 2012, China exports to Sri Lanka was USD
127.5 thousand in the sector, accounting for 0.0042% of its total exports to Sri Lanka
while its imports from Sri Lanka amounted to USD 2.14 million, accounting for 1.32%
of its total imports from Sri Lanka.
In terms of market share, although gems and jewelry products were not the main
products in the bilateral trade between China and Sri Lanka, the share was still small
compared to the overall size of China's foreign trade in the sector. In 2012, Chinas
exports to Sri Lanka in this sector accounted for 0.0005% of those to the world while
its imports from Sri Lanka accounted for 0.03% of those from the world.
131
Table 4-52 Import and Export of Chinas Gems and Jewellery Products
(USD in 10 thousands)

World
Year

Lanka
The Ratio between

with the World(%)
2010
2011
2012
0.02
0.002
0.0005
2010
2011
2012
2010
2011
2012
796681
1375266
2656878
182
27
13
0.51
0.73
1.30
0.09
0.01
0.00
486855
803292
732588
143
115
214
0.03
0.01
0.03
0.35
0.47
0.42
1.40
0.75
1.32
Total Trade
1283536
2178558
3389466
325
142
227
0.03
0.01
0.01
Trade Balance
309825
571975
1924290
39
-88
-201
Export Value
Percentage of the
Total Export(%)
Import Value
Percentage of the
Total Import(%)
Sri Lanka
Sri Lanka ranks with Burma, Brazil, South Africa and Thailand one of the most
important Gem bearing nations of the world. According to the geological surveys, 90
percent of this country estimated to be potential gem bearing land. There are more
than 70 varieties of precious and semi-precious stones including Blue Sapphires, Star
Sapphires, Padmaradscha, Pink Sapphire, Orange Sapphire, Cats Eye, Alexandrite,
Topaz, Amethysts, Tourmaline, Garnets and many others.
The entire Sri Lankan gem & jewellery industry employs approximately 650,000
persons, including miners, cutters, polishers, dealers, jewellery designers,
manufacturers, craftsmen, marketers, gemologists and sales people.
The Gem industry employs around 325,000 miners, 72,000 gem cutters and 895 gem
exporters. Methods of gem cutting and polishing comprise both the traditional method
of hand cutting and the electronic methods of the art lapidaries.
Today, Sri Lanka is considered as the fastest developing gem cutting and finishing
center in the world, producing stones that meet the highest international standards.
The main international markets for the Sri Lankan gems are United States, Hong
Kong China, France, Germany, Indonesia, Singapore, Thailand, Switzerland and the
United Kingdom.
132
Today, approximately 25,000 men and women are employed in Sri Lankas Jewellery
manufacturing industry.
4.3.7.1.1
Exports
Sri Lankan gems were exported to 63 countries. The export figures from 2008
onwards are given below.
Table 4-53 Exports of Gems and Jewellery by Sri Lanka (US$ Mn)
Year
Gems
2008
2009
2010
2011
2012
Gauda Jewellery
79.9
57.4
59.4
79.6
112.8
1.3
0.9
1.1
1.2
1.8
Diamond
14.9
12.1
11.8
13.8
19.4
352.4
285.4
286.0
360.2
419.8
Diamond
Re- Export
7.5
3.3
2.5
3.0
2.6
RIE
Total
(Add. Value)
2.9
1.5
1.4
1.5
2.7
Source: Statistics Division (NGJA)
USA, Thailand, Switzerland, Hong Kong China, Italy, France, Japan & Germany are in
the forefront among the countries who import gems from Sri Lanka. Similarly, Blue
Sapphire, Star Sapphire, Chrysoberyl cats Eye, Star Ruby and among the gems
which are high demand. A free market exists for gems, where prices are determined
by negotiations between the importer and exporter.
The gem, jewellery and diamond exports continue its upward trend in Foreign
Exchange generation by recording an overall growth of 21%. The sectors growth in
terms of value increase was from US$459.2 million to US$559 million.
Export earnings from gems, diamonds and jewellery increased by 5.2% to US$ 559
million in 2012, along with increase in volumes of both gems and jewellery.
4.3.7.1.2
Imports
Sri Lanka imported around US$584 million worth of gems and jewellery in 2012,
mostly unworked diamonds and unwrought gold, accounting for around 3.25% of Sri
Lankas total imports. Main exporters under Chapter 71 to Sri Lanka were Belgium,
Switzerland, Israel, UAE and Singapore.
133
458.9
360.5
362.2
459.2
559.0
Table 4-54 Top Imports by Sri Lanka in Chapter 71 (US$ Mn)

Code
'710231
'710812
'710239
'711810
'711319
'710391
'710399
'711790
'711719
'710691
Product label
Imported value in 2012
Diamonds non-industrial unworked or simply
292.4
sawn, cleaved or bruted
Gold in unwrought forms non-monetary
166.7
Diamonds
non-industrial
nes
excluding
96.1
mounted or set diamonds
Coin (other than gold coin) not being legal
6.6
tender
Articles of jewellry&pt therof of/o prec met w/n
4.5
platd/clad w prec met
Rubies,sapphires and emeralds further worked
3.3
than sawn or rough shaped
Precious/semi-precious stones nes further
2.5
workd than sawn/rough shapd
Imitation jewellery nes
2.2
Imitation jewellery nes of base metal whether o
1.6
not platd w prec metal
Silver in unwrought forms
1.0
China has been the 7th largest supplier to Sri Lanka in this sector, accounting for 0.6%
of Sri Lankas total imports under Chapter 71.
4.3.7.2
Tariffs Applying to Gems and Jewellery
China
digits in China's gems and jewellery industry, which were all ad valorem duties. The
duty rates of 18 tariff lines were agreed on in the Asia-Pacific Trade Agreement,
accounting for 64.29% of the total tariff lines in this sector. Average rate of import tariff
in the sector of China was 10.75%. The highest tariff rate was 35%, which were levied
on products 71171100(Cuff-links and studs of base metal). Four products had the
duty of zero, accounting for 14.29% of the total tariff lines in the sector. As for most
products, the tariff range is between 20 and 30 %(See Table 4-55).
134
Table 4-55 The Import Tariff Rates Distribution of China's Gems and Jewellery
Products in 2012
China
No.
30<T50
3.57
20<T30
15<T20
25.00
0.00
10<T15
14.29
5<T10
2<T5
21.43
17.86
0<T2
3.57
T=0
Total
14.29
28
100.00
Sri Lanka
All items under Chapter 71 are duty free at present.
4.3.7.3
China
average of import tariff on Chinas gems and jewelry was 10.75% (including the
Asia-Pacific Trade Agreement rates), Sri Lankas exports to China will greatly
increase with Chinas abolishment of tariffs on gems and jewelry. According to the
partial equilibrium model simulation did by the Chinese Side, Chinas imports of gems
and jewelry products from Sri Lanka will increase USD 890 thousand after the
complete liberalization of trade. In 2012, Chinas imported USD 2.14 million gems and
jewelry from Sri Lanka and the imports will increase 41.53% comparing with it after
the complete liberalization.
Sri Lanka
As Sri Lanka already gives duty free access on MFN basis to products under Chapter
71, it is not anticipated that there will be any new impact as a result of the FTA.
135
Sri Lanka presently faces a wide range of tariffs under Chapter 71 in China, ranging
from zero to five on gems, 10.75% on base metals, and from 17.5 to 30% on jewellery.
Preliminary analysis of data shows that there is a potential for an overall growth of
20%, with higher growth in Sri Lankas top lines, notably 7102.22, 7103.91 and
7103.99.
Currently, Sri Lanka enjoys very limited preferential access under APTA for products
under Chapter 71. Therefore, Sri Lanka is less competitive against its competitor
countries.
In addition, the table below shows indicative potential in this Chapter for exports by Sri
Lanka to China in 2012.
Table 4-56 Top Potential Exports to China by Sri Lanka - Chapter 71 (US$ Mn)
'710239
'710231
'710391
'710399
'711319
'711719
'711311
'710490
'711620
China import SL Export China Import Potential

from SL
to RoW
from RoW
Diamonds non-industrial
0.0
256.7
4225.8
256.7
nes excluding mounted or
set diamonds
Diamonds non-industrial
0.1
73.6
1444.5
73.5
unworked or simply sawn,
cleaved or bruted
Rubies,sapphires
and
1.0
34.5
112.3
33.5
emeralds further worked
than sawn or rough
shaped
Precious/semi-precious
1.0
23.1
454.2
22.1
stones nes further workd
than sawn/rough shapd
Articles of jewellry&pt
0.0
9.5
463.7
9.5
therof of/o prec met w/n
platd/clad w prec met
Imitation jewellery nes of
0.0
4.7
112.6
4.7
base metal whether or not
platd w prec metal
Articles of jewellery&pts
0.0
3.1
39.8
3.1
therof
of
silver
w/n
platd/clad w/o prec met
Syn/reconstr
0.0
1.3
143.0
1.3
prec/semi-prec
stones
further
workd
than
sawn/rough shapd
Articles of precious o
0.0
0.6
171.8
0.6
136
China import SL Export China Import Potential

from SL
to RoW
from RoW
'710310
'711790
'711320
semi-precious
stones,natural,syn
o
reconstructd
Prec/semi-prec stones (o/t
diamonds) unworkd/simply
sawn/rough shapd
Imitation jewellery nes
Articles of jewellery&pts
thereof of base metal clad
w precious metal
0.0
0.5
221.7
0.5
0.0
0.3
15.5
0.3
0.00
0.04
0.79
0.04
4.3.8 Fruits and Vegetable Products

4.3.8.1
China
Fruit and vegetable industry covers the primary, secondary and tertiary industries and
serves as a pillar industry that can boost job opportunities and income in Chinas rural
areas. As its fruit and vegetable production becomes large-scale intensified and
merchandised, China has turned into not only the world's largest producer of fruit and
vegetable, but also the largest processor and exporter of its products. In 2012, China
produced approximately 240 million tons of fruits in which temperate fruits account for
the majority. The three major temperate fruits are apple, citrus and pear. In recent
years, both their production area and yield have enjoyed a steady increase. The area
of apple orchard in 2012 was 2.231 million hectare (+2.5% compared to 2011) and the
yield reached 38.491 million ton (+7% compared to 2011); the area of citrus orchard
reached 2.306 million hectare, a slight increase of 1% compared t o 2011 and the
yield accounted for 31.678 million ton, rising by 7.6%; the area of pear orchard
increased to 666 thousand hectare (+10.3% compared to 2011 ) and they yielded
17.073 million ton (+8.1% compared to 2011). From 1978 to 2012, Chinas total
production of vegetable soared from 80 million ton to 700 million ton, increasing by 7.5
times; per unit area yield rose from 24.2 ton/ha to 35 ton/ha, increasing by 42%.
.
Fruits and vegetable products account for high proportions of China's agricultural
trade. China's fruits and vegetable juice, canned fruits and vegetables, dehydrated
and frozen fruits and vegetables, and fresh fruits and vegetables are competitive in
international market. Among them, canned fruits and vegetables is the market leader
137
of China's fruits and vegetable products. The processing technology of fruits and
vegetable juices, dehydrated vegetables, frozen fruits and vegetables and other
products have developed rapidly in recent years. Meanwhile, the market demand has
grown faster. Raw material now plays the major role in the export of Chinas fruit and
vegetable products while the portion of deep-processed products is relatively smaller,
and the export market lacks diversity. The domestic market, large as it is, serves as
the main market of Chinas fruit and vegetable products, while, from the perspective of
international competence, Chinas fruit and vegetable products enjoy a promising
trend of export because of lower prices compared with the international market and
the same quality and safety standard of the target market, which ensure a rise of
farmer income in production area.
In recent years, the scale of import and export of fruits and vegetables has maintained
a general steady trend in China, and China has been in a surplus position with a rapid
growth of imports.The export of China's fruits and vegetables in 2012 was USD
18.344 billion, accounting for 0.9% of the total exports. In the same year, the import of
the like products was USD 6.85 billion, accounting for 0.39% of the total import. The
major import sources in this sector were Thailand, Vietnam, and America, accounting
together for 60.37% of the total import. The major export destinations in this sector
were Japan, America and the European Union, accounting for 40.63% of the total
export. And the major product categories with trade surplus in favour of China were
mainly 07032010(Bulbs of garlic, fresh or chilled), 20097900(Apple juice, incl. must,
unfermented, not containing added spirit) etc.
In the bilateral trade between China and Sri Lanka, the scale of import and export of
fruits and vegetable is relatively small. Its exports to Sri Lanka in 2012 in this sector
were USD 51 million, accounting for 1.69% of China's total exports to Sri Lanka. In the
same year, China imported USD 198 of products in this sector, accounting for
0.00012% of China's total imports from Sri Lanka.
In terms of market share, in recent years, Chinas export of such products to Sri Lanka
accounted for a smaller proportion of Chinas export to the world and it also
experienced a slight decline. In 2012, Chinas exports to Sri Lanka accounted for 0.28%
of those to the world.
138
Table 4-57 Import and Export of Chinas Fruits and Vegetable Products

