Trading Policy Options
By Srimal Fernando
Greater economic integration within the Asia-Pacific region began coming into being some years ago with the formation of several regional groupings.
In the trade realm the combined effort by the regional blocs has necessitated the three regional blocs Association of Southeast Asian Nations (ASEAN), South Asian Association for Regional Cooperation (SAARC) and Regional Comprehensive Economic Partnership (RCEP) to develop a framework for an Asia-Pacific regional order. Due to unprecedented impacts of COVID-19, Small Island nations such as Sri Lanka have to balance their commerce policies based on its interdependencies with its neighbouring Asia Pacific realm nations. The nature of Sri Lanka’s involvement with Asia-Pacific nations has varied with time as the national interest has gone through different stages of evolution. The growing traction between these rising regional groupings and the Indian Ocean Island Nation is driven by their foreign policy oriented towards utilising this mutual interdependence for strategic gains.
As an island Nation, renewed economic policies will play a significant role in promoting the economic development of Sri Lanka. To this end, Sri Lanka’s economic policy must be aligned to enhance the Nation’s economic interests while ensuring that its engagement in other regional groupings such as ASEAN and RCEP does not compromise its relations with SAARC. In the 21st century, the power matrix between bigger groupings such as the 15 member RCEP or the 10 member ASEAN and the smaller groupings will determine the paradigm shift in the global order. The evolving geopolitical and economic problems facing the Asian Pacific countries, in general, will also prompt Sri Lanka to forge closer ties with India.
In recent years SAARC has emerged as a key trading platform for Sri Lanka. Under its South Asian Free Trade Area (SAFTA) agreement, Sri Lanka's trade with its neighbours has expanded generously, giving the Island Nation more extensive admittance to South Asia’s 1.6 billion consumer market. From an economic perspective, trade relations between Sri Lanka and SAARC are a major aspect that has propelled the shaping of foreign policy through mutual dependence. SAFTA and the Indo-Sri Lanka Free Trade Agreement (ISFTA) provided an impetus to commercial diplomacy. The most notable economic progress in the region has been made in the sphere of small and medium enterprises (SMEs). However, the lack of significant Foreign Direct Investments (FDIs) in some of the South Asian countries is slowing down economic growth. In this regard, Regional trading platforms like SAFTA the ASEAN Free Trade Agreement (AFTA), and RCEP are some of the platforms that Sri Lanka can leverage to access Asia-Pacific consumer markets.
For Sri Lanka, ASEAN is key to the major goal of tapping into the East Asian markets and establishing a commercial relationship with East Asian countries. From the time of the Bandung Summit of 1955, Sri Lanka’s relationship with Southeast Asian countries has been strong. In recent years, ASEAN has played a prominent role in building this partnership to grow further. Mutually beneficial agreements between India and ASEAN such as the ASEAN-India Free Trade Area (AIFTA) are also bringing Sri Lanka closer to ASEAN. This will go a long way in influencing the future roles of both India and Sri Lanka’s newfound regional commercial partners in East Asia.
Maritime cooperation between Sri Lanka and the 15 member RCEP countries will be a game-changer in Sri Lanka’s quest to maintain its stability in the region and also for its economic prosperity. It is this coincidence of strategic interests that would steer future dynamics between Sri Lanka and other RCEP Member States. At the same time, RCEP nations provide Sri Lanka with access to huge markets and are indispensable for its port diplomacy.
Just like in other countries worldwide, the COVID-19 pandemic has a significant impact on Sri Lanka’s economy. Given the nature of the pandemic, countries such as Sri Lanka are forced to seek national responses for managing its impact. Importantly, the efforts of regional groupings offer important platforms ensuring that countries heavily dependent on exports like Sri Lanka can recover from the economic impacts of the pandemic. Such regional groupings and arrangements are a shining beacon of hope for the Sri Lankan economy amidst the economic despondency.
Importantly, the Prospects of cooperation between Sri Lanka, ASEAN, RCEP and India will depend on how they choose to strengthen the existing power matrix. It is also imperative for policymakers to think beyond and make trade transactions smoother and business-friendly for Sri Lanka and both these regional groupings geographically situated in South East Asia and Oceania.
Dr. Srimal Fernando is a recipient of the prestigious O.P Jindal Doctoral Fellowship and the SAU Scholarship under the SAARC umbrella. He is also an Advisor/Global Editor of Diplomatic Society for South Africa in partnership with Diplomatic World Institute (Brussels). He has received accolades such as 2018/2019 ‘Best Journalist of the Year’ in South Africa, (GCA) Media Award for 2016 and the Indian Council of World Affairs (ICWA) accolade. He is the author of ‘Politics, Economics and Connectivity: In Search of South Asian Union’