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Overcoming Obstacles: The Economic Case for a Sri Lanka-Thailand FTA

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By Asanka Wijesinghe and Nilupulee Rathnayake

In 2019, only 6 % of tea imported by Thailand was from Sri Lanka. This low percentage can be attributed to the difference in preferences and Thailand’s high tariffs of 90 % on imported tea, which act as barriers to Sri Lanka’s tea exports. Additionally, Thailand imposes up to 30 % tariffs on nearly 120 product lines of wearing apparel.

These high tariffs for products with a comparative advantage are not exclusive to Sri Lanka. Thailand also faces higher tariffs for vehicles, rubber, and light-electronics exports which Thailand exports competitively. This tariff structure hampers the bilateral trade of products with a higher comparative advantage for both countries.

Despite these challenges, Sri Lanka and Thailand have expedited the process of signing a free trade agreement (FTA) to boost bilateral trade by threefold to USD 1.5 billion. This article discusses the trade effect of an FTA and a way forward to maximise the gains from an FTA.

Existing Trade is Skewed towards Thailand

In the pre-pandemic period, Sri Lanka-Thailand bilateral trade was nearly USD 500 million. The three-year-2017, 2018 and 2019- average exports from Sri Lanka to Thailand were USD 62.9 million, while the exports from Thailand to Sri Lanka were USD 416.8 million. In 2019, Thailand was the 9th largest import source for Sri Lanka, but Sri Lanka is only the 73rd largest import source for Thailand. The mismatch resulted in a bilateral trade deficit of USD 353.9 million.

The existing exports from Sri Lanka to Thailand do not represent Sri Lanka’s typical export basket. The contribution of traditional exports like ready-made garments, tea, rubber, and coconuts is relatively low, and gems, electrical equipment, wheat flour, and activated carbon contribute to a greater extent. Technically specified natural rubber and latex are the top exports from Thailand which are essential raw materials in the value-added rubber industry of Sri Lanka.

Effect of Lowering Tariffs on Bilateral Trade to Zero

As estimated from partial equilibrium analysis, Sri Lanka will realise a 38 % increase in exports to Thailand if tariffs are reduced to zero (Figure 2). The wearing apparel sector would be the biggest beneficiary, with exports projected to increase by 251 % from USD 6.4 million to USD 22.5 million. Figure 3A provides the top ten exports by Sri Lanka benefitting from a tariff removal by Thailand. The export effect for Thailand will be 27.8 % and Thailand’s rubber and plastic products will be increased by 71.9 % or USD 35.4 million. Products such as smoked sheets of rubber and natural latexwould benefit the most from tariff elimination, as shown in Figure 3B.

Assuming an immediate phasing-out of the existing tariffs, an FTA would increase bilateral trade to USD 619.6 million by 29.1 %. This increase falls short of the ambitious goal of a threefold increase in bilateral trade, at least in the short run.

However, partial equilibrium analysis does not estimate the trade gains from new product innovations due to FDI movements. The estimates also do not account for trade effects through input-output linkages and magnification of tariff effects along the value chains. However, tariff phasing out takes time, and FTA coverages are less than 100 %.

An offensive list contains products for which a country has a comparative advantage, capacity for expansion, and a favourable tariff from the importing country. There are 154 such products for Sri Lanka. Notably, 81 % of the USD 27.6 million export gain from an FTA comes from these 154 product lines. Similarly, 69 % of Thailand’s export gains to Sri Lanka in an FTA comes from 147 products identified for the offensive list.

Once ordered by the estimated export gains, nine out of the top ten products of Sri Lanka’s offensive list are from the wearing apparel sector. For Thailand, vital offensive products are rubber, electric equipment like air-conditioners and refrigerators, and motor vehicles for goods transportation.

Challenges and the Way Forward:

Applying tariff cuts for all the products in the offensive lists is a challenge. Thailand’s high tariffs for tea and ready-made exports indicate its protectionist intent. Likewise, Sri Lanka might prefer to keep tariffs on rubber products. Significant political manoeuvring and delicate negotiations will be required to bring the coverage of the FTA to a satisfactory level. Secondly, an FTA will widen Sri Lanka’s trade deficit with Thailand by 26 % (Figure 4). Although a trade deficit is not necessarily detrimental, it does present a short-term challenge due to increased dollar outflow.

