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‘Trade Policy Effects on Global Value Chain Participation of South Asian Countries: Implications for Bangladesh-Sri Lanka Trade Negotiations’

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A new IPS study offers empirical evidence that the gains from a preferential trade agreement between Bangladesh and Sri Lanka are modest and calls for a trade deal without the weaknesses in existing regional trade agreements.

The study finds that the overall effect of existing regional trade agreements is not positive while the impact on the food sector is negative. Moreover, the negative impact is not limited to the gross exports. The global value chain (GVC) components of exports are also negatively affected.

On average, the complete removal of the sensitive lists will generate 35% and 47% of additional exports for Bangladesh and Sri Lanka, respectively. However, the absolute value of exports- USD 2.1 million for Bangladesh and USD 24.5 million for Sri Lanka – is modest due to the low bilateral trade volume.

A new study conducted by the Institute of Policy Studies of Sri Lanka (IPS) offers empirical evidence that the gains from a preferential trade agreement between Bangladesh and Sri Lanka are modest and calls for a trade deal without the weaknesses in existing regional trade agreements. The study entitled ‘Trade Policy Effects on Global Value Chain Participation of South Asian Countries: Implications for Bangladesh-Sri Lanka Trade Negotiations’ is authored by Asanka Wijesinghe and Chathurrdhika Yogarajah.

The IPS study uses disaggregated export data into GVC components to identify the impact of tariffs and existing trade agreements in the South Asian region on trade. The gravity estimates show that the current level of tariffs hurt gross exports and GVC components of exports. In the food sector, border tariffs negatively affect the intermediate exports that will be processed and re-exported by the importing country. Notably, mixed results are obtained for the effect of RTAs.

When allowed to adjust trade costs by estimating the gravity models with data in intervals, a weak statistically significant positive impact of RTAs on intermediate agricultural exports is evident.

However, the effect of RTAs is strongly negative on all the components of food exports. The RTA effect is weakly significant and negative on GVC components of total trade. The study results imply an offsetting impact of general regulatory measures attached to the trade agreements. Thus, a future PTA between Bangladesh and Sri Lanka should have minimum regulatory measures-rules of origin (ROOs), sensitive lists, prolonged phasing-in- to achieve the agreement’s full potential.

The study also simulates the potential trade gains from eliminating the sensitive lists between the two countries under the South Asian Free Trade Area (SAFTA). The complete removal of the sensitive lists will generate 35% and 47% of additional exports for Bangladesh and Sri Lanka, respectively. However, the absolute value of exports – USD 2.1 million for Bangladesh and USD 24.5 million for Sri Lanka – is modest due to the low bilateral trade volume. Importantly, it will not be feasible to altogether remove sensitive lists due to political and revenue reasons. In addition, being a least developed country, Bangladesh may expect special provisions. Thus, the study identifies products that would maximise trade gains from partial tariff elimination in the final step.

Policy Implications

This IPS study implies that future trade agreements should be sans complex ROO, long sensitive lists, and prolonged phasing-in. In addition, general tariff cuts, instead of preferential tariff cuts, may generate higher trade gains. Significantly, the modest economic benefits from the complete removal of the sensitive lists weigh down on the economic rationale of a PTA. In addition, political and revenue reasons might reduce the scope and depth of a PTA. Thus, the study calls for selective negotiations for removing tariffs on intermediate goods such as dyed cotton and fabrics; cartons, boxes, and cases; plain woven fabrics of cotton; denim; natural rubber; and smoked sheets of natural rubber. The rationale for this approach is that the comparative advantage of both countries lies in the finished products that embed these intermediate products. A PTA can develop value chain participation utilising the scale economies and factor cost advantages.

Access the full report here: https://www.ips.lk/trade-policy-effects-on-global-value-chain-participation-of-south-asian-countries-implications-for-bangladesh-sri-lanka-trade-negotiations/



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Dialog Smart Home Enables Seamless Home Automation via Range of Intuitive Solutions 

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Dialog Axiata PLC, Sri Lanka’s premier connectivity provider, introduced a range of convenient and integrated solutions via ‘Dialog Smart Home’ to enable intelligent automation and intuitive control of homes.

The newly introduced range of future-fit smart home solutions by Dialog Smart Home ranges from Home Automation, Home Security & Surveillance and Home Connectivity, and are designed to enable any home to work as one harmonious system where all elements work in tandem together to create a truly intelligent home.

The Home Automation solutions offer homeowners seamless and convenient control of their electronic appliances through their smartphones anytime, anywhere. With the Smart Touch Wall Switches, Smart Power Strips and Smart Fan Controllers, homeowners can take control of existing light bulbs, table fans, rice cookers, chargers, ceiling fans and more appliances. Additionally, the Artificial Intelligence (AI) powered TeDi Alexa Solution enables users to control connected smart devices including TVs, air conditioners, home security systems and more through voice commands.

