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The best that never was: Sri Lanka-Japan Free Trade Agreement

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A need for a Free Trade Agreement (FTA) with Japan was proposed by the Sri Lankan exporters around 2010. At that time, Sri Lanka’s Department of Commerce, the main government agency responsible for the trade negotiations, also strongly favoured negotiating an FTA with Japan for a number of reasons.

The lack of a level playing field in Main Markets

By then, much of our export growth had come from two advanced economies; the European Union and the United States, which together accounted for more than half of our exports. In those markets, after the end of the quota arrangement for apparel exports, Sri Lanka’s competitiveness was getting eroded due to the absence of a level playing field. In the U.S. and EU, most of our competitors from Asia, Africa and the Americas were enjoying much better levels of market access through FTAs and other trade arrangements.

Our requests to Brussels and Washington for FTAs, since 2001, did not get any favourable response. In Washington, even after the U.S Administration turned down the request, the Sri Lankan embassy spent a large amount of money on consultants who promised FTA. But that too turned out to be simply a waste of money. After turning down the request for an FTA, Brussels offered an alternate arrangement to provide a better level of market access through GSP (labour), which was later upgraded to GSP Plus. But that too had run into problems by 2010.

The need for Market Diversification

Because of these developments, we at the Department of Commerce knew it was critically important to diversify our markets. In this regard, one of the most appropriate markets to focus on was Japan, the third largest developed country market and a sincere friend with close political and cultural ties with Sri Lanka, since independence. Japan was also closely involved in the post-conflict economic reconstruction activities to which she contributed generously. By 2010, Japan had concluded a number of FTAs with South East Asian countries.

These included, among others, Economic Partnership Agreements with Malaysia in 2006, Thailand in 2007 and Vietnam in 2009. Japan was also in negotiations for FTAs with a number of other countries, including India. In December 2005, Japan announced duty-free, quota-free (DFQF) market access to products from the least developed countries (LDCs). As a result, Asian LDCs were slowly increasing their exports to Japan. In addition to that, Japanese investors were also moving into those countries with enhanced market access. Consequently, Sri Lanka was becoming further marginalised in that important market.

Lanka proposes FTA with Japan

Then, in July 2010, a newspaper reported that Sri Lanka had proposed an FTA with Japan (“Lanka proposes FTA with Japan –Ready to consider, says Japanese Trade Minister”; Daily News 31 July 2010). According to this news report, a high-level ministerial delegation consisting of External Affairs Minister Prof G L Peiris and Economic Development Minister Basil Rajapaksa had visited Tokyo and had formally requested Japan to consider entering into a Free Trade Agreement with Sri Lanka and the Japanese Economy, Trade and industry Minister Masayuki Naoshima had responded to the request in cautiously positive manner and had reportedly stated that “The Government of Japan in keeping with the policy of Prime Minister Naoto Kan’s administration is prepared to engage in consultations with regard to a Free Trade Agreement (FTA) between Sri Lanka and Japan.

” After the delegation returned to Sri Lanka, the Department of Commerce was expecting a formal report on the ministerial discussions, to initiate the preparatory work for negotiations. After a few weeks, as we did not receive any reports on the meeting, we asked the Embassy in Tokyo for a report and also made inquiries from other government agencies. All that did not result in any meaningful response.

However, keeping to their words, Japan began to engage in an FTA. A short time later, the Japanese Embassy in Colombo arranged a presentation by a prominent Japanese academic on Japanese Free Trade Agreements. It was held at the Central Bank auditorium in Rajagiriya.

The night before that, the Japanese Ambassador organized a dinner at his residence for a selected group of senior Sri Lankan officials and academics to meet the visiting scholar. Among those present were the key official responsible for economic and financial matters of the country at that time and a professor who was also an economic advisor to the government. Through pre-dinner drinks, we discussed the impact of the FTAs on other Asian countries and the possibility of initiating FTA negotiations between the two countries. During the discussion, the professor strongly challenged the need for negotiating FTAs in general and one with Japan in particular.