World
Year
China's Trade
with Sri Lanka
2010
2011
2012
2010
2011
2012
Export Value
148.13
181.82
183.44
0.58
0.58
0.51
Percentage of the
Total Export(%)
0.94
0.96
0.90
2.92
1.94
1.69
Import Value
35.34
46.50
68.50
0.00
0.00
0.00
Percentage of the
Total Import(%)
0.26
0.27
0.39
0.00
0.00
0.00
Total Trade
183.47
228.32
251.94
0.58
0.58
Trade Balance
112.79
135.33
114.94
0.58
0.58
The Ratio between

with the World(%)
2010
2011
2012
0.39
0.32
0.28
-
0.00
0.00
0.00
0.51
0.32
0.25
0.20
0.51
Sri Lanka
The fruit and vegetable sector continues to be a growing sector in Sri Lankas
agriculture, with at least 20% of agricultural land being used for growing fruits and
vegetables.
Total vegetable production increased by 16.7 percent to 999,268 metric tons in 2012,
mainly due to the extension of the fertilizer subsidy to vegetable farmers, supply of
quality seeds and planting materials to encourage home gardening of vegetables
through Divi Neguma programme and improvement of vegetable production in
Northern Province.
Manioc, sweet potatoes, potatoes, chillies, mustard and onions were the main
vegetable crops grown in Sri Lanka in the period 2008 2012.
The production of papaw, banana, pineapple, lime, passion fruit, rambutan, avocado,
strawberry and dragon fruit has increased in 2012 compared to the previous year,
mainly due to the increased extent of cultivation. The strawberry production has
increased significantly from 7,672 kg in 2010 to 121,783 kg in 2012. However, the
production of mango, orange and jak has shown a declining trend from 2010 to 2012
even though the extent of cultivation has increased.
139
Sri Lankas exports of vegetables in 2012 amounted to almost US$ 23 million, though
exports have been decreasing since 2009. Most exports are concentrated in dried
vegetables, shelled, manioc and other root vegetables, and other vegetables.
Sri Lankas main export destinations for Chapter 07 over the past five years have
been the Maldives, the UAE, Sudan, India and Turkey.
Sri Lankas export of fruits (Chapter 08 excluding coconuts) exceeded US$ 22 million
in 2012. Most of the exports were concentrated in the top 10 lines, particularly
bananas, nuts, citrus fruits, pineapples and other dried and fresh fruits.
Exports of Sri Lankas fruits are largely concentrated in the Middle East, while also
targeting the US and the EU.
In Chapter 20 (excluding coconut products), Sri Lanka exported US$ 13.5 million
worth of prepared foods of fruits and vegetables to the world. The top exports were
cucumbers and gherkins, various fruit juices, and fruit jams and jellies. Sri Lanka
exported nothing under Chapter 20 to China in 2012.
Sri Lanka imported almost US$40 million worth of fruits (excluding coconuts) in 2012,
with the top exporter to Sri Lanka being China. Top imports included apples, pears,
grapes, citrus fruits, dates, figs, etc.
Sri Lankas imports of Chapter 08 from China in 2012 was almost US$ 13 million, out
of total imports of US$ 39 million from the world. The biggest imports from China are
mainly apples, mandarins and grapes.
Table 4-58 Imports of Chapter 08 from China by Sri Lanka in 2012
Product Product label
Sri Lanka's imports
Percentage of total
code
from China (US$ Mn) imports by Sri Lanka
'080810 Apples, fresh
8.5
58.8%
'080610 Grapes, fresh
1.8
19.5%
Mandarins (including tangerines
1.5
38.6%
and
satsumas);
clementines,
'080520 wilkings and similar citrus hybrids
'080510 Oranges, fresh or dried
0.4
8.6%
Strawberries,
uncooked
or
0.08
90.5%
'081110 cooked, etc
'080820 Pears and quinces, fresh
0.06
62.9%
'081340 Fruits, dried nes
0.05
47.2%
'081090 Fruits, fresh nes
0.03
6.3%
'081010 Strawberries, fresh
0.02
77.3%
'080940 Plums and sloes, fresh
0.01
1.7%
140
In Chapter 07, Chinas share of total imports by Sri Lanka is much less. Of total
US$202 million imported in 2012, only around US$23 million was imported from
China.
Table 4-59 Imports of Chapter 07 Products by Sri Lanka from China in 2012
Product
code
'070320
'070190
'071290
'071320
'070310
'070410
'071220
'071340
'070820
'071239
Product label
Sri
Lanka's Percentage of
imports
from total imports by
China (US$ Mn) Sri Lanka
Garlic, fresh or chilled
17.9
94.0%
Potatoes, fresh or chilled nes
4.1
18.3%
Vegetables and mixtures dried, but not
0.5
80.2%
further prepared nes
Chickpeas, dried, shelled, whether or
0.2
0.7%
not skinned or split
Onions and shallots, fresh or chilled
0.06
0.2%
Cauliflowers and headed broccoli,
0.03
69.2%
fresh or chilled
Onions dried but not further prepared
0.03
14.9%
Lentils dried, shelled, whether or not
0.02
0.03%
skinned or split
Beans, shelled or unshelled, fresh or
0.02
84.0%
chilled
Dried mushrooms and truffles, whole,
0.02
46.3%
cut, sliced, broken or in powder,
In Chapter 20, Sri Lanka imported just US$ 1.6 million worth of products from China,
largely concentrated in mixtures of nuts, and preserved fruits.
4.3.8.2
Tariffs Applying to Fruits and Vegetable Products
China
digits in China's fruits and vegetable products, which were all ad valorem duties. The
duty rates of 77 tariff lines were agreed on in the Asia-Pacific Trade Agreement,
accounting for 24.84% of the total tariff lines in this sector. Average rate of import tariff
in the sector was 14.84%. The highest tariff rate was 30%, including 19 tariff lines.
Those were mainly fruits and vegetable products under HS Code 08042000,
08104000, 08111000, 08112000, 08119010, 08119090, 08121000, 20060010,
141
20060020, 20060090, 20071000, 20079100, 20081110, 20081120, 20081130,

20081190, 20091200, 20091900 and 20095000. Twelve products had the duty of
zero, accounting for 3.87% of the total tariff lines in the sector. As for most products,
the tariff range is between 5 and 15 % (See Table 4-60).
Table 4-60 The Import Tariff Rates Distribution of China's Fruits and Vegetable
Products in 2012
China
No.
0
76
0.00
24.52
40
12.90
10<T15
84
27.10
5<T10
84
27.10
2<T5
0<T2
13
4.19
0.32
T=0
Total
12
3.87
310
100.00
30<T50
20<T30
15<T20
Sri Lanka
Almost all lines in Chapters 07, 08 and 20 incur an import duty of 30%, in addition to
12% VAT, 5% PAL and 2% NBT. All lines also incur a cess; 30% or either Rs.50,
Rs.80, Rs.90 or Rs.120 per kg.
4.3.8.3
China
Influence of partial equilibrium model on China-Sri Lanka Free Trade Agreement: Sri
Lanka almost didnt export fruits and vegetables to China. In 2012, China just
imported USD 198 fruits and vegetable products from Sri Lanka. With the trade
liberalization of fruits and vegetable products, Sri Lanka is supposed to export more
fruit and vegetable products to China, especially tropic fruits and vegetables.
Meanwhile, Sri Lankas elimination of tariff on fruit and vegetable products will not
boost the import from China.
For fruits import, the main goods from China, fresh frozen temperate fruits, well
complement the tropical fruits in Sri Lanka so that it will not threaten Sri Lankas
domestic market, but can well regulate the surplus and shortage. For vegetables,
142
China is more a major producer than an importer whose vegetable production is

mainly to meet the need of its domestic market. The total export volume of Chinas
vegetable products in 2012 just accounted for 1.4% of its total production, showing a
downside compared to 2011. Meanwhile, Sri Lanka does not rank as the main
importer of Chinas vegetable products as Japan, South Korea, the United States and
other countries do. In addition, in recent years, the price advantage of Chinas fruit
and vegetable products is becoming less significant affected by factors like a higher
labor cost and international ocean freight rates as well as the constant appreciation of
Renminbi. Thus, the two countries open to each other the market of the less sensitive
fruit and vegetable products for a certain period of time can bring benefits to
consumers. Domestic concerns need to be taken into account in the liberalization of
this sector.
Sri Lanka
As part of the domestic agricultural sector, the fruits and vegetables sector remains a
sensitive one for Sri Lanka, given its importance to domestic livelihood and rural
development, particularly with the development of this sector for the export market as
well. Liberalization of this sector needs to take into account domestic sensitivities.
It is anticipated that there may be less adverse effects in the fruit sector, as much of
the trade is likely to occur in fruits not produced by Sri Lanka, such as apples and
grapes, which are mostly supplied by China at present.
It is anticipated that liberalization of this sector by China may provide increased
market opportunities for export of Sri Lankan fruits and vegetables to China. There
is some potential for exports in Chapter 07 as follows.
Table 4-61 Potential Exports under Chapter 07 by Sri Lanka to China (US$ Mn)
Product
Code
'070110
'070190
'070200
'070310
'070320
'070390
'070410
Product Label
China's
Sri Lanka's China's
imports from exports to imports
Sri Lanka
world
from world
Potatoes seed, fresh or chilled
0
7.2
1.9
Potatoes, fresh or chilled nes
0
1.4
1783.3
Tomatoes, fresh or chilled
0
0.9
2.0
Onions and shallots, fresh or
0
0.4
1.6
chilled
Garlic, fresh or chilled
0
7.5
0.3
Leeks and other alliaceous
0
0.3
3.4
vegetables, fresh or chilled
Cauliflowers
and
headed
0
0.2
0.2
broccoli, fresh or chilled
143
Potential
1.9
1.4
0.9
0.4
0.3
0.3
0.2
Product
Code
Product Label
'070420
Brussels sprouts, fresh

chilled
Cabbages,kohlrabi,kale and sim
edible brassicas nes,fresh or
chilled
Cabbage lettuce (head lettuce)
fresh or chilled
'070490
'070511
China's
Sri Lanka's China's
Sri Lanka
world
from world
or
0
0.5
0.2
Potential
0.2
0.2
291.2
0.2
0.1
0.1
0.1
Similarly there is some potential for exports of fruits to China, as the below table
shows.
Code
Product Label
China's
Sri Lanka's China's
Indicative
potential
Sri Lanka
world
from world trade
plantains,
0.0
6.4
365.7
6.4
'080300 Bananas including

fresh or dried
'080290 Nuts edible, fresh or dried,
whether or not shelled or peeled,
nes
'081340 Fruits, dried nes
'080430 Pineapples, fresh or dried
'081090 Fruits, fresh nes
'080132 Cashew nuts, without shell, fresh
or dried
'080720 Papaws (papayas), fresh
'080420 Figs, fresh or dried
'080550 Fresh or dried lemons "Citrus
limon, Citrus limonum" and limes
"Citrus
'080450 Guavas,
mangoes
and
mangosteens, fresh or dried
0.0
3.3
96.7
3.3
0.0
0.0
0.0
0.0
3.1
1.5
1.4
1.3
85.9
23.5
799.4
32.2
3.1
1.5
1.4
1.3
0.0
0.0
0.0
0.8
0.5
0.4
0.6
2.7
12.7
0.6
0.5
0.4
0.0
0.3
206.4
0.3
There is also potential for exports under Chapter 20 as the table below shows:
144
Product
Code
Product Label
Sri Lanka's China's

exports to imports
China
from world
'200190 Vegetables, fruit, nuts and other

edible parts of plants, prepared or
preserved by vinegar or acetic acid.
'200980 Fruit&veg juice nes (exc mx)
unferment unspiritd, whether/not
sug/sweet
'200110 Cucumbers and gherkins, prepared
or preserved by vinegar or acetic
acid
'200949 Pineapple juice, unfermented, Brix
value > 20 at 20C, whether or not
'200799 Jams, fruit jellies, fruit/nut pure &
paste,
ckd
prep,
sugard,
sweetend/not
'200990 Mixtures of juices unfermentd
spiritd whether o not sugard o sweet
'200820 Pineapples nes,o/w prep or presvd,
sugared, sweetened, spirited or not
'200919 Orange juice&nes,unfermentd not
spiritd, whether or not sugard or
sweet
'200899 Fruits&oth edible pts of plants
nes,prep/presvd,sug,sweet/spir/not
'200929 Grapefruit juice, unfermented, Brix
value > 20 at 20C, whether or not
145
Sri Lanka's Indicative

exports to potential
world
trade
0.0
3.0
1.8
1.8
0.0
14.0
1.6
1.6
0.0
1.4
7.1
1.4
0.0
1.4
0.7
0.7
0.0
17.1
0.6
0.6
0.0
16.4
0.6
0.6
0.0
12.7
0.6
0.6
0.0
0.2
0.1
0.1
0.0
45.2
0.1
0.1
0.0
2.7
0.1
0.1
5 Trade in Services
The fast growth and deepening economic and trade relations between China and Sri
Lanka will witness the increasing proportion of trade in services. This chapter provides
an overview of the current status of the service sector and trade in services between
China and Sri Lanka as well as related policies, and also provides an overview on the
liberalization of trade in services and its impacts on some specific sectors.
5.1
5.1.1
Overview of Trade Policies Applying to Trade in Services