A possible solution is tariff elimination for the products in bilateral value chains. Sri Lanka uses Thailand’s rubber and textile products to produce finished goods. If Thailand removes tariffs for these finished products, increased exports will demand more raw materials. Sri Lanka can reciprocate by eliminating tariffs on raw materials. Phasing-in of the FTA, accounting for required adjustments, will also increase the political feasibility.

Strengthening bilateral trade ties with Thailand offers additional benefits to Sri Lanka. An FTA provides an opportunity to join electric equipment manufacturing value chains and a gateway to ASEAN economies. Thus, Sri Lanka should negotiate a comprehensive trade agreement with investment promotion, trade facilitation, and competition laws. Thailand can leverage Sri Lanka’s position as a distributional hub for regional exports.

Link to Talking Economics blog:

https://www.ips.lk/talkingeconomics/2023/05/11/overcoming-obstacles-the-economic-case-for-a-sri-lanka-thailand-fta/ 



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SLEIS 2026 to examine how Sri Lanka can strengthen its place in Asia’s growth networks

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Ambassador Akio ISOMATA / Chathuranga Abeysinghe / P.D. Singh

As Asia continues to account for a growing share of global economic activity, Sri Lanka faces an important opportunity to strengthen its links with regional trade networks, supply chains and economic corridors. How the country can make better use of these connections to attract investment, expand trade and strengthen its position in regional value chains will be among the key questions at the Sri Lanka Economic & Investment Summit 2026, organised by The Ceylon Chamber of Commerce on 12-13 October 2026.

Titled “Linking Sri Lanka to Asia’s Growth Networks: Trade, Corridors, and Value Chains,” the session will examine the opportunities for Sri Lanka to deepen its integration with the wider Asian economy and build stronger connections with regional and global markets.

The session keynote will be delivered by P.D Singh – Chief Executive Officer, India and South Asia, Standard Chartered Bank. He will be joined for a panel discussion by Chathuranga Abeysinghe – Deputy Minister of Industry and Entrepreneurship Development, Akio ISOMATA – Ambassador of Japan to Sri Lanka, MASAAKI Kawabata – Chairman – Toyota Lanka (Private) Limited, and Ravi Jayawardena – Group Chief Executive Officer-Maliban Biscuits (Private) Limited. The session will be moderated by Ms. Subhashini Abeysinghe – Research Director- Verité Research.

For Sri Lanka, stronger regional integration can open opportunities beyond traditional export markets. Greater participation in regional supply chains, improved trade connectivity and closer links to economic corridors can support investment in areas such as logistics, manufacturing, export services and other sectors connected to international production networks.

The discussion will consider what Sri Lanka needs to do to strengthen its position within these networks, including improving trade connectivity, attracting investment and creating a business environment that enables companies to participate more effectively in regional and global value chains.

It will also look at the experience of businesses and international institutions operating across the region, providing perspectives on how companies assess markets, build supply chains and identify locations for investment. With supply chains and investment flows increasingly shaped by regional connectivity, the session will also consider the partnerships and strategies needed to position Sri Lanka as a more competitive participant in Asia’s growth networks, while creating opportunities for trade, investment, innovation and economic growth.

The session will form part of the second day of SLEIS 2026, held under the theme “Positioning Sri Lanka in a Changing Global Economy: Resilience, Reform, and the Future of Economic Policy.”

The Sri Lanka Economic & Investment Summit 2026 is supported by its valued sponsors and partners. Platinum Sponsor – Standard Chartered Bank Sri Lanka, Gold Sponsor – VISA Worldwide (Pvt) Ltd., Bronze Sponsor – South Asia Gateway Terminals (Pvt) Ltd., Strategic Development Partner – Asian Development Bank, Telecommunication Partner – Dialog Telecommunication, Television Partner – Dialog Television, Session Sponsors – David Pieris Motor Company (Pvt) Ltd., Hemas Holdings PLC, Sunshine Holdings PLC, International Construction Consortium (Pvt) Ltd., Official Logistics Partner – Hayleys Advantis Limited, Official Airline – SriLankan Airlines Ltd., Official Hospitality Partner – Shangri-La Colombo, Airline Partner – China Eastern Air Holding Co. Ltd.