Then the key official brusquely stated that “no one in Sri Lanka is interested in an FTA with Japan!” On the next day, during the presentation on the Japanese FTAs, senior officials of the Central Bank and the Finance ministry and many other relevant agencies were conspicuously absent. After that, it was difficult to move forward with that initiative any further.

A year later, in June 2011, Japanese Ambassador Kunio Takahashi met Minister of Industry and Commerce Rishad Bathiudeen and when the prospect of a Free Trade Agreement (FTA) between Sri Lanka and Japan came under discussion, the ambassador very diplomatically responded by saying “The idea that an FTA with Japan will help Sri Lanka contribute to Lanka-Japan bilateral trade dialogue.” More important message on the FTA was conveyed to Mr Bathiudeen by the visiting Japanese Senior Vice Minister of Economy, Kazuyoshi Akaba in July 2014. That message was that “conclusion of FTAs alone is not sufficient for better trade. What is important is to develop a very robust foundation among the two countries”.

RW opts for FTAs with Singapore and Thailand

After the political changes in 2015, the Sri Lanka-Japan Business Co-operation Committee once again started to lobby for an FTA between Sri Lanka and Japan. Unfortunately, the government opted to negotiate an FTA with Singapore as a priority. After the change of government in 2019, prospects for an FTA totally diminished and almost totally evaporated after the unilateral cancellation of the $ 1.5 billion Japan-funded light rail transit project.

However, even after that, according to news reports, Katsuki Kotaro, Deputy Head of the Japanese Embassy in Colombo, has indicated that Japan may be interested in an FTA with Sri Lanka to increase bilateral trade between the two countries. But unfortunately, Ranil Wickremesinghe, who became the president in July 2022 and visited Japan in May 2023, didn’t take any initiative in this regard. Instead, he preferred to focus on an FTA with Thailand.

Lost Opportunity

It is difficult to understand why the government was reluctant to enter into consultations with Japan on an FTA during the last fifteen years, particularly because Japan was the only developed economy that responded favourably for an FTA, albeit with some reservations. But then it is more difficult to understand why the government unilaterally cancelled the $1.5 billion Japan-funded light rail transit project. It is also difficult to estimate the real cost for Sri Lanka from these decisions which were made by a small group of people. However, it is very clear that Sri Lanka certainly did not benefit from some of the initiatives the Japanese governments have taken in recent years, to help Asian countries.

For example, the package of incentives extended to Japanese companies to shift production out of China. As a result, those investments went to other countries in the region and exports to Japan from those countries expanded significantly. The table below illustrates how some of our competitors in the region with export baskets similar to that of Sri Lanka; Vietnam, Cambodia, Bangladesh and Myanmar, managed to expand their exports during the last fifteen years. (See Table)

In 2003, exports to Japan from Sri Lanka (US$194 million) were much more than those from Cambodia (US$ 89 million), Myanmar ($138 million) or Bangladesh (US$131 million). But exports from those countries have expanded significantly since 2010 due to the trade and economic policies those countries adopted.

Cambodia’s exports to Japan increased from 89 million in 2003 to US$ 2.1 billion by 2024. Sri Lanka’s exports increased only from US$194 million to US$ 258 million during the same period. Bangladesh’s exports crossed the US $1.5 billion mark in 2024. That was from US$131 million in 2003. This explains how much Sri Lanka suffered due to bad decisions made by few individuals.

To add insult to injury, since 2022, Bangladesh’s capital Dhaka has a shiny new Metro Rail System, a project largely funded by Japan. Colombo’s Japanese-funded Light Rail Transit (LRT) Project was to be completed mid-2024. Unfortunately, both the FTA and LRT were sabotaged by a few of our key decision makers.