Overview of Services Sectors
China
In recent years, Chinas services sectors have experienced steady growth. The output
value of Chinas services sector in 2002 was RMB 4.99 trillion, accounting for 41.5%
of Chinas GDP that year. And it has been increasing annually by 20% from 2009 to
2011, up to RMB 23.14065 trillion in 2012. In 2002, the number of people employed in
Chinas services sector was 211 million, accounting for 28.6% of Chinas total
employment, while in 2012, the figure reached 277 million, accounting for 36.1% of
Chinas total employment, representing a yearly increase of the proportion of services
sectors.
Table 5-1 The Output Value and Employment of Chinas Services Sectors
Year
Output Value
(RMB 100 million)
Percentage of
the GDP (%)
Employment
(10,000
persons)
Percentage of
the Total
Employment (%)
2009
2010
2011
2012
148038.0
173596.0
205205.0
231406.5
43.4
43.2
43.3
44.6
25857
26332
27282
27690
34.1
34.6
35.7
36.1
Source: China Statistical Yearbook 2013
Sri Lanka
The services sector contributed 58% to GDP and 42% to employment in the country.
However, main contributors are wholesale and retail (23%), transport and
communication (14.3%) banking, insurance, real estate (9%) and government
146
services (6.8%). Thus almost 51% comes from these sectors. Furthermore, Sri Lanka
is not a service exporter except for computer related and IT services, service exports
through skilled and unskilled workers overseas and tourism related services also
provided foreign exchange earnings to the country.
Trade in services recorded a healthy surplus during 2012 despite the slow recovery of
the global economy. The surplus in the services account increased by 13.8 per cent to
US dollars 1,250 million in 2012 from US dollars 1,099 million in 2011. The
improvement in the services account was mainly driven by enhanced performance in
the transportation, and computer and information services sub sectors, while travel,
telecommunications, construction and insurance sub-sectors also recorded higher
receipts for 2012.
5.1.2
Trade Policies Affecting Trade in Services
Since its accession into the WTO in 2001, China has progressively liberalized its
services sectors in accordance with its commitments. The commitments cover 10
services sectors of 12 under General Agreement on Trade in Services (GATS),
involving 100 subsectors of the 160, accounting for 62.5% of the total subsectors. The
level of its specific commitments is similar to that of developed members. Among the
33 items that are listed in the schedule of specific commitments on services, market
access conditions on banking, insurance and securities are further improved.
Distribution services and professional services such as accounting, auditing and legal
services are liberalized to a greater extent. Commitments on telecommunication,
audiovisual service, gas, heating, water supply and sewage are also tabled in the
schedule for the foreign suppliers of services. After the endpoint of transitional period
of Chinas accession, restrictions on most services sectors for foreign investment,
such as region, equity and scope of business have been phased out. Only finance
services, telecommunications services and transport services and other important
and sensitive sectors vital to national security and national economy and the people's
livelihood are still subject to necessary restrictions. China has already fully
implemented its WTO commitments, including those in financial services sectors. The
level of liberalization of Chinas services sectors is fairly high, taking into account the
fact that China is still a developing country.
Recently, China has made numerous efforts to further liberalize trade in services in
the framework of regional and bilateral trade arrangements on the basis of its WTO
rights and obligations. China has signed 12 agreements with commitments on
liberalization of trade in services under the framework of FTA and individual
agreements on trade in services with its trading partners. On the basis of its
commitments under the WTO, China has made some additional commitments
benefiting foreign service providers of FTA partners in eight sectors including
147
professional and business services such as legal services, architectural design

services, engineering services, medical services, computer and related services,
research and development services, real estate services, rental/leasing services,
advertising services, market research services, management consulting services,
services incidental to mining, placement and supply services of personnel, building
cleaning services, translation services, construction and related engineering services,
distribution services, education services, environmental services, tourism services,
sporting services and transport services.
Chinas service providers also enjoy opportunities of preferential commitments from
Chinas FTA partners on the basis of their WTO commitments in many sectors. Those
are business services like medical services, computer and related services, research
and development services, management consulting services, services incidental to
mining and services incidental to manufacturing, communication services such as
courier services and telecommunication services, financial services, construction and
related engineering services, distribution services, education services, environmental
services, tourism services, recreational, cultural and sporting services and transport
services, etc.
After China joined the WTO in 2001, China's trade in services grew steadily. Total
value of trade in services rose from USD 86.27 billion in 2002 to USD 470.6 billion in
2012. The export value rose from USD 39.74 billion in 2002 to USD 190.4 billion in
2012 while import value from USD 46.53 billion in 2002 to USD 280.1 billion.
Table 5-2 Import and Export of Chinas Trade in Services 2009-2012
Year
Total
Value
Chinas share
in world import
& export (%)
Y-O-Y
growth
(%)
Export
2009
2867.0
4.5
-5.8
128.6
-12.2
158.1
0.1
-295.0
2010
3624.0
5.1
26.4
170.2
32.4
192.2
21.5
-220.0
2011
4191.0
5.2
15.6
182.1
7.0
237.0
23.3
-549.0
2012
4706.0
5.6
12.3
190.4
4.6
280.1
18.2
-897.0
Y-O-Y
growth
(%)
Import
Y-O-Y
growth
(%)
Trade
Balance
Source: Ministry of Commerce of the P.R.China
Despite the fast growth of the total value of trade in services, Chinas share in world is
relatively low, while it represented trade deficit from 2002 to 2012. Imports of services
grow faster than exports with an accelerating growth rate of trade deficit. Chinas
trade in services mainly focused on traditional labor-intensive industries, such as
transportation and travel, and advantaged resource endowment departments. While
148
computer and information services, insurance services, consultation service and other
high value-added trade in services experience a fast growth in export, their
proportions in output value stay relatively low and remain in preliminary stage of
development.
More foreign direct investment has flown to services sectors since 2001. The figure
was USD 53.548 billion in 2010 and reached USD 61.289 billion in 2011. China has
also increased its overseas investment in services sector in 2010 and 2011, which
reached USD 57.898 billion and USD 52.369 billion respectively.
Table 5-3 Foreign Direct Investment in Chinas Services Sectors
Year
Inflows
Outflows
2010
535.48
578.98
2011
612.89
523.69
Source: National Bureau of Statistics of China.
5.2
Trends in Service Sectors
China
Taking into account the level of development of the services sectors of China and Sri
Lanka and the complementarities of service sectors between China and Sri Lanka,
the study on trade in services focuses on professional and business services in
general, and specifically on construction and related engineering services, education
services, tourism and travel related services, logistics services, telecommunications
services and other services.
1. Business Services
23 subsectors are subject to Chinas high standard binding commitments according to
Chinas accession to WTO, covering 50% of its business services sector, among
which professional services cover eight sub-sectors, computer and related services
three sub-sectors, real estate services two sub-sectors and other business services
ten sub-sectors. Designing, consulting, supervisory industry and computer technical
services are major industries of Chinas business service sector in export, adopting
the model of movement of natural persons. China attains relatively strong
international competitive advantages in these business services and will form
complementary competitive edge with Sri Lanka with high-quality services and good
price advantage. In addition, Chinas service suppliers offer consulting service to
149
foreign enterprises investing in China, consisting one important part of business

service sector.
2. Construction and Related Engineering Services
As the pillar industry in national economy, the construction sector plays a critical role
in prodding the development of China's economy. 60% of total fixed asset in
investment is achieved by architectural services and engineering construction. In
China, construction sector includes the whole process of a project, ranging from
planning, designing, constructing, supervising and maintenance services, distributing
almost in every area of investment of fixed asset. After Chinas accession to the WTO,
the construction sector has made considerable progress in both domestic and foreign
markets. Since 2002, the output value of the construction sector has maintained an
average annual growth rate of around 20%, and its share in GDP rose from 5.4% in
2002 to 6.8% in 2011. The construction sector employees accounted for almost 12%
of the Chinas total employees. Nearly one-third of the migrant workers from urban
areas were engaged in the construction sector. The growing construction sector
accelerated its pace of entering the international market after Chinas accession to the
WTO. During 2000 and 2005, the export volume of construction sector soared from
USD 0.6 billion to USD 2.59 billion with an average annual rate of 34.0%23, while the
export volume in 2011 and 2012 was USD 14.7 billion and USD 12.3 billion
respectively24. Chinas industrial and civil construction sector, project installation and
assembly sector have great potential to reach top international level in terms of quality
of personnel, level of construction technology and level of equipment. The export of
construction sector has completed its transformation from labor-oriented export to
technology-and-management-oriented export. Chinas foreign project contracting
developed rapidly mainly in train, road, power plant, housing construction and
petrochemical industry.
China attains relatively strong international competitiveness in construction and
related engineering services and forms friendly cooperative traditions with Sri Lanka
by many times of participation in major Sri Lankan infrastructure and engineering
construction and providing loans. The signing of China- Sri Lanka FTA will provide
convenience and opportunity for Chinese enterprises and technicians to undertake
projects and deliver services in Sri Lanka. At the same time, it will help to speed up
the construction of infrastructure and reach a win-win situation.
3. Education Services
23
http://tradeinservices.mofcom.gov.cn/g/2007-07-24/3569.shtml.
24
http://www.sinosure.com.cn/sinosure/xwzx/rdzt/ckyj/ckdt/xyzt/qcxy/fwyckyj/158210.html, same with
the statistics of State Administration of Foreign Exchange.
150
China has always been implementing the policy of giving priority to educationso is
the case in the investment of financial funds. The total national education expenditure
in 2011 reached RMB 2386.929 billion, which accounted for 3.93% of GDP and
showed a 22.02% rise from RMB 1956.185 billion a year earlier. In 2012, the state
financial educational funds expenditure was RMB 2198.4 billion, occupying 4% of
GDP25.
The important and primary form of realizing educational service trade is cross border
consumption of Chinese students studying abroad and foreign students studying in
China. The figure of Chinese overseas students reached 339.7 thousand in 2011,
accounting for 14% of global international students, while the figure in 2012 is 399.6
thousand, increased 17.65% year-over-year to 59.9 thousand, maintaining the
biggest exporter of students in the world. According to the statistics by Ministry of
Education, from 1978 to the end 2012, Chinese students and scholars studying
abroad numbered 2.6427 million. By the end of 2012, there were 1.5534 million
Chinese citizens staying abroad for educational purposes, and 1.1369 million were
doing study and research during the studying period26. On the other hand, given the
rapid progress of Chinas economy, the enlarging of trade in education services and
the enhance of education standard, and the increasing strengthening communications
of education between China and other countries, the number of international students
increased to about 260 thousand in 2010. Asia is the main export destination of
Chinas trade in education services, with an average annual 76.24% of international
students from Asian countries27.
In terms of commercial presence, China further enlarged the opening up of education
to the outside world after Chinas accession to the WTO, and Chinese-foreign
cooperation in running schools gained fast progress. According to the statistics of
Ministry of Education, by 5th September, 2013, the approved Chinese-foreign
cooperatively-run schools and projects had reached 1979, covering higher education,
education for non-academic qualifications, Secondary Educationself-taught students
for examination, culture education pre-school education and so on. There were about
550 thousand students in Chinese-foreign cooperatively-run schools, among whom
about 450 thousand students were in higher education level. There were more than
1.5 million graduates from Chinese-foreign co-operated higher institutions28.
In most FTAs signed by China, the overwhelming majority of partners have made
commitment to further open their educational services to China on the basis of WTO,
25
http://www.moe.gov.cn/publicfiles/business/htmlfiles/moe/s3040/201212/146315.html.
26
http://www.moe.edu.cn/publicfiles/business/htmlfiles/moe/s5987/201202/130328.html.
27
http://www.cafsa.org.cn/index.php?mid=6&tid=605.
28
http://www.cfce.cn/a/news/moe/2013/0909/2042.html.
151
especially for Chinese education, allow China to set up mandarin training institution,
acknowledge college degrees issued in China and so on.
4. Travel and relative services
With the fast and sustained development of economy and relatively rapid
improvement of residents income level, tourists and tourism revenue in China
increased by double digits on a year-on-year basis. Tourism industry has become an
important part of our national economy. In 2012, Chinas tourism industry remained a
relatively stable and rapid development; the domestic tourist market enjoyed steady
and fast growth; the inbound tourism market leveled off; and outbound market
experienced vigorous growth. There were 2.957 billion person-times of domestic
tourism market with revenues of RMB 2270.622 billion; there were 132 million
person-times of inbound tourism, and its revenues from international tourism reached
USD 50.028 billion; outbound travelers reached 83.1827 million person-times; in 2012,
Chinas revenues from both international and domestic tourism totaled RMB 2.59
trillion, a 15.2% rise over the previous year29.
Trade in tourism services is an important part of Chinas trade in services. Despite its
slight fall of share in recent years, it still accounts for one third of Chinas total trade in
services. China has become the third largest inbound travel reception country in the
world and the largest outbound travelers resource country in Asia. In 2009, China
recorded its first trade deficit, since then the deficit volume had soared up to USD 51.9
billion in 2012, and the expenditure of outbound travelers considerably surpassed
inbound travelers.
Table 5-4 Import and Export of Chinas Trade in Tourism Services, 2009-201230
Balance
Export
Import
2009
-40
397
437
2010
-91
458
549
2011
-241
485
726
2012
-519
500
1020
The opening of tourism industry accelerates after China's entry into the WTO. The
Regulation for Travel Agencies starting in May 1, 2009 considerably eased market
access for foreign-funded travel agencies in terms of minimum registration capital,
limitations on foreign investors and the setting up of branches in Mainland. By the end
of 2009, there were a total of 38 foreign-invested travel agencies, upon the approval
of the National Tourism Administration of China, accounting for 1.4% of the national
29
http://www.cnta.gov.cn/html/2013-9/2013-9-12-%7B@hur%7D-39-08306.html
China Tourism Statistics in 2012.