Home Security & Surveillance solutions transform basic cameras into high-powered CCTV solutions. Baby and house monitoring smart cameras can be placed inside homes to keep a 360-degree eye on children and pets. The Indoor Security Camera has the ability to sound a siren and notify users if a stranger enters their home. Dialog Smart Home has also partnered with Singer to offer customers world-renowned Dahua CCTV solutions.

The Home Connectivity solutions offers consumers Wi-Fi extenders to facilitate uninterrupted internet connectivity across the house to fit the homeowner’s lifestyle and requirements.

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CBSL implements extraordinary measures to support banking sector

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The Central Bank of Sri Lanka, considering the prevailing macroeconomic conditions and its impact on the banking sector, has decided to implement the following regulatory measures to support the banking sector to facilitate effective financial intermediation and the flow of credit to the economy, whilst ensuring the soundness of the banking sector.

• Sri Lankan banking sector maintains a Capital Conservation Buffer (CCB) of 2.5% to ensure that banks have an additional layer of usable capital that can be drawn down during stress times. An industry wide flexibility is granted for banks to drawdown the CCB (up to 2.5%), if needed, subject to restrictions on distribution to shareholders/ repatriation of profits and submission of a capital augmentation plan to rebuild CCB during a period up to three years.

• The current deadline for licensed banks to meet the enhanced minimum capital requirement (31.12.2022) is extended up to 31.12.2023. Licensed banks which are unable to meet the minimum capital requirement by 31.12.2022, need to submit their capital augmentation plan, including plans to consolidate or merge with suitable financial institutions, by 31.12.2022 and these licensed banks too shall refrain from distribution of dividends/ repatriation of profits until the minimum capital requirement is met.

• Licensed banks are encouraged to move to approaches such as The Standardised Approach (TSA) or alternative TSA for computation of risk weighted assets for operational risk for the purposes of computing the Capital Adequacy Ratio, subject to supervisory review.

• Licensed banks are given the flexibility to stagger the unrealised mark to market loss on Government Securities denominated in LKR on account of the recent interest rate hike for Capital Adequacy purposes until Q2 of 2024, subject to conditions.

• Licensed banks are granted flexibility on the treatment for Other Comprehensive Income (OCI) for Capital Adequacy purpose in line with the International Standards.

• The deadline for licensed banks to submit the document on Internal Capital Adequacy Assessment Process (ICAAP) for 2022, to the Central Bank of Sri Lanka is extended by one month, until 30.06.2022.

• As a short-term measure to support licensed banks to adjust their liquidity profiles, licensed banks are provided with the flexibility to operate maintaining the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) not lower than 90% up to 30.09.2022. Furthermore, the Central Bank of Sri Lanka, on 06 May 2022 decided to restrict certain discretionary payments of licensed banks, such as declaring cash dividends and repatriation of profits, until the financial statements for the year 2022 are audited by its External Auditor, engaging in share buy backs, increasing management allowances and payments to the Board of Directors until 31 December 2022 with a view to strengthening the liquidity and capital positions of licensed banks under these exceptional circumstances.

The above measures were introduced with the aim of providing the licensed banks with more flexibility and opportunities to operate in these challenging conditions and support economic recovery, while taking measures to improve their safety and soundness. The Central Bank of Sri Lanka will periodically review the implementation of these policy measures and expects licensed banks to avail these measures in the best interest of the customers and the economy at large, while supporting the banking sector to remain resilient.

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CEAT official tyre supplier for locally assembled Tata Ace HT 

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CEAT Kelani Holdings has been appointed as the official tyre supplier for Tata Ace HT series compact trucks which are assembled in Sri Lanka by DIMO in collaboration with India’s largest automobile manufacturer TATA Motors.

 CEAT RHINO PLUS TL tyres in the size of 155R12 8PR, manufactured at the CEAT Kelani plant in Kelaniya are used for the TATA Ace HT series vehicles, popularly known in Sri Lanka as “DIMO Batta” under this project. The locally manufactured CEAT RHINO PLUS TL tyre features a zig zag pattern on its circumference and ribs with lateral notches that contribute towards uniformity and better wear and tear on local roads.

 Commenting on this latest OEM agreement of the company, CEAT Kelani Holdings Managing Director Mr. Ravi Dadlani said: “As a brand that has been at the forefront of local value addition in Sri Lanka, CEAT is excited to contribute further to the process through its association with this assembly operation. This is particularly relevant in the prevailing situation in the domestic market. We are able to provide high-quality tyres engineered for local conditions at competitive prices and ensure uninterrupted supply, while at the same time helping to conserve foreign exchange.”

In January this year, CEAT was appointed as an OEM for a range of heavy-duty trucks, tippers and light commercial vehicles assembled in Sri Lanka by Lanka Ashok Leyland PLC (LAL), a joint venture company of Ashok Leyland India. In November 2021 the brand was chosen as the OEM for Bolero City Pik-up vehicles assembled in Sri Lanka by Mahindra & Mahindra India in collaboration with Ideal Motors.

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