Registrations are now open at https://sleis.chamber.lk/. For more information, contact Alikie on 011 558 8805 (alikie@chamber.lk) or Shanuka on 0701082541 (events.division@chamber.lk).

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AAC launches seat belt safety awareness initiative with RDA Colombo

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The Automobile Association of Ceylon (AAC), in collaboration with the Road Development Authority (RDA) and Police – Traffic Division, will conduct a special Road Safety Awareness Programme to promote the importance of wearing seat belts in vehicles specially on the express highways in order to reduce road fatalities and serious injuries.

The official handing-over ceremony took place at the Chairman’s Office of the Road Development Authority on 14th September 2026, where specially designed Seat Belt Safety Hanging Tags & Stickers prepared by the Automobile Association of Ceylon were handed over to the RDA for distribution to motorists at entry points to the expressways.

The initiative is being conducted in connection with the seat belt law coming into effect on 19th September 2026 and is intended to create greater public awareness of the importance of wearing seat belts in both the front and rear seats of vehicles.

Representing the Automobile Association of Ceylon at the ceremony Dhammika Attygalle, President; Prasanna De Zoysa, Sectional Chairman – Road Safety; and Devapriya Hettiarachchi, Secretary, Senior Superintendent of Police -Traffic Sisira Peththrathanthri, participated in the programme.

The Automobile Association of Ceylon has consistently maintained that road safety is one of its foremost priorities. Through awareness campaigns, educational programmes and collaboration with government authorities and other stakeholders, the Association continues to encourage responsible driving and safer behaviour among all road users.

AAC believes that the proper use of seat belts, including by rear-seat passengers, is a simple but vital safety measure that can help reduce serious injuries and save lives in the event of a road crash.

The programme further strengthens the cooperation between the Automobile Association of Ceylon, the Road Development Authority and the Police in their shared commitment towards safer roads and saving lives in Sri Lanka.

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Sanath Jayasuriya as Brand Ambassador

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Mr. Dasun Wickramarathna, Chairman Global Housing & Real Estate (Pvt) Ltd with Sanath Jayasuriya, World Renown Personality & Brand Ambassador

Global Housing & Real Estate (Pvt) Ltd (GHR) has announced a landmark partnership with Sri Lankan cricket legend Sanath Jayasuriya, as its Brand Ambassador as GHR enters a new chapter in its journey within Sri Lanka’s luxury real estate sector.

The partnership was officially unveiled at a press conference held at Cinnamon Life, Colombo, on 14 September 2026, bringing together industry leaders, investors and members of the media under the theme “Two Gamechangers, A New Beginning.”

The collaboration brings together two names associated with challenging convention in their respective fields: Sanath Jayasuriya, whose fearless approach transformed the dynamics of international cricket, and GHR, which has sought to introduce new approaches to property investment and luxury living in Sri Lanka.

Over the past two decades, GHR has built its presence in Sri Lanka’s real estate sector with a focus on quality, structural integrity and long-term investment value.

A significant milestone in the company’s journey came in 2016, when GHR introduced the hotel residency concept to the Sri Lankan market. The model brought together luxury hospitality and real estate investment, creating opportunities for property ownership with the potential to generate investment returns while contributing to the growth of the country’s high-end tourism offering. GHR has since continued to expand its portfolio across key destinations in Sri Lanka.

Speaking at the announcement, Dasun Wickramarathna, Chairman of Global Housing & Real Estate (Pvt) Ltd, said, “For over twenty years, Global Housing & Real Estate has strived to push the boundaries of what property development can achieve in Sri Lanka. As pioneers who introduced the hotel residency concept back in 2016, our mission has always been clear: to provide high-yield investment opportunities for our clients while taking Sri Lanka’s condominium industry into a new frontier.”

Commenting on the decision to partner with Sanath Jayasuriya, he added, “When looking for a voice to represent GHR’s ethos, Sanath Jayasuriya was the natural choice. Just as Sanath disrupted traditional international cricket and redefined how the world viewed the opening overs, GHR challenged traditional approaches to real estate and established a new benchmark in luxury living. This partnership represents a true convergence; Two Gamechangers, A New Beginning.”

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