30
State Administration of Foreign Exchange
152
The Yearbook of
operation income, and in gross profits, they occupies 2.3% of the tourism industry31.
By the end of 2012, there were 467 foreign, Hong Kong, Macao and Taiwan invested
star-hotels, with RMB 33.125 billion in operating income32.
In most FTAs signed by China, all the partners have made commitment to further
open their tourism sectors to China on the basis of WTO, such as tourist guide
services and so on.
China and Sri Lanka attain relative strong international advantages in tourism industry
with great potential to cooperate. The signing of the Memorandum of Understanding
on Tourism Cooperation will doubtlessly further strengthens the communication and
the tourism cooperation of the two countries and promotes the fast growth of bilateral
tourism service economy.
5. Transport and Logistics Services
Chinas current transport services include five forms: road transport, railway transport,
air transport, water-borne transport and container transport. By the end of 2010, the
total distance of Chinas highway network amounted to 3.984 million kilometers,
among which express highway reached 74 thousand kilometers, ranking second in
the world next to 88 thousand kilometers of America. As one of the traditional services,
transport has always played an important part on trade in services. Its proportion to
trade in service ranks second after trade in tourism, and it is maintaining an uprising
tendency. With the fast growth of Chinas import and export trade, trade deficit in
transportation services enlarged and climbed to USD 46.9 billion in 2012 from USD
44.9 billion in 201133. Despite its low share in world transportation service, China has
attached more and more attention in trade in services; thus infrastructure facilities as
well as transport capability in transportation has enhanced, establishing transport
powerhouses like COSCO, CSCL, SINOTRANS and so on. Friendly competitive
environment and opening market will provide more opportunities for Chinas
transportation enterprises to enter international market so as to accelerate the pace of
internationalization of transport and logistics services.
6. Other Services
Telecommunications Services
Telecommunications services are an important infrastructure sector for both the
economy and the trade. In 2012, Chinas gross volume of telecom services totaled
RMB 1.29846 trillion, up 11.1% over the previous year; the revenues from telecom
31
32
Chinas Statistics of Trade in Services 2010(industry), page 94.

http://www.cnta.gov.cn/html/2013-9/2013-9-12-%7B@hur%7D-39-08306.htmlThe Yearbook of China
Tourism Statistics in 2012.

33
State Administration of Foreign Exchange
153
services amounted to RMB 1.07629 trillion, growing by 9.0% year on year;

investments in telecom fixed assets reached RMB 361.38 billion, up 8.5% over the
previous year. In 2012, its overall price level decreased by 1.9%. Adding 118.957
million users, there were 1.39 billion telephone users in 2012, including 1.11 trillion
mobile phone users, or 80.0%. The net increase of netizens throughout the country
was 51 million, bringing the total number to 564 million. There were 64 million new
mobile phone Internet users, and the total number reached 420 million, with the
percentage of population with the access to Internet being 74.5%; there were 20
million rural Internet users, up to 156 million, with the percentage of population with
the access to Internet being 27.7%. Online shopping users increased by 48 million to
242 million. Micro blog users increased by 59 million to 309 million. The percentage of
population with the access to Internet reached 42.1%, a 3.8% rise over the end of
previous year34.
Telecommunications services are still in the preliminary level with a relatively
moderate percentage in the total value of trade in services, maintaining a steady
growth. From 2000 to 2009, annual growth rate of Chinas export of
telecommunications services was15.6%, accounting for about 1% of Chinas overall
export of service trade. And its imports rose by 21.7%, accounting for an estimated
0.8% of Chinas overall import of service trade35. China has opened its telecom market
to over 20 international telecom giants like NTT (Japan) and SK (ROK). Several other
foreign-founded companies have entered Chinas telecom value-added services
market through merger and acquisition. Several large basic telecom operators
including China Mobile, China Telecom and China Unicom have extended their
business to international market through setting up branch companies or international
merger and acquisition. They have obtained relevant business licenses in the US,
Japan and other countries and regions for telecom operation. Chinas telecom
equipment enterprises operate telecom business in Africa and America by means of
equity participation in local telecom enterprises, thus Huawei, ZTE, etc. have became
world class telecom equipment enterprises. The development of telecommunications
services requires an open, transparent and level playing field as well as a reliable and
predictable regulatory environment.
China attains certain technology accumulation and basic advantages in telecom
industry, when the fast growth of Huawei, ZTE and other enterprises in Sri Lanka
proves the international competitive advantage and developing opportunity of
Chinese enterprises in telecom industry. China and Sri Lanka can further strengthen
cooperation in telecom industry and make full use of Chinas technical advantage to
34
http://www.miit.gov.cn/n11293472/n11293832/n11294132/n12858387/15132905.htmlthe Ministry
of Industry and Information Technology The Yearbook of China Telecommunication Statistics in 2012.
35
Chinas Statistics of Trade in Services 2010(industry), page 100-101.
154
deliver high-quality services and accelerate the development of telecom market in Sri
Lanka.
7. Temporary entry of natural persons
The Law of the Peoples Republic of China on the Control of the Entry and Exit of
citizens which entered into force on 1st July 2013 and the Law of the Peoples
Republic of China on Control of the Entry and Exit of aliens which entered into force
on 1st September 2013 are the main laws and regulations applicable to aliens entering,
leaving and transiting the territory of the People's Republic of China and to those
residing and traveling in China.
For entry into China, foreigners shall apply for visas from Chinese diplomatic missions,
consular offices or other resident agencies abroad authorized by the Ministry of Foreign
Affairs. Chinese visas fall into four types: diplomatic visa, courtesy visa, service visa
and ordinary visa. Chinese visa officials are entitled to decide on the type a visa to be
issued referring to applicants identity, intention, and passport type based on Chinese
laws and regulations. Foreigners in case of an urgent need to travel to China and a lack
of time to apply for visas to the Chinese diplomatic authorities may apply for visas to
port visa Agencies authorized by the Ministry of Public Security of China. In cases
where another country has special provisions for Chinese citizens entering and
transiting that country, the competent authorities of the Chinese Government may
adopt reciprocal measures contingent on the circumstances.
As of 31st October 2013, China has signed Agreements on Visa Exemption with 81
countries, such as Argentina, Vietnam, Chile and so on. Chinese citizens holding
certain kinds of passport do not need to apply for visas in advance for short-term visits
to those countries36.
As of 31st October 2013, in most FTAs signed by China (except the CEPA
Mainland-Hong Kong and the CEPA Mainland-Macao), the China-Singapore FTA, the
China-New Zealand FTA and the China-Peru FTA regulated the movement of natural
persons in the form of adopting an individual chapter37. These regulations aimed at
undertaking expeditious or simplified application procedures reciprocally to temporary
entry request of business visitors introducing transparency standards. In addition,
special committees or working groups were founded and relevant dispute settlement
mechanisms were introduced in settling problems in implementation of the issue.
36
China Consular Affairshttp://cs.mfa.gov.cn/wjb/cs_search.jsp
37
There are commitments about temporary entry of natural persons in China-Iceland FTA yet with no
concrete provisions. China-Costa Rica FTA has relative descriptions in the 9th chapter of investment,
trade in services and temporary entry of natural persons.
155
Sri Lanka
Sri Lanka presently does not have data on trade in services with China. It is therefore
not possible to provide an analysis of bilateral trade. It should be noted that in almost
all professional services categories such as medical, legal and accounting, etc., there
are no mutual recognition agreements with other countries or to recognize
professional qualifications.
1. Transportation Services
Transportation services, the largest category within the services sector, primarily led
the improvement in the services account. The transportation sector, which consists of
passenger fares, freight, port and airport related earnings increased substantially by
17.4 per cent to US dollars 1,634 million during the year 2012.
With the expansion of port and airport related activities, inflows on account of freight,
port and airport related services showed satisfactory performance in 2012. Gross
inflows on account of these services increased by 14.5 per cent to US dollars 917
million during 2012. Transshipment cargo handling and ship arrivals also increased in
2012 when compared to 2011.
2.Travel and Tourism
Sri Lanka has always been a world famous tourist destination. Today, the country
offers leisure and business travelers a spectrum of attraction. Sri Lanka has received
further praise as a tourist destination by the National Geographic Channel, which
ranked Sri Lanka as the 2nd best island to visit and emphasized the fact that the
island has absolutely everything in a small space.
Continuing the post-conflict growth momentum, Sri Lanka attracted more than one
million tourists in 2012. Tourist arrivals in 2012 surpassed its target of 950,000 to
record 1,005,605 arrivals, an increase of 17.5 per cent, over 855,975 arrivals in 2011.
The highest ever number of tourist arrivals for a month, which was 122,252, was
recorded in December 2012.
Earnings from tourism increased substantially in 2012. Supported by the increase in
tourist arrivals and the average spending per tourist, earnings from tourism increased
by 25.1 per cent to US dollars 1,039 million in 2012 compared to US dollars 830
million recorded in 2011.
Sri Lanka is fast gaining popularity in the MICE (Meetings, Incentives, Conferences &
Exhibitions) tourism industry, with 11% of the total visitors coming into the country
representing the segment, while the industry anticipates the arrival of 240,000 MICE
tourists by 2016, which is nearly 10% of the 2.5 million tourist target.
156
Recent development in the infrastructure sector due to huge investments undertaken