(The writer, a retired public servant and a diplomat, was the Director General of Commerce from July 2009 to November 2011. He can be reached at senadhiragomi@gmail.com)

by Gomi Senadhira ✍️



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Features

The challenge of being positive about SAARC

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The RCSS forum addressed by SAARC Secretary General Ambassador Md. Golam Sarwar in progress. (Pic courtesy RCSS)

It was a few years back that a former President of Sri Lanka took it on himself to pronounce SAARC ‘dead’. Since then there have been other sections of Sri Lankan opinion that have joined the critics of SAARC and taken the solemn stance that SAARC has indeed died what may be called a natural death.

Their fatalism is understandable. SAARC has failed to meet at heads of government or state level for the past several years to take the SAARC process notably forward. Regional cooperation has more or less been only an appealing idea. No substantive concrete projects have taken off to make the idea a hard reality. ‘Inner paralysis’ seems to be SAARC’s lot. Hence the fatalism in these circles.

However, being one of the worst cash-strapped regions of the world and a teemingly populated one with people virtually left to their devices, what choices do the ‘SAARC Eight’ have other than to try their best to band together and continue with their cooperation efforts, however small they may be?

There is no escaping the mounting debt trap for many of these countries and bankrupt Sri Lanka is a glaring example, but ‘throwing in the towel’ and abandoning themselves entirely to the diktats of the strongest economies and their agencies will prove a ‘living death’ for many countries in the SAARC fold.

The gains may be meagre but giving-up on SAARC cooperation in full would prove self-defeating for the organization and South Asia. Right now, the collective intention ought to be to salvage what the region could from the tenuous cooperative efforts. Moreover, such initiatives could go some distance to generate a degree of goodwill among the Eight and help in sustaining a dialogue process.

Given this backdrop it proved ‘a stich in time’ for the Regional Centre for Strategic Studies (RCSS), Colombo, to recently host the SAARC Secretary General Ambassador Md. Golam Sarwar to a round table discussion on the unifying potential of SAARC and its future possibilities, besides other related issue areas.

Held on June 24th and moderated by RCSS Executive Director and former ambassador Ravinatha Aryasinha, the forum brought together a vibrant, wide ranging audience comprising academicians, diplomats, senior public servants, civil society activists and many others. Following the presentation by Ambassador Golam Sarwar titled, ‘Reigniting SAARC: Achievements, Challenges and the Way Ahead’, a lively Q&A followed.

The above forum could be described as an act of lighting the proverbial ‘candle’ rather than ‘cursing the darkness.’ It surely is a ‘darkness’ that could be seen as daunting considering that the region’s pivotal powers, India and Pakistan, are failing to act in a spirit of accord but are engaged in bitter finger-pointing on a number of questions of vital importance to SAARC.

On the other hand, what is the rest of the region doing to bring the above sides together? It is disappointing that to date the rest of SAARC has failed to launch a major diplomatic drive to bring peace between the feuding regional heavyweights. It needs to act without delay and establish its earnestness and this effort would need to prove SAARC’s staying power in the unfolding months and even years.

In assessing SAARC’s seeming failure local opinion in particular has failed to factor in what could be described as weak leadership. Since Sheikh Mujibur Rahman of Bangladesh, the founding father of SAARC, the region has failed to produce a visionary leader who could advance the SAARC cause with charisma and drive.

Among other reasons, weak leadership accounts considerably for the faltering and stuttering status, as it were, of SAARC. Badly needed are leaders who could go the extra mile, think less of narrow national interests and work diligently towards the collective well being of the region but SAARC’s millions of ordinary people have been made to wait in vain for leaders of such stature. Instead, they have been burdened with politicians who seem to be relishing the apparently moribund state of SAARC.

Looking back, it could be said that it was the dynamic leadership factor that led to the launching of the Non-Aligned Movement and for its sustenance for a few decades. True, it could be seen in some quarters that NAM is no more, but as in the case of SAARC, the former too has been unfortunate to be burdened over the years with politicians who lack the vision and drive to unflaggingly advance the fortunes of the South. NAM and SAARC lack the dynamism and vision of leaders of the stature of Jawaharlal Nehru, for example, to give them the required guidance and intellectual depth.

