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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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Seylan Bank takes the lead to promote LANKA QR beyond Western Province

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Seylan Bank, the Bank with a Heart, organized the ‘Seylan Pay QR Carnival’ in Kurunegala to promote the LANKAQR programme introduced by the Central Bank of Sri Lanka (CBSL) to strengthen digital transactions in Sri Lanka. The special programme, focusing on encouraging local merchants and SMEs to join the national QR transaction system, took place at the Vehera Sports Ground in Kurunegala recently. Officials from the Central bank of Sri Lanka, the Lanka QR Committee and partner banks were present at the event.

Organised as the 14th leg of the LankaQR national rollout campaign, the Seylan Pay QR Carnival set a firm footprint with the highest number of merchants at the event. Seylan Bank alone on boarded over 100 merchants for the SeylanPay payment solutions from the Kurunegala area. Over a thousand customers walked in during the event which benefitted many merchants accepting LankaQR, to process transactions on the day and generate great traction in the district since then.

As the key feature of the event, Seylan Bank educated their customers on the use of the Bank’s QR payment system, the SeylanPay Mobile App, and assisted customers in making payments to merchants. Over 50 stalls selling clothes and accessories, gift items, food, sweets, electronics and electrical equipment, plants, beauty care, cosmetic items and automobile parts were set up for the benefit of consumers, with attractive added discounts for customers using QR payment systems to purchase items, thereby encouraging and familiarizing the use of it among them. This marked a record high number of merchants participating among many LankaQR nationwide rollout campaigns that were organised to date. A Seylan Bank Mobile ATM was deployed at the premises, ensuring that customers had easy access to carry out cash withdrawals if required and check their account balances at any given time. In addition, a special fun zone was set up for children at the event premises, whilst a musical evening entertained the adults present at the Seylan Pay QR Carnival.

“Seylan Bank’s commitment to develop the banking and finance network together with the industry led to us hosting the 14th leg of the Lanka QR national rollout campaign. We also realize the potential this system brings to the SME sector in the country, in terms of transaction efficiency and savings. As a bank that has continued to support SMEs in the country in a wide spectrum, the alliance with Lanka QR helps in developing the entire transaction ecosystem of the country,” commented Chaminda Senewiratne, Head of Digital Banking Channels, Seylan Bank.

The Central Bank of Sri Lanka introduced the LANKAQR service in October 2020 with the aim of moving towards a cash-less society while increasing financial inclusion in Sri Lanka, and was supported in this endeavour by Banks, licensed financial institutions and Lanka Clear (Pvt.) Ltd. It has already stood out as an attractive option with notable benefits for small and medium enterprises.

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Stylish Garments unveils its latest export-oriented BOI factory in Ambalangoda 

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With the Board of Investment (BOI) widening its projects, Stylish Garments (Pvt) Ltd, unveiled its sixth BOI approved factory in Ambalangoda which manufactures children’s wear, jerseys including school uniforms exclusively targeting the international market. The Stylish Garments is a renowned a garment manufacturer and exporter of jersey knit and lighter woven apparel products.

The latest project, which is a USD 3.5 million investment, is to generate 500 employment opportunities for people living in the south and other parts of the country. Moreover, the products are slated to be exported to the UK and Europe. The agreement in this regard was signed recently at the BOI Head Office in the presence of BOI Director General Renuka M Weerakone.

The Director General said “A project of this nature should be recognized owing to the fact that it depicts the vibrant and vivid expansion of BOI projects, which has now started to reach the rural areas, The new venture will uplift the livelihood of the people living in the Ambalangoda area plus become a crucial source of bringing dollars to the country in a situation where the country isin dire need of dollars,” she underscored.

Founder and incumbent Chairman of the Stylish Garments (Pvt) Ltd Leelaratne Hattanarachchi said,” we were determined to launch the project irrespective of current challenges because such new projects would bring dollars to the country. That’s the very reason why I ventured to start operations at this new factory by turning the advantage of this crisis to ourselves. At the same time, we do appreciate the support rendered by the BOI at this critical juncture and look forward their support in future too.”

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Browns Investments solar power plant deal dominates CSE trading

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By Hiran H. Senewiratne

CSE’s leading listed company, Browns Investments, disposed of 50.1 per cent of its stake in Sagasolar Power Power (Private) Limited to another leading company, Aitken Spence Pvt. Ltd. yesterday, market sources said.

The total value of the company was Rs 1.4 billion and under this deal Browns Investments sold the stake for Rs 700 million. The capacity of the solar power plant is 10 megawatts, stock market analysts said.

Sagasolar Power built the solar PV facility on 45 acres (18.2 ha) of land within a dedicated energy development area in Baruthankanda, Hambantota district, Southern province. The country’s previous largest solar plant is a 1.3-MW facility also located in Hambantota.

Amid those developments, the trading activities in the stock market turned negative due to macro and micro economic uncertainties. Accordingly, stocks slipped over 1 per cent at mid-day trade yesterday for the third consecutive day, market analysis said.

The All- Share Price Index fell by 121 points and S and P SL20 went down by 50.8 points. Turnover stood at Rs 982 million without any crossings. Top seven companies that that contributed to the turnover were, Lanka IOC Rs 274 million (3.5 million shares traded), Expolanka Holdings Rs 185 million (1.2 million shares traded), JKH Rs 77 million (626,000 shares traded), LOLC Finance Rs 59.8 million (9.9 million shares traded), Browns Investments Rs 58.9 million (8.9 million shares traded), LOLC Holdings Rs 32.6 million (89,000 shares traded) and Commercial Bank Rs 15.4 million (309,000 shares traded). During the day 51.5 million share volumes changed hands in 14000 share transactions.

Yesterday the Central Bank announced US dollar buying rate was Rs 356.04 and the selling price Rs 367.33.

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