by the Government of Sri Lanka has improved the connectivity within and outside the
country through road rail, air and sea routes.
The country targets to receive annual tourists arrival of 2.5 mn by the year 2016 and
arrival of 4 mn by 2020. In the year 2012 tourist arrival has set a historic recorded
of 1mn and by the end of third quarter 2013 arrival number has recorded as 801,000 a
15.5% increase over 2012. Tourist Hotel Association of Sri Lanka is with an
estimate of about 25,000 additional hotel rooms will be required within next five years,
in addition to the 22,700 rooms available in the formal and informal sectors, to provide
facilities for the expected increase of tourist inflows by 2016.
3.Communication, and Computer and Information Services
The communication services sector continued to expand during 2012. Gross inflows
from communication services increased by 27.8 per cent to US dollars 109 million in
2012. However, with increased utilization of email, broadband internet, satellite TV
and international direct dialing (IDD), outflows on account of telecommunication
services also increased although at a slow pace.
Earnings from information technology enabled services (ITES) such as business
process outsourcing (BPO) and knowledge process outsourcing (KPO) increased
further in 2012. Gross inflows into the computer and information services sub sector
increased by 22.9 per cent to US dollars 436 million during 2012. Inflows on account
of KPO, which is classified under other business services also increased in 2012,
and exports of BPO and KPO services are estimated to have exceeded US dollars
600 million in 2012.
Under the WTO, Sri Lanka's specific commitments under the GATS cover the tourism,
telecommunications and financial services sectors. In its Schedule of Commitments,
Sri Lanka inscribed horizontal limitations and conditions pertaining to some forms of
commercial presence. In addition to listing certain activities reserved to nationals, Sri
Lanka listed a number of sectors where foreign equity in excess of 40% is subject to
approval on a case-by-case basis by the Board of Investment (BOI).
In telecommunications, Sri Lanka reserved the right of the majority-state-owned Sri
Lanka Telecom company to maintain the monopoly on basic fixed wire telephone
services (international) until 2000. Sri Lanka also retained the right to issue no new
licences for mobile services until 2000, and to maintain the duopoly on basic
telephony services supplied by the Wireless Local Loop (WLL) until 2002. Issuance of
new licences for other basic telecom services would be subject to economic needs
criteria, which were not further defined. Foreign equity caps were set at 35% for Sri
Lanka Telecom and 40% for other service providers unless the BOI approved a higher
level.
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Sri Lanka's commitments in financial services provide for the approval, registration,
and licensing of banks and other financial institutions to be subject to an economic
needs test, but the criteria for this test are not specified. Banking services must be
carried out by locally incorporated companies or branches of foreign banks, and
foreign equity participation in any financial institution is limited to 49%. New
establishments of life and non-life insurance firms are subject to Government
licensing (cross-border supply and consumption abroad were left unbound). As
regards reinsurance and retrocession, Sri Lanka allowed limited cross-border supply
and consumption abroad, but made no commitments on commercial presence.
Sri Lanka lodged only one MFN exemption, reserving the right to apply different
accounting rates on international services under bilateral international
telecommunications agreements between Sri Lanka Telecom and foreign operators
and governments of SAARC partners.
In its initial conditional offer under the DDA in 2003, Sri Lanka made some
improvements to its current WTO commitments in the same three sectors, but did not
make any offers in any additional sectors.
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6 Investments
6.1
Investment Policies of China and Sri Lanka
China
Since the Reform and Opening-up Policy implemented in 1978, China has gradually
established a set of fairly complete legal and policy system for foreign investment.
Chinese government encourages inflow of FDI and increasingly opens and expands
the investment fields. Utilizing the FDI in a more effective and better way is a
long-term policy that China adheres to.
Major laws and regulations specifically related to FDI include: Law of the PRC on
Chinese-Foreign Equity Joint Ventures, Law of the PRC on Chinese-Foreign
Contractual Joint Ventures, Law of the PRC on Foreign-Funded Enterprises, and their
respective implementing regulations, Regulations on the Guidance of
the
Orientation of Foreign Investment(amended in 2004), The Catalogue for the Guidance
of Foreign Investment Industries(amended in 2011), The Catalogue of Priority
Industry for Foreign Investments in Central and Western Areas(amended in 2008),
Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors,
Provisions on Foreign Invested Investment Companies, Interim Provisions on Foreign
Invested Joint Stock Limited Companies, and Regulations on Enterprises Funded
by Foreign Investment, etc. In addition, Company Law, Contract Law, Labour Law,
Insurance Law and Tax Law, etc. is also included.
Regulation on the Guidance of the Orientation of Foreign Investment specifically
stipulates the industrial policy of foreign investment. It classifies foreign investment
projects into four categories: the encouraged, the permitted, the restricted and the
prohibited. Projects belonging to the encouraged, the restricted and the prohibited are
listed into The Catalogue for the Guidance of Foreign Investment Industries, and
others are the permitted. Over recent years, China further relaxes the restriction in
share ratio of foreign investment and opens new investment fields, listing the once
limited construction and operation of pipeline networks for telecom, gas, heat, water
supply and sewage in cities as fields open to the outside world. China also further
opens up trades in service industry, such as banking, insurance, commerce, foreign
trade, tourism, telecom, transportation, accounting, auditing and legal services. Radio
and television programs production and distribution as well as movie production are
also open. The foreign investment, belonging to the encouraged projects, can enjoy
the preferential exemption policies on tariffs of imported equipments and import VAT.
Establishing the foreign-funded enterprises requires examination and approval from
Chinese government. For fields unlimited in investment scale, unrestricted from
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National Planning and listed in the encouraged of the Catalogue for the Guidance of
Foreign Investment Industries, Chinese government expands the power of
examination and approval from central government to provincial governments and
further simplifies the procedure on this basis. Right now, many provinces in China can
provide the one station service and every province has established the promotion
centre for investment to help the investors. Mainly three types of foreign investment
enterprises (FIEs) exist in China now, namely equity joint ventures, contractual joint
ventures and wholly foreign-owned enterprises. Some other investment forms contain
establishing the foreign invested joint stock limited companies, investment
companies, venture investment companies, Chinese-foreign joint exploration &
development and BOT, etc.
The applicable taxes of foreign-funded enterprises in China mainly embrace business
income tax, income tax for individual, circulation tax (VAT, GST and sales tax),
increment tax on land value, stamp duty, car and vessel license tax and urban real
estate tax, etc. Since 1st January, 2008, China began to implement the new Law on
Enterprises Income Tax which unified the preferential tax policy, adopted the new tax
preference system, namely industry oriented preference comes first, region oriented
second and granted favourable tax treatment to the enterprises who are engaged in
high-tech industry, infrastructure, agriculture, forestry, animal husbandry and fishery,
environment protection as well as safety production. China will not nationalize or
expropriate any foreign-funded enterprises; except under special circumstances, the
government, for the social and public benefits, may take this measure in accordance
with law and make some proper compensation.
To ensure the transparency of policies related to foreign investment, China
promulgates the changes of laws and regulations on the guidance of FDI, compiles
and publicizes regulations on foreign investment annually. The government will solicit
ideas from the foreign-funded enterprises before adjusting policies of FDI. Under
some specific circumstance, a reasonable transitional period will be offered, allowing
foreign-funded enterprises to comment and giving advices on the laws and
regulations. Enterprises and parties who are interested can also provide the related
information about FDI through the website of Ministry of Commerce
(www.mofcom.gov.cn). The government website of FDI- Investment in China
(www.fdi.gov.cn) has also been founded.
Sri Lanka
In accordance with the BOI Law No. 4 of 1978 and amendments, the BOI provides
two types of investment approvals:
160
Under Section 17 of the Act, the BOI is empowered to grant special concessions to
companies satisfying specific eligibility criteria, which are designed to meet strategic
economic objectives of the government. The mechanism through which such
concessions are granted is the Agreement, which modified exempts and waives
identified laws in keeping with the BOI Regulations. These laws include Customs,
Exchange Control and Inland Revenue.
Furthermore, certain concessions and
exemptions could be granted under the Strategic Investment Law and the
Commercial Hub Regulations issued under the Finance Act.
Exchange Control Laws Applicable for Foreign Investments
The Exchange Control Provisions applicable for foreign investments are stipulated in
the Regulation No. 1232/14 dated 19-04-2002 as amended by No. 1248/19 dated
08-08-2002 with regard to entry requirement of investment as follows;
Permission is granted for the issue and transfer of shares in a company up to 100%
of the issued capital of such company, to approved country funds, approved regional
funds, corporate bodies incorporated outside Sri Lanka and individuals resident
outside Sri Lanka (inclusive of Sri Lankans resident outside Sri Lanka) subject to the
exclusions, limitations and conditions hereinafter set out.
Exclusions:- The permission granted shall not apply in respect of shares of a
company proposing to carry on or carrying on any following businesses.
(i) Money lending,
(ii) Pawn broking,
(iii)
Retail trade with a capital of less than One Million US Dollars,
(iv)
Coastal fishing.
(v) Provision of Security services including security management, assessment and

consulting to individuals or private organizations.
Limitations:(a) Foreign investments in the areas listed below will be approved only upto 40% of
the issued capital of such company or a higher percentage of foreign investment
when approval has been granted by the Board of Investment of Sri Lanka only upto
such higher percentage.
(i) Production of goods where Sri Lankas exports are subject to internationally
determined quota restrictions;
(ii) Growing and primary processing of tea, rubber, coconut, cocoa, rice, sugar and
spices;
161
(iii)
Mining and primary processing of non-renewable national resources;
(iv)
Timber based industries using local timber;
(v)
Fishing (deep sea fishing);
(vi)
Mass communications;
(vii)
Education;
(viii)
Freight forwarding:
(ix)
Travel agencies;
(x)
Shipping agencies.
(b) The permission hereby granted shall apply in respect of the shares of a company
carrying on or proposing to carry on any of the businesses set out below only upto the
percentage of the issued capital of the company for which percentage either general
or special approval has been granted by the Government of Sri Lanka or any legal or
administrative authority set up for the approval of foreign investment in such
businesses.
(i)
Air transportation;
(ii)
Coastal shipping;
(iii) Industrial undertaking in the Second Schedule of the Industrial Promotion Act, No.
46 of 1990, namely any industry manufacturing arms, ammunitions, explosives,
military vehicles and equipment aircraft and other military hardware; any industry
manufacturing poisons, narcotics, alcohols, dangerous drugs and toxic, hazardous or
carcinogenic materials; any industry producing currency, coins or security documents;
(iv)
Large scale mechanized mining of gems;
(v)
Lotteries.
Approval under Section 16 of the BOI Act permits foreign investment entry to operate
only under the normal laws of the country; that is, for such enterprises, the provisions
of the Inland Revenue, Customs and Exchange Control Laws shall apply.
After signing an agreement with the BOI, the specific incentives are granted to an
eligible company, which may include tax holidays or preferential tax rates, exemption
from customs duty subject to a negative list of items which are available in te local
economy, and foreign exchange controls. For the purpose of granting approvals and
incentives, companies incorporated under the Companies Act are treated equally
regardless of nationality of the investor.
162
Safety of foreign investment is guaranteed by the constitution and the provisions and
the spirit of the Agreement cannot be changed by successive governments. This is
the fundamental strength of a BOI agreement, which few other countries can offer or
match. And also there are no restrictions on repatriation of earnings, fees, capital, and
on forex transactions relating to current account payments.
Total foreign ownership is permitted across almost all areas of the economy as
stipulated in the Regulation No. 1232/14 dated 19-04-2002 as amended by No.
1248/19 dated 08-08-2002.
6.2
Investment in Specific Fields
With the ending of the 30 year civil conflict, Sri Lanka is poised for aggressive growth
in several key sectors of its economy. With almost all areas open for foreign
investment, indicated below are the priority sectors that the government is actively
encouraging Foreign Direct Investment to ensure strong and positive economic
indicators.
Thrust Sectors for investment
Manufacture especially selected items of machinery, motor spare parts,