The reasons are complex for there not being among us currently political leaders with the vision and the steadfast commitment to advance the legitimate interests of the South. However, it could be stated with conviction that the majority of Southern leaders have too easily caved in to the demands of the global North and its financial agencies.

These leaders have failed to see, for instance, that the largely market economy oriented Northern governments would not view with favour a centrist economic model that attaches priority to the interests of the dis-empowered publics of the South. This realization ought to have dawned on the current government in Sri Lanka, for instance, some while ago but it has no choice but to abide by IMF dictates since economic survival at present is unthinkable without the latter’s succour.

Accordingly for SAARC this should be the time for some soul-searching. Priority needs to be attached to ending the feuding between India and Pakistan since at present the material fortunes of the region hinge largely on these regional giants giving peaceful relations among them a try. This is no easy challenge to meet but some daring, visionary diplomacy needs to take hold among the rest of SAARC.

There is some sense in SAARC bringing the peoples of the region together through programs that address their best collective interests. A meeting of minds among SAARC nations could enable SAARC and its agencies to build a region-wide people’s movement for progressive political and economic change that could in turn lead to the region’s political leaders sensitizing themselves more to the neglected needs of their publics.

However, the time is ‘now’ for the initiation of these progressive changes and the voice of SAARC well wishers would need to drown out those of their critics.

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OPA seminar examines Sri Lanka’s economic recovery, resilience and growth pathways

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(L to R) Dr Achinthya Koswatte, Anushan Kapilan, Dr Harsha Aturupane, Bhanu Wijeyaratne, Vice President, OPA and moderator of the discussion, and Eng Chamil Edirimuny, General Secretary, OPA, at the head table.

A seminar, “Sri Lanka’s Economic Crossroads: Navigating Recovery, Resilience and Growth” was recently held by the Organisation of Professional Associations of Sri Lanka (OPA) at the OPA Auditorium, bringing together economists, OPA members, and professionals from diverse fields for an insightful discussion on Sri Lanka’s economic recovery and future growth prospects.

The event was held under the patronage of Jayantha Gallehewa, President of the OPA, and was jointly organised by the National Issues Committee (NIC) and the Seminars, Workshops and Programmes Committee of the OPA. The event reaffirmed the organisation’s commitment to advancing professional excellence, fostering insightful intellectual engagement, facilitating interdisciplinary knowledge exchange and creating a constructive platform for informed dialogue on issues of national importance.

The panel of speakers comprised Dr. Harsha Aturupane, Lead Economist and Programme Leader for Human Development at the World Bank for Sri Lanka and the Maldives; Dr. Achinthya Koswatta, Senior Lecturer in Economics at the Open University of Sri Lanka, and Anushan Kapilan, Lead Economist at Verité Research.

In his welcome address, the President of the OPA emphasised that Sri Lanka was at a critical juncture in its economic recovery journey where sustained reforms, effective implementation, and collective national commitment are essential to achieving long-term stability, resilience and inclusive growth. He noted that the country had experienced one of the most severe economic crises in its history with the economy contracting by 7.8 percent in 2022 and a further 11.5 percent in 2023, resulting in significant economic and social challenges.

Delivering his introductory remarks Bhanu Wijeyaratne, Vice President of the OPA and Chairman of the National Issues Committee, underscored the need to move beyond short-term economic stabilisation towards a comprehensive agenda of structural transformation. He observed that the economic crisis had revealed deep-rooted weaknesses within the economy, including persistent fiscal pressures, rising public debt, foreign exchange limitations, and insufficient diversification of the export base. He stressed that addressing these challenges through strategic reforms, institutional strengthening and long-term economic planning would be essential to establishing a more resilient and competitive economy.