high tech industry, heavy industries and pharmaceuticals.
Infrastructure projects
Pharmaceuticals
Higher education and in Skills education
Tourism Sector
Promoting Hub and link to exports to India and Pakistan.
Research & Development projects/ especially Nano technology servicing
for foreign investors/companies
Value added strategic projects
6.2.1
Machinery
China
The machinery industry in China is comparatively open with a high market degree.
China encourages foreign investment in the manufacturing of high-grade CNC
machine tools and their key components, such as five-axis alignment CNC machine
tools, CNC coordinate boring and milling processing centre, CNC coordinate jig
grinder, five-axis alignment CNC system and servomechanism installations,
163
high-speed ultra-hard cutting tools for high precision CNC processing. China boosts
investment in the manufacturing of special processing machinery, e.g. complete sets
of laser cutting and welding, laser precision processing equipment, CNC low speed
wire cut electrical discharge machining, submicron ultrafine pulverizer. China
welcomes investment in the manufacturing of equipment for geophysical exploration
and well logging, for instance, MEME seismometers, digital telemetric seismic
detector, digital imaging systems, computerized well logging system, devices and
apparatus for horizontal well, directional well and drilling rigs, MWD
logging-while-drilling tool. Investment in manufacturing of equipment for the oil
prospecting, drilling, collection and transportation equipment are also encouraged,
such as floating drilling systems operating water depths of greater than 1500 meters,
floating production system and subsea production. China stimulates investment in a
variety of general and special equipment manufacturing and agricultural facilities:
tractors with an engine power of 120 kilowatt or more and the auxiliary farming
implements, diesel engine with low BSFC, low noise and low emission, spraying
machine auxiliary to large tractors with residual droplets retrieval devices, high
performance rice transplanter, cotton picking machines and platforms, self-propelled
corn combine harvester for various row spacing (hydraulically or mechanically driven),
rapeseed harvester, cane harvester, sugar beet harvester.
There are limitations in investment in some general and special equipment
manufacturing, counting, manufacturing of various types of P0 bearings and their
components (steel balls, holders), manufacturing of wheeled or caterpillar crane with
a lifting capacity of less than 400 tons, ordinary polyester filament yarn and chopped
fibber equipment, bulldozer of 320 horsepower or less, hydraulic excavator of 30 tons
or less, wheeled loader of 6 tons or less, grader, road roller, forklift truck of 220
horsepower or less, electrically driven off-highway dumper trucks of 135 tons or less,
hydraulic mechanically driven off-highway dumper truck of 60 tons or less, asphalt
concrete mixing and paving equipment, aerial work machinery, garden machines and
tools, commercial ready-mixed concrete machineries (pilot pump, agitating lorry,
mixing plant, pump truck).
China proscribes foreign investment in arms and ammunition manufacturing,
productions belonging to electrical machinery and equipment manufacturing,
including, manufacturing of open (i.e., acid mist directly coming out) lead-acid
batteries, mercury-contained silver oxide button batteries, mercury-contained alkaline
zinc-manganese button batteries, pasted zinc-manganese batteries, and
nickel-cadmium batteries.
Sri Lanka
164
During the last five year period (2008 - 2012) the import of machinery & appliances
has been increased by over 80% in Sri Lanka. The Sri Lankas total import of
machinery & appliances was US$ 1,470 mn.in 2012 and the China has been the
largest exporter to Sri Lanka, accounting for 32% of such imports.
The major import products are automatic data processing machines (computers),
Self-propelld bulldozer, angledozer, grader, excavator, printing machines, air vacuum
pumps, Turbo-jets, turbo-propellers, refrigerators, dish washing machines, steam
turbines, sewing machines, AC machines & central heating boilers.
6.2.2
Pharmaceuticals
China
Chinas pharmaceutical industry is relatively open, encouraging FDI in production of
new compound drugs or drugs with active ingredients (including drug substance and
formulations), amino acid, production of new types of anticarcinogenic drugs,
cardiovascular and cerebrovascular drugs, and nervous system drugs, production of
new types of drugs employing bioengineering and biotechnology, production of
HIV/AIDS vaccines, Hepatitis C vaccines, contraceptive vaccines, and new types of
vaccines for cervical carcinoma, malaria, hand, foot and mouth disease, etc, the
development and production of biovaccines, marine drugs, pharmaceutical
formulations, new excipients, special antibacterial drug substance for animals
(including antibiotics and chemical synthesis API), production of new products and
new formulations of antibacterial drugs, anthelmintics, insecticides and
anti-coccidiosis drugs for veterinary use and new types of diagnostic reagents.
China interdicts the processing of Chinese medicinal materials listed in the Regulation
on the Protection of Wild Medicinal Resources and the Catalogue of Chinas
Protected Rare, Precious and Endangered Plants; the application of processing
techniques such as steaming, stir-frying, moxibustion, and calcinations for making
small pieces of ready-for-use traditional Chinese medicines; and production of
traditional Chinese patent medicine of secret prescriptions. Additionally, there are also
limitations in the production of chloramphenicol, penicillin G, jiemycin, gentamicin,
dihydrostreptomycin,
amikacin,
tetracycline
hydrochloride,
oxytetracycline,
mydecamycin, leucomycin, ciprofloxacin, norfloxacin and ofloxacin, analgin,
paracetamol, vitamin B1, vitamin B2, vitamin C, Vitamin E, multiplex vitamin
preparations, and oral calcium preparations, and the productions of varieties of
vaccines included in the national immunity planning, production of active
pharmaceutical ingredients(APIs) for anesthetics and category 1 psychotropic drugs.
165
Sri Lanka
The Sri Lankas pharmaceutical sector is heavily depending on imports from other
countries such as India, Switzerland, Singapore, Pakistan, France, Germany UK etc.
The Annual Import bill of Pharmaceutical products (i.e. Pharmaceuticals, Surgical
Consumables & Medical Devices) in Sri Lanka amounts to over US$ 322 million in
2012. It imports over 86% of medicinal needs of the country and the domestic
production accounts for US$ 53 Million, a 14% of the national requirement.
India, being the largest exporter of pharmaceutical products to Sri Lanka accounts for
52% of the total pharmaceutical import bill.
China has accounted 0.6% of the Sri Lankas total pharmaceutical import and was the
20 exporter to Sri Lanka.
The Government has recently taken a decision to establish a pharmaceutical
manufacturing zone in Sri Lanka. Government will provide all facilities to initiate this
Pharmaceuticals hub and facilitate investors to set up new ventures. Sri Lanka has
private sector pharmaceutical manufacturers as well as public sector manufacturing
firms. These existing institutions can benefit from proposed hub by participating in
joint ventures and absorbing new technology and know how.
6.2.3
Motor Spare Parts
China
The market of automobile parts and components in China is fairly open. China
supports foreign investment in the manufacturing of key automobile parts and
components as well as research and development of key technologies, to be exact,
dual-clutch transmission(DCT), automated mechanical transmission(AMT), gasoline
engine turbocharger, viscous coupling (for four-wheel drive), actuator for automatic
transmission (electromagnetic valve), hydraulic retarder, eddy current retarder, gas
generators for automobile safety air-bags, common rail fuel injection technology (with
maximum injection pressure of more than 2,000 pa), variable geometry
turbocharging(VGT) technology, variable nozzle turbocharging(VNT) technology,
engine emission control devices meeting Chinas Phase V pollutant emission
standards, intelligent torque management (ITM) systems and coupler assembly,
steer-by-wire systems, diesel particulate trap device, special-purpose axles for
low-floor large buses, energy-absorbing steering system, variable frequency
air-conditioning system for large and medium buses, special rubber automobile
accessories, and key parts and components of the above parts and components.
166
Sri Lanka
During the last five years period (2008 - 2012) the import of motor vehicle industry has
been increased by over 30% in Sri Lanka. In parallel to this increase, the import of
motor spare parts also increased by 17% during this period.
The Sri Lankas total import of motor spare parts was US$ 72 mn. in 2012 and the
China (26%) being the 2nd largest exporter followed by Japan (28%).
There is an investment potential for a huge growing market for spare parts of the cars,
passenger vehicles, three wheelers and motorcycles in Sri Lanka.
6.2.4
Others
China
All in all, Chinese economy is open to the outside world. Apart from the specific
industries mentioned above, China encourages foreign investment in industries
including agriculture, forestry, animal husbandry and fishery, mining industry,
agricultural and sideline food processing, food manufacturing, transportation
equipment manufacturing, communication equipment, computer and other electronic
equipment manufacturing, power, gas, water production and supply industries,
transportation, warehousing and postal service industries, wholesale and retail
industries as well as leasing and commercial service industries, etc.
Meanwhile, China excludes foreign investment in some industries. Precisely,
research and development, breeding, and planting of Chinas rare and special
varieties and production of relevant breeding materials, research and development of
genetically modified organisms and production of genetically modified crop seeds,
breeding livestock and poultry, and aquatic fingerlings, exploration and exploitation of
tungsten, molybdenum, tin, stibonium and fluorite, exploration, exploitation and ore
dressing of rare earth and radioactive minerals. China also forbids the development
and application of human stem cell and genetic diagnosis and treatment technologies,
geodetic surveying, marine charting, aerial photography for surveying and mapping
purposes, administrative boundary surveying and mapping, topographic map
compilations and general map compilations, as well as some culture, sports and
entertainment industries.
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6.2.5
Tourism & Leisure
Sri Lanka
The tourism sector has been experiencing an impressive growth both in terms of
tourist arrivals and in foreign exchange revenues after the restoration of peace and
normalcy in the country in 2009. Achieving another remarkable milestone in the
country's booming tourism industry, tourist arrivals reached one million in 2012, an
increase of 17% over 2011 and foreign exchange earnings exceeded US$ 1 billion, an
increase of 16% over 2011.
The Sri Lankan government has identified the Tourism sector as a key growth area in
post-conflict development with an ambitious target of attracting 2.5 million visitors by
2016. The Board of Investment (BOI), the agency tasked with attracting Foreign Direct
Investments (FDI) to Sri Lanka, has been playing a pivotal role in executing this
strategy, by attracting top tier tourism and hotel investors to the country. Companies
that have already committed major investments include the premier Asian luxury hotel
chains such as Shangri-La Group and India's upscale ITC Group.
The Sri Lanka government has identified some key areas for tourism development
and is promoting them for hotel and resort projects. These destinations are
Kuchchaveli in Trincomalee district on the north-eastern coast, Passikudah on the
east coast, Kalpitiya on the north western coast consisting of 14 different islands, and
Dedduwa near the river Madhu Ganga located close to Bentota on the south western
coast.
Considering significant growth in the industry, one of the most prestigious global travel
publications, the largest travel guide book and digital media publisher in the world
"Lonely Planet", has ranked Sri Lanka as the Best Country to Visit in 2013. In its
effusive article on Sri Lanka, Lonely Planet said, "Investment is fuelling the tourism
industry and visitor numbers are steadily increasing. Prices are affordable and with
affordable flights from the convenient travel hub of Bangkok, Sri Lanka is emerging as
one of the planet's best value destinations."
Given the very high interest among global travellers towards Sri Lanka, there is a very
strong opportunity for investors of hotels, resorts, and leisure & entertainment
complexes to profit from the growth of this sector.
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6.2.6
Higher Education / Skills Development
Sri Lanka
Higher Education is a major driver of economic development in Sri Lanka. Higher
Education in the country is now in a unique position, as Sri Lanka's future in the global
knowledge economy depends critically on the country's human capital.
As the country is geared to take off and advance as a fast growing middle income
country, it is critically important that Sri Lanka has the human capital needed to
compete with the global knowledge economy. Thus Sri Lanka needs a higher
education system which can produce skilled, hardworking and enterprising graduates.
Also the country needs a research and innovation capacity capable of promoting
dynamic economic development.
Sri Lanka has targeted achievement of excellence in higher education by 2020,
becoming the most preferred country for higher education in the Asian subcontinent.
The government has already commenced the formulation of necessary legislation to
regulate private sector higher education institutes.
The knowledge hub initiative will help to develop Sri Lanka as a destination for
investments in Higher Education and position the nation as a centre of excellence and
regional hub for learning and innovation. Leading foreign universities such as
"University of Central Lancashire" (UCLAN), UK and Raffles Education Corporation,
Singapore have already committed to invest in Sri Lanka.
6.2.7
Health
Sri Lanka
The private healthcare industrys dynamics are driven by a range of factors including
trends in patient volumes, the level of competition, pricing flexibility, technological
changes and ease of entry. In-patient admissions at private hospitals rose more than
threefold and outpatient admissions more than tenfold during the period from 1990 to
2012. As such, as reflected by the earnings of listed hospitals, private healthcare
operators have continued to demonstrate strong cash inflows over the past decade or
so.
In terms of total bed capacity, the public sector accounted for close to 93% of total
hospital beds in 2012, serving around 90% to 95% of in-patients. The rest were
served by the countrys private healthcare sector, primarily the choice of higher
income earners and individuals with access to medical insurance. Demand for private
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healthcare facilities has stemmed primarily from urban areas, with a significant
concentration in the capital.
On the other hand, competitive pressures in the industry have continued to intensify,
particularly in the capital where supply largely lies with few large players. The key
factors driving competition include the number and quality of resident and visiting
medical practitioners, the quality of services offered and hospital charges.
6.2.8
Alternative Energy
Sri Lanka
Electricity generation in Sri Lanka consists 17.5% from oil, 14% from coal power wind
power 0.1% and hydro 62.6%. However, solar, biomass and biomass (dendro) also
contribute to power generation and constitute nearly 6% and are called NonConventional Power Sources (NCPS. Almost all the mini hydro potential has been
tapped by now and also the hydro potential has reached its maximum. Therefore,
since nearly 32% of the total power requirement is obtained from coal and oil, time
has come to explore possibilities of other avenues for renewable energy sources.
Sustainable Energy Authority has been established to facilitate this process.
6.2.9
Mineral based industries
Sri Lanka
Sri Lanka is endowed with several mineral resources. They are available in
commercial quantities and there is a dire need for rapid expansion of value addition in
the mineral sector (mineral based industries) in Sri Lanka. Among them, ilmenite,
zircon, rutile, monasite, feldspar, graphite and vein quartz are to name a few. Many of
them are exported in raw form. These resources are broadly used in the manufacture
of high end electronic products like computer chips and semi-conductors. Also they
are used to manufacture high end camera lenses, glass and crystal ware. This is a
potential area for investment with high return on investment.
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6.3
FTA Impact to Direct Investments
China
China and Sri Lanka signed the Agreement on promotion and protection of bilateral
investments in 1986. Since the mid-1980s, China has been investing in Sri Lanka in
projects like fishing, absorbent charcoal, power plant, bicycle factory, toy factory,
motorbike production line, car assembly, etc. In 2011, Chinas direct investment in Sri
Lanka was USD 81.23 million. The amount of Chinese capital stock in Sri Lanka
economy was about USD 163 million from 2003 to 2011.
The economies of China and Sri Lanka are highly complementary. Although the scale
of mutual investment between the two countries is small, the pace of cooperation in
trade and economy is notably accelerated in recent years. In general, the
establishment of China-Sri Lanka FTA will help to promote bilateral investment, which
mainly reflected in three aspects.
First, the protection, treatment and facilitation of investment will be an important part
of free trade agreement. China-Sri Lanka FTA can promote bilateral investment
through releasing the market access restriction in investment, reducing investment
barriers and facilitating the trade and investment.
Second, the free-trade agreement will create conditions for the mobility of technology,
capital, professional and other factors of production between the two countries, and
provide investment facilitation for repatriation of profit to promote the increase of
bilateral investment.
Third, effects of investment substitute trade effects and trade promotes investment
effects. On one hand, the reduction and exemption of tariffs lower the enterprises
expenses of structuring a complete value chain and allocate resources in accordance
with local condition; hence, enterprises producing semi-manufactured articles and raw
materials in one country and assembling in another country can lower the vertical
integration expense which would lead them to expand investment. On the other hand,
the effect of market expansion caused by trade liberalization will help to increase the
export of foreign-funded enterprises, especially those export-oriented enterprises
which then would naturally increase investment to expand output.
In addition, the establishment of China-Sri Lanka FTA will expand the intra-regional
market scale, which can further enhance the attraction of mutual horizontal FDI.
Especially as the sign of free-trade agreement will open the big market of China,
horizontal FDIs from countries off the agreement will gradually increase with the
establishment of China-Sri Lanka FTA. All in all, the free-trade agreement between
China and Sri Lanka will bring more investment for the two countries.
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As more and more Chinese enterprises are expecting to invest abroad, China's direct
investment to Sri Lanka will gradually increase. Although China has just started to
invest in Sri Lanka, Sri Lanka will become a potential investment destination for
Chinese companies due to the economic complementarities between the two
countries.
Sri Lanka
There is a variety of channels by which Free Trade Agreements may drive FDI flows.
One is that FTAs remove export regulations by lowering trade barriers to facilitate the
movement of intermediate and final products between two host countries. Other
positive effects of FTAs on FDI could arise from other conditions negotiated in the
FTA, such as investment regulations that increase the mobility of fund and capital
flows. These regulations make it easier for foreign investors to divert financial
resources to their foreign affiliates when the need arises, such as building of a new
plant in the host economy.
Hence, countries targeting an increase in FDI inflows from a particular source country
or region could seek to implement FTAs with the other party, using such international
agreements as viable tools to achieve their aim. FTAs could also provide other less
tangible benefits. The signing of FTAs not only signifies economic cooperation
between nations, but also cooperation on the political and institutional fronts.
Further, subsequent to the FTA entered into force, inward FDI from India has
generally showed an upward trend. For instance, during the pre FTA period India has
invested US$ 29 Mn in 97 projects mainly in the manufacturing sector. Indias total
investment in Sri Lanka increased to nearly US$ 1 bn. in 2013 with a total of 913
Indian Projects. Considering the cumulative FDI inflow from 2005 to-date, now
India has become the 2nd largest investing country in Sri Lanka.
Table 6-1 Sri Lankas Inward FDI from India
Year
2000
2013
Investment (US$ Mn)