While acknowledging recent positive developments, including improved inflation management, tourism recovery and signs of economic stabilisation, Wijeyaratne stressed the need to advance reforms aimed at strengthening fiscal discipline, enhancing productivity, improving competitiveness, developing human capital and reinforcing governance and institutional effectiveness.

He further highlighted the important role of professionals, businesses, academia and other stakeholders in contributing to evidence-based dialogue and supporting Sri Lanka’s journey towards a resilient, inclusive and sustainable economic future.

Delivering the keynote presentation, Dr. Harsha Aturupane provided a comprehensive assessment of Sri Lanka’s economic prospects within the broader context of global economic transformation. He argued that Sri Lanka functioned as a small open economy whose performance is significantly influenced by developments in the global marketplace. External factors could not be controlled, and the country must strengthen its domestic capacity and resilience to respond effectively to international economic shifts, he noted.

Tracing the evolution of global economic systems, Dr. Aturupane highlighted the transition from ideological divisions between state-controlled and market-oriented economies towards increasingly pragmatic approaches focused on growth, competitiveness and development. He noted that Sri Lanka’s own economic journey reflects a similar evolution, with contemporary policy debates now centred on practical solutions for sustainable economic progress.

The presentation also examined the transformative impact of globalisation. Dr. Aturupane observed that global economic integration had enabled several East Asian economies, including South Korea, Singapore, Taiwan and Hong Kong, to achieve remarkable economic advancement through export-led growth strategies. Sri Lanka similarly benefited from this process through the expansion of its apparel industry and increased integration into global value chains.

Turning to Sri Lanka’s recovery programme, Dr. Aturupane emphasised that the ongoing stabilisation process should be viewed as a national programme supported by the International Monetary Fund rather than solely as an IMF initiative. He observed that strong worker remittances, improved tourism earnings, enhanced government revenue mobilisation and prudent import management have contributed significantly to economic stabilisation.

Despite this progress, he cautioned that rebuilding foreign exchange reserves and meeting future debt obligations remain major challenges. He underscored the need to strengthen export performance, attract investment and generate sustainable foreign exchange earnings to ensure long-term economic resilience.

The discussion also focused on monetary stability, inflation management and exchange-rate policy. Dr. Aturupane stressed that maintaining price stability was fundamental to sustainable growth and household welfare, while sound monetary policy remains essential for preserving economic confidence.

Looking beyond stabilisation, he argued that Sri Lanka must transition towards a broader economic transformation agenda. Sustainable growth, he noted, will depend on expanding productive capacity through investment, technological advancement, innovation, skills development and structural reforms.

Among the key constraints identified was the high cost of energy, which continues to affect competitiveness and investment attractiveness. Dr. Aturupane emphasised the importance of improving efficiency and affordability within the energy sector to enhance Sri Lanka’s business environment.

He further highlighted the social dimensions of the crisis, noting the rise in poverty and economic vulnerability among households. Strengthening social protection systems and ensuring inclusive growth, he argued, must remain central components of the national development agenda.

Another critical challenge identified was Sri Lanka’s demographic transition. With an ageing population, outward migration and evolving labour market dynamics, the country is increasingly confronting labour shortages in several sectors. Dr. Aturupane suggested that greater automation, increased labour-force participation and strategic workforce planning would be necessary to address these emerging realities.

Concluding his presentation, he emphasised the need to improve governance, strengthen institutions, enhance competitiveness and create an enabling environment for private sector investment. Sri Lanka’s future success, he noted, will depend on its ability to move decisively beyond crisis management towards a development model founded on resilience, innovation, productivity and inclusive growth.

Dr. Achinthya Koswatta reiterated the importance of policy consistency and predictability in fostering investment and industrial development. She observed that frequent policy changes create uncertainty and discourage long-term investment decisions, whereas stable and coherent policy frameworks build confidence and support sustainable economic transformation.

Meanwhile, Anushan Kapilan highlighted the substantial progress achieved in restoring macroeconomic stability following the recent crisis. He noted significant improvements in fiscal performance, including increased government revenue, reduced reliance on debt financing and a historically low fiscal deficit.