97
913
172
No. of Projects
29
61
Pakistan Sri Lanka

FTA (2005)
Indo - Lanka FTA

(2000)
Figure 6-1 Impact of FTAs on FDI
6.3.1
Potential Impact of China- Sri Lanka FTA on FDI to Sri Lanka
At present, a total of 24 Chinese enterprises are in Sri Lanka. It is anticipated that with
the proposed FTA there will be increasing trend in Chinese investment to Sri Lanka.
These investments may get the benefits of proposed China Sri Lanka FTA which
would sharpen the competitiveness of these investments by reducing its costs of
intermediate inputs. Further these enterprises could also get the benefits of the
existing FTAs of Sri Lanka i.e. ISFTA and PSFTA which gives the access of huge
market accounting for more than 1.3 billion populations.
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7 Strengthening Bilateral Economic Cooperation in Key

Areas
7.1
E-commerce
China
With the development of its infrastructure, human resources and technology, China is
in a position to further explore the use of E-commerce. As of December 2012, the
number of Chinas netizens had reached 564 million, and the rate of access to the
Internet had reached 42.1%38. E-commerce models of Chinese enterprises vary from
setting up of websites for on-line expositions to on-line transnational project fairs,
never-ending on-line fairs and information portals. Chinese companies have been
developing new markets using on-line negotiations, on-line sales promotions and
on-line trading. The use of on-line purchasing, on-line auctions and on-line bidding in
China has increased steadily.
Chinese government made progress on the legislation, policy and financial support in
E-commerce. For example, The Electronic Signature Law of the People's Republic of
China was adopted by the Standing Committee of the Tenth National People's
Congress in August 2004, and came into effect in April 2005, stipulating the legal
status of electronic signatures in China for the first time.
In January 2005, Several Opinions of the State Councils General Office on
accelerating the Development of E-commerce puts forward the five basic principles
on accelerating the development of e-commerce: the combination between
governmental promotion and enterprise orientation, combination between
environmental construction and popularization and application, combination between
internet economy and entity economy, combination between highlighted promotion
and coordinated development, combination between accelerating development and
strengthening management.
In May 2006, 2006-2020 National Informatization Development Strategy issues
Action Plan on accelerating the development of Chinese e-commerce: building
environment, consummating policies, and exerting main function of enterprises,
vigorously promoting e-commerce, accelerating the construction of credit,
certification, standards, payment and modern logistics, improving the information
38
The 31th Development States Statistic Report of China Internet Network Information was issued by
China Internet Network Information Centre (CNNIC).
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system of settlement and liquidation, and exploring development modes of multi-level

and diversified e-commerce.
In 2012, Ministry of Commerce, the Ministry of Industry and Information Technology
(MIIT), local Economic and Informatization Committees, and other related units had
already taken the development of e-commerce into the Twelve Five-Year Plan. As the
classic model of new media economy to drive upgrade of national industrial structure
and promote growth of GDP, the future development of e-commerce enterprises will
get more support from policy resources. And more enterprises will enter into the
rapidly developmental market.
Sri Lanka
E-commerce or e-business, covers the broad spectrum of buying and selling of
products or services over electronic systems such as the web or/and other computer
networks. Also e commerce draws on areas like electronic fund transfers, supply
chain management, mobile commerce, internet marketing, online transaction
processing, electronic data interchange or EDI and inventory management systems.
The government has provided legislative background through Electronic Transactions
Act No. 19 of 2006 with the view of facilitating domestic and international electronic
commerce. This act recognizes and facilitates the formation of contracts, creation and
exchange of data, messages, electronic documents, electronic records and other
communication in electronic form in Sri Lanka.
Sri Lanka, through the use of e-commerce has been able to reduce the lead time on
service delivery and cost saving. This is not limited to buying and selling products
online. Along with customers online, business also finds its suppliers, accountants,
payment services, government agencies and competitors.
Sri Lanka is one of the leading countries in the South Asian Region which use ICT in
business such as E-Commerce and it is not a new concept to Sri Lanka. The business
community adopts this practice for their business operations extensively. The
communication services sector is one of the most rapidly developed sector in Sri
Lanka after abolishing the government monopoly in the communication industry in
1992. This sector even continued to expand during the year 2012 by 27.8%. Earnings
from information technology enabling services such as business out sourcing and
knowledge process outsourcing also increased rapidly. Positive socio-economic
development in the country, relatively better IT Infrastructure facilities, the availability
of a skilled work force, price competiveness, and reliable and efficient services
delivery helped sustain the growth in the IT industry.
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The above development has resulted in createing better environment in Sri Lanka for
e-commerce. The use of e-commerce in the areas of imports and exports, finance
and banking, customs operations, company registration, securities and stock
exchange, hotel reservations, aviation and flight reservations, immigration and
emigration, motor traffic, is at an advanced stage.
With the view to produce high skilled and high quality workforce for the ICT sector, the
government has taken various steps to develop the ICT institutional capacity. In
addition to the ICT diploma-level courses conducted by the universities and other
technical colleges, another world-recognized university has been established for ICT
Education.
It is well recognized that given the potential for increased earnings from the ICT-BPO
sector, with expected target earnings to be US$ 1 billion by 2016, well-trained ICT
professionals above diploma-level are needed, which is an area that the government
of China could assist by linkages to ICT universities/professional institutions in China.
Moreover, Sri Lanka would also require professional HR development in ICT.
The government of Sri Lanka has also identified that it has to now move towards an
ICT cloud environment to ensure optimization of usage of ICT. Also, there is a need
to ensure quality assurance in the ICT sector. It is envisaged that Chinese technical
and expert assistance could be solicited in these areas.
7.2
Small and Medium Enterprises
China
Establishment of SMEs has increased steadily in China in recent years and they have
become an important part of the national economy. According to data of 2011, the
number of sole proprietorship enterprises and other forms of enterprises reached
about 11 million, and the self-employed registered enterprises also amounted to 36
million, so there was a total of nearly 50 million enterprises. Small and medium-sized
enterprises accounted for more than 98% of the number of Chinese enterprises, as
the contribution of Chinese new jobs is 85%, occupying 75% of new products, 65% of
invention patent, 60% of GDP, and 50% of revenue.
Chinese government pays attention to the development of SMEs. A legal and policy
system aimed at promoting cooperation between SMEs has been established. For
example, the Law of the Peoples Republic of China on the Promotion of Small and
Medium Enterprises was promulgated in June 2002 and came into force on 1st
January 2003. On 21st September 2009, the State Council issued another opinion on
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Further Promoting Healthy Development of SMEs. This opinion mentioned 29

measures of 8 aspects on how to support SMEs further development. These
measures include alleviating financing difficulties for SMEs, increasing the intensity of
fiscal support for SMEs, speeding up technological progress and adjusting structure
of SMEs, improving the management level of SMEs, etc.
Sri Lanka
The Sri Lankan government has accorded high priority for Small and Medium
Enterprises (SMEs) to progress in the real economy under the Mahinda Chinthana
Development Policy Framework (2006-2016). The National Enterprise Development
Authority (NEDA) has been created under the Ministry of Economic Development for
SME sector development.
SMEs comprise 80-90% of the total enterprises and could be recognized in the vast
scale of operations in handlooms, textiles, fabric and apparel, plantation industries,
tourism, agriculture, food and beverages, construction, trade, manufacturing, storage,
transport and other services. The SMEs contribution to the Gross Domestic Product
(GDP) is around 30 percent, providing 35 percent employment, 20 percent exports
and 30 percent value addition
In the areas of cooperation for the SME sector, the urgent need is to strengthen the
enabling environment for them to develop. Promotion and encouragement of
innovativeness, technology transfer to increase efficiency and quality improvement,
access to markets, business development services (BDS) and credit facilities.
It is proposed to promote the development of the SME enterprises (SME) the relevant
private and governmental bodies of both countries exchange experiences and good
practices in their respective countries. This cooperation may include, among others:
The designing and development of mechanisms to encourage partnerships and
information exchange for SME financing institutions (credits, banks, guarantee
organizations, seed capital firms);
Development of human resources and management skills to increase the

knowledge with exposure to Chinese SME entrepreneurs;
Programme to transfer technological innovation to SME and to improve their
productivity;
Increasing access to information on technical promotion programmes and
financial support for programmes for SME;
Cooperation may also be developed, among other activities, such as
conferences, seminars, experts dialogue and training programmes with experts.
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7.3
7.3.1
Trade and Investment Promotion

Trade promotion
China
Chinese government takes full-round measures to help Chinese enterprise, especially
the SMEs involved in foreign trade.
1. Providing all kinds information channel, such as export / import Commodities Fair,
to assist the Chinese enterprises in developing international market and in facilitating
the Chinese enterprises exchanges and cooperation with the other countries
companies.
2. Providing the enterprises with the information on trade partner countries
economic environment and the foreign enterprises credit situation; establishing and
maintaining foreign trade enterprise credit system.
3. Organizing import and export related trainings and the seminars on trade remedy;
Helping Chinese enterprises to respond to the trade remedy investigations initiated by
foreign governments.
The China Council for the Promotion of International Trade (CCPIT) is the institution
for the promotion of foreign trade in China. It comprises individuals, enterprises and
organizations representing the economic and trade sectors in China. The China
Council for the Promotion of International Trade (CCPIT) set up China Chamber of
International Commerce(CCOIC)in June 1988, and the two carried out the work at the
same time. In China, there are some other agencies on trade promotion except for
CCPIT and CCOIC, such as Trade Development Council of Ministry of Commerce,
SINOSURE, etc.
Sri Lanka
Direct support and facilitation measures extended by China with respect to Sri
Lankas participation in South Asia Trade Fair and Kunming Trade Fair annually
provided for exporters of Sri Lanka, an opportunity to gain first-hand information on
growing and changing dynamics of the Chinese market as well as to establish much
needed B2B contacts.
In this context, Sri Lanka would seek assistance and cooperation from China to
organize Sri Lankas participation at product specific trade fairs held in provinces.
178
Exchange of Business Delegations has also been identified as yet another effective
means to promote B2B contacts, business networking and forging alliances to initiate
joint ventures
It is also worthwhile to explore the possibilities to constitute a Joint Experts Forum
with experts from academia and private sector of both the countries to identify novel
avenues for further expansion of trade.
Sri Lanka wishes to seek technical assistance to the following product sectors of Sri
Lanka to improve their quality
7.3.2
Jewellery
Leather
Floriculture
Plastics
Packaging
Printing
Porcelain
Investment promotion
China
China encourages inflow and outflow of FDI. The Investment Promotion Agency of the
Ministry of Commerce, P.R.C. (CIPA) and China Council for International Investment
Promotion are the important institutions for the promotion of investment both in China
and abroad. Many provinces provide one-stop shop services to foreign investors, and
have set up investment complaint service centres. Each province has set up an
investment promotion centre. China also promotes investment through, inter alia, the
International Fair for Investment and Trade, China Central Expo, etc.
China has also established bilateral investment promotion agencies with other
countries and regions in the world to promote bilateral investment.
Sri Lanka
Through encouraging foreign investments, both governments expect to bring
financing for development projects, technology transfer, management practices,
assured markets and provision of quality, skilled employment.
179
In order to strengthen both inward & outward investments between two countries, it is
proposed that both sides agree and intensify activities in the following areas:
a)
Joint Inward & Outward Missions

Investment Promotion Agencies of both countries will jointly facilitate inward
and outward missions from and to both countries with a view to attract quality
FDI that would lead to sustainable economic development of both
economies.
b)
Joint Venture Partnerships

Both countries will encourage joint venture partnerships of the business
community of the two parties and coordinate & arrange meetings with
potential investors who are willing to make investments in respective
countries. Further it will also involve in matchmaking and identifying local
partners based on the profile and requirements of inward delegations. In
order to ensure the success of these partnerships the Investment Promotion
Agencies in the respective countries will monitor the progress of the
negotiations between foreign and local partners.
c)
Awareness Programmes
With a view to create awareness on investment climate of the two countries,
the Investment Promotion Agencies will organize awareness creation
programmes in collaboration with relevant line agencies in both countries.
d)
Exchange of Information
In order to market both countries in a most effective manner and to attract
prospective investors, the Investment Promotion Agencies of both countries
will ensure the online promotion as well with well-presented,
carefully-researched, updated and relevant information. The Investment
Promotion Agencies of both countries takes serious concern that IPA
Websites would be considered as the first interaction point for investors. It is
suggested that a designated officer from both IPAs be assigned specifically
dedicated for providing information required by the other party.
7.3.3
Transparency
For promoting trade and investment, Chinese government adopts measures to

increase the level of transparency of its trade and investment policies, practices, and
measures. All information related to FDI, foreign trade-related laws, regulations, and
180
rules are published in the China Foreign Trade and Economic Gazette, which is
edited and published by MOFCOM. Enquiry points and enquiry websites are set up by
MOFCOM and the General Administration of Quality Supervision, Inspection and
Quarantine (AQSIQ) and China makes regular notifications to the WTO. Newly
promulgated trade-related laws and regulations are compiled and published by the
Legislative Affairs Office of the State Council, which also publishes the yearly
collection of China's laws and regulations governing foreign-related matters.
7.4
Industry Cooperation
China
Since establishment of diplomatic relations between China and Sri Lanka, the
economic and trade relations based on equality and mutual benefit has developed
smoothly. With an increasing trade volume every year, especially in recent years,
mutually beneficial cooperation between two countries has continuously expanded in
various fields. The Asia-Pacific Trade Agreement (APTA) supplies a feasible
framework of preferential trade agreements for China and Sri Lanka to carry out the
bilateral trade. There are many cooperative and mutually beneficial opportunities and
projects between China and Sri Lanka.
There are many Chinese industries able to transfer into Sri Lanka, including
electronics, agriculture and agricultural products processing, aquaculture, rubber
products, gem processing, textile and garment industry, tourism, leather industry etc.
Chinese enterprises can also enhance cooperation with Sri Lanka in the fields of
phosphate rock, graphite, silicon, fishery and other resource products. Chinese
investment in Sri Lanka not only can help Chinese enterprises to achieve industrial
transfer, but can solve the trade imbalance between the two countries; it is conducive
to the economic development of Sri Lanka and promote bilateral economic and trade
relations between China and Sri Lanka.
Sri Lanka
Industry cooperation should be seen in the light of the export competitiveness and
complementarities of industries of both countries using relative scientific indices. This
will be important to assess the trade benefits each country may get through the
proposed FTA.
The primary items that China exports to Sri Lanka covered under HS Chapter 84, 85,
52, 60, 55, 31, 73, 87 are mechanical & electronic products, high and new tech
181
products, textile products and garments, etc., while Chinas imports are mainly
Chapter 53, 09, 40, 26, 85, 61 and 62 comprising tea and coconut based products,
rubber, garments, some electrical components and mineral products. Only chapter 85
is common to both countries.
China being the main supplier of the above identified goods to Sri Lanka, Sri Lankas
view is that industrial cooperation should be focused on manufacturing the said goods
in Sri Lanka with Chinese investment and technology transfer for exports to China and
to the region, in particular to the Indian sub-continent.
Such initiatives could help, not only to diversify and expand the industrial base in Sri
Lanka, but also for a swift takeoff of the industrial sector of the country, which will be
of benefit to both countries.
7.5
Cooperation in the Development of Pilot Zone
China
There are six different modes of Customs Special Supervision Area in China,
including bonded zone, export processing zones, bonded logistics park, cross-border
industrial park, bonded port area and the comprehensive bonded zone. They play an
important role in attracting foreign direct investment and promoting development of
regional economic and trade. As of May 2012, there had already 103 Customs
Special Supervision Area been approved and established. Chinas areas with special
supervision of the Customs play an important role in the aspects of undertaking
international industrial transfer, broadening the channels of foreign trade, and
connecting international and domestic markets in China. In 2011, Customs Special
Supervision Area throughout the country achieved 468.5 billion dollars of import and
export, accounting for 12.9% of total national foreign trade of import and export.
With development of economy, special areas meet some problems which are
manufacturing and services, export and import, and uncoordinated, unbalanced and
unsustainable issues between China and international countries. Special supervision
areas are facing the transformation; and the "Free Trade Zone" cantered on trade
facilitation and customs clearance facilitation can become the representative
direction. With the establishment of the first free trade area in Shanghai, China, it will
further explore new paths and models of opening to the outside world, and promote
the transformation and upgrading of Chinas economy through further expanding to
open to the outside world and accelerating the pace of domestic reform.
182
Sri Lanka
Since 1978, Sri Lanka has been successfully operating a number of Free Trade
Zones (FTZ) and these Zones have been provided with all infrastructure facilities and
necessary environmental clearances. New industries can be established in such
zones, since some of them are underutilized. Therefore, in view of the high cost of
infrastructure development, establishment of new zones is not feasible.
7.6
Other Related Areas of Cooperation
China
Environment and Sustainable Development
China has always paid great attention to environmental protection. Recently, China
has made great progress in environment management, environment economy,
environment technology, and international cooperation on environment. The
Government has formulated environmental protection strategy and changed the
charge system for waste discharge, and established an integrated decision making
mechanism. China attaches great importance to international cooperation in the field
of environment. China has signed bilateral agreements on environmental protection
with 42 countries. China has also signed more than 50 multilateral agreements on
environmental protection, including The UN Framework Convention on Climate
Change and The Convention on Biological Diversity.
In the framework of China-Sri Lanka FTA negotiations, the possibilities to enhance
existing or create new cooperation mechanisms contributing to the objectives of
sustainable development can be examined, including technical or other forms of
cooperation.
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8 General and Institutional Provisions, Dispute

Settlement
8.1
General Provisions
Transparency in legislation and regulation is an important principle for the smooth

working of an FTA. The general provisions of an FTA between Sri Lanka and China
could include provisions on transparency relating, inter alia, to the publication of laws
and important measures and procedures concerning matters covered by the
agreement.
8.2
Joint Committee
A simple and pragmatic approach in terms of institutional set-up should be foreseen in

the framework of a Sri Lanka-China FTA. A Joint Committee would be established
which could meet regularly at senior officials' level and would be in charge of
monitoring the implementation, application and further development of the FTA. The
Joint Committee could set up sub-committees as necessary.
8.3
Consultations
The proposed Agreement may incorporate a process of consultations for

consideration and to afford adequate opportunity for, consultations regarding such
representations as may be made with respect to any matter affecting the operation of
the proposed Agreement within stipulated time frame.
8.4
Contact Points
It is proposed that a designated contact point to facilitate communications between

the parties on any matter covered by the proposed Agreement be established.
184
8.5
Dispute Settlement
An FTA between Sri Lanka and China would include a mechanism for settling
disputes concerning the application and interpretation of the agreement. This
mechanism could foresee consultations with a view to finding amicable solutions
before recourse may be taken to arbitration.
185
9 Conclusions and Recommendations

This study aims at examining the effects of China-Sri Lanka FTA on the consolidation
and development of bilateral economic and trade relationship. The following
conclusions and suggestions are made by the Joint Study Group of both sides.
9.1
General Conclusions
The study indicates that there are differences in the economic and industrial
structures and production scale between Sri Lanka and China. The China-Sri Lanka
FTA will result on both sides in additional growth of GDP, increased welfare and
exports. Overall, the FTA which is consistent with WTO rules, with a scope covering
trade in goods, trade in services which will be identified and agreed by both sides,
investment and economic and technical cooperation, will bring China and Sri Lanka
substantial economic and trade benefits and strengthen bilateral economic and trade
relations with a mutually beneficial result.
9.2
9.2.1
Sector Specific Conclusions

Trade in Goods
The study identifies and analyzes tea, rubber products, fish and fisheries products,
textile and clothing, coconut products, gems and jewellery, fruits and vegetables,
machinery and electronics as specific products and highlights that the FTA would
facilitate the increase of bilateral trade in these products for which purpose
appropriate modalities be identified. However, the future China-Sri Lanka FTA
negotiation will not be limited to the afore-mentioned specific sectors.
The study concludes that liberalization of trade in goods will benefit and promote the
development of industries in both countries. Given the different tariff rates and
structures, and different industrial structures between China and Sri Lanka, the
benefit of a FTA would not be equally shared by all stakeholders, as a few sectors
could be sensitive. Both sides should recognize the reciprocal principle and mutual
benefit in the FTA, fully take into account interests and sensitivities of each side, and
contribute to the establishment of free trade relations in the future China-Sri Lanka
FTA.
186
9.2.2
Trade in Services
This study reveals that trade in services has become an important component of
Chinas foreign trade and could become an important component in certain sectors in
bilateral trade between China and Sri Lanka. Based on the commitments in WTO,
both sides could consider improving commitments in service sectors and appropriate
modes of services supply. This will promote the bilateral trade in services between
China and Sri Lanka.
9.2.3
Cooperation in Other fields
The study also discussed the possible cooperation in electronic commerce,

development of SMEs, trade and investment facilitation, industrial cooperation,
economic development zone cooperation etc. All of these are beneficial to strengthen
bilateral economic and trade cooperation between China and Sri Lanka.
9.2.4
Investment
The study also identified specific sectors for promotion of investment for which
appropriate modalities should be considered for implementation.
9.3
Recommendations
This study shows that the FTA will be conducive to both countries economic
development and social welfare improvement. To ensure the interests of both sides
and consolidate the friendly relationship and bilateral economic ties, the joint study
proposes to launch negotiation on a FTA as soon as possible. The future negotiations
should take into accounts the interests and sensitivities including differences in
economic and industrial structures of both sides and make flexible arrangements
to achieve balance of interests and win-win situation. Both sides should, at the
beginning of future negotiation, further specify the final liberalization level, and items
including the negotiation schedule at each phase and the product coverage. It is also
recommended to commence the negotiations as per the agreed roadmap on the FTA
between China and Sri Lanka covering trade in goods, trade in services which will be
identified and agreed by both sides, economic cooperation and investment, in order to
secure benefits and elevate trade relations to new heights that would build upon the
long and warm relationship between the two countries.
187
Annex I Partial Equilibrium Method

1. The Theory of Customs Union
The theory of customs union represented by J. Viner argued that tariff concession
resulted by trade integration will make trade creating effect among members of
customs union and trade diverting effect among outsiders of the union.
2. Partial Equilibrium Analysis/Comparative Experiments
(1)Calculation of trade creating effect
Application of trade creating effect model
It indicates trade creating effect of product j imported from country s to country r under
a FTA.
means import volume of product j from s to r;
between domestic product j and imported product j;
means elasticity of substitution

means import tariff currently
imposed on product j by country r.

(2)Calculation of trade diverting effect
Application of trade diverting effect model
It indicates trade diverting effect of product j imported from country s to country r

under a FTA.
means import volume of product j from s to r;
of substitution among different importing destinations;

imposed on product j by country r.
(3)Result of comparative experiments
X: possible value after establishment of a FTA;
188
means elasticity
means import tariff currently
I: original value of import;

C: trade creating value of import;
D: trade diverting value of import.
X=I+C+D
189

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Joint Feasibility Study on

a China-Sri Lanka Free Trade Agreement

July 01, 2014

1.1 Background and Objective of the Study ....................................................................... 1

2.1 Chinese Economy and Foreign Economic Policy ......................................................... 4

Overview of Bilateral Trade and Economic Relations ................................................. 25

Overview of Trade Policies Applying to Trade in Goods ............................................. 54

Trade in Services ................................................................................................... 146

5.1 Overview of Trade Policies Applying to Trade in Services ........................................ 146

Investments ............................................................................................................ 159

6.1 Investment Policies of China and Sri Lanka ............................................................. 159

Strengthening Bilateral Economic Cooperation in Key Areas ............................ 174

7.1 E-commerce ............................................................................................................ 174

General and Institutional Provisions, Dispute Settlement .................................. 184

General Provisions ................................................................................................... 184

Conclusions and Recommendations.................................................................... 186

9.1 General Conclusions ................................................................................................ 186

TOP EXPORTS OF CHAPTER 03 TO CHINA BY SRI LANKA ..................................................... 90

IMPORTS TO SRI LANKA FROM CHINA (CHAPTER WISE) - IN 2012 ....................................... 33

Background and Objective of the Study

Objectives of the Study*

To provide background information to commence negotiations on CSFTA.

Identify specific products sectors for expansion and diversification of trade

Identify specific areas for enhancement of investments and economic

To make conclusions and recommendations on options for future action

The Scope and Structure of the Study

The Structure of the Study

The other chapters of the study have the following structure:

2 Overview of the Chinese and Sri Lanka Economies and

Chinese Economy and Foreign Economic Policy

National Bureau of Statistics of China, http://www.stats.gov.cn/tjgb/ndtjgb/qgndtjgb/t20130221_402874525.htm

Source: China Statistical Yearbook 2002 2013.

Foreign Direct Investment

Growth Rate (%)

Growth Rate (%)

Source: National Statistics Bureau of China.

Chinese Foreign Economic Policy

Policy of Trade in Goods

FDI in this table refers to non-financial FDI.

Policy of Trade in Services

WTO Document, GATS/SC/135, 14 February, 2002

adopted Regulations for the Administration of the Registration of Foreign-invested

Chinas FTA Practice

The Main Contents

The Main Contents

The China Iceland FTA

The China Swiss FTA

The Main Contents

The Main Contents

Sri Lanka Economy and Foreign Economic Policy

Unemployment (% of Labour Force)

National Production & Growth

US$ 59.4 Bn.

GDP Per Capita

GDP Growth Rate

US$ 9,774 Mn.

US$ 19,183 Mn.

Source : Central Bank of Sri Lanka

Global Competitiveness Index (142 Countries)

Human Development Index (186 Countries)

Logistic Performance Index (137 Countries)

Global Food Security Index (105 Countries)

Value (US$ Mn) As Share of GDP (%)