He further observed that public debt levels are declining faster than anticipated, economic growth has exceeded expectations and inflation has been brought under control more rapidly than forecast. Nevertheless, he cautioned that the recovery remains uneven, particularly within the industrial sector and that many households have yet to experience a meaningful improvement in living standards.

The seminar was expertly coordinated by Eng. Chamil Edirimuni, Vice President of the OPA and Chairman of the Seminars, Workshops and Programmes Committee, while the technical moderation and interactive discussion session were facilitated by Bhanu Wijeyaratne, Vice President of the OPA and Chairman of the National Issues Committee.

The event was attended by Tisara De Silva, President-Elect of the OPA, Eng. Ravi Rupasinghe, General Secretary, Past Presidents, members of the Executive Council, representatives of the General Forum and professionals representing a wide range of disciplines.

The seminar concluded with a vibrant exchange of ideas and perspectives, reaffirming the importance of evidence-based policy dialogue, institutional collaboration and collective national commitment in advancing Sri Lanka’s economic recovery, resilience and sustainable growth.

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Her roots run deep in Sri Lanka

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Samantha Kay: Now based in the UK Samantha’s biggest passion is helping people, especially women, build confidence and believe in themselves Today, her focus is on radio, podcasting and coaching women Whenever she visits Sri Lanka, she says she loves spending time on the beautiful south coast, especially Hikkaduwa and Mirissa She released a song with 90s music icon Angie Brown, which reached No. 9 in the UK Club Charts

Yes, for UK-based presenter and artiste Samantha Kay, home is where the heart – and the roots – are. And her roots run deep in Sri Lanka.

In an exclusive interview with The Island, Samantha says “I’m proud to be Sri Lankan. My mum is from Kandy and my dad is from Colombo, so Sri Lanka has always held a very special place in my heart.

“Whenever I visit Sri Lanka, I love spending time on the beautiful south coast, especially Hikkaduwa and Mirissa. It’s somewhere I always feel connected to my roots and completely at peace.”

Now living in Bournemouth, on the south coast of England, where, she says, she is lucky to be close to some of the UK’s most beautiful beaches, including the iconic Sandbanks, Samantha has built a career that refuses to fit into one box.

She is a radio presenter, podcast host, singer-songwriter, personal trainer and life coach.

“I genuinely love the variety because every role allows me to connect with people and, hopefully, make a positive difference in someone’s day.”

Of course, music has taken her far.

One of her proudest achievements, she says, was releasing a song with 90s music icon Angie Brown, which reached No. 9 in the UK Club Charts.

She also reached the final stages of The X Factor and performed at Wembley Stadium in front of thousands.

Beyond music, Samantha competed in bikini bodybuilding across the UK, winning several titles. “It taught me discipline, resilience and self-belief,” she recalls.

Today, her focus is on radio, podcasting and coaching women. Her podcast encourages people to live life on their own terms rather than feeling pressured to follow society’s expectations.

Says Samantha: “Whether someone is single, changing careers, travelling solo or simply trying to find their purpose, I want them to know that it’s never too late to create a life that feels authentic. If you’ve ever felt like you don’t fit into the box, maybe you were never meant to.”

Samantha Kay also spent a year in Dubai, performing at five-star hotels, including FIVE, and coaching at the iconic outdoor gym on Palm Jumeirah.

“I taught strength and conditioning classes, and hosted wellness retreats, combining my passion for music, health and inspiring others.”

However, with family matters calling her back to the UK, she made the choice to return. “Family comes first,” she says.

Looking ahead, Samantha plans to grow her radio and podcast work, release more music, and expand her wellness retreats.

“My biggest passion is helping people, especially women, build confidence and believe in themselves,” she says.

“Wherever my career takes me, I hope to continue inspiring others to live with courage, kindness and authenticity, while never forgetting my Sri Lankan roots.”

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