Sri Lanka’s 70th Independence Day Special Update: Singapore and Sri Lanka enter into historic Free Trade Agreement to deepen economic collaboration and increase trade
Witnessed by His Excellency Maithripala Sirisena, the President of Sri Lanka, and Singapore Prime Minister Lee Hsien Loong in Colombo, Sri Lanka, Singapore and Sri Lanka signed the Sri Lanka-Singapore Free Trade Agreement (“SLSFTA”) on 23 January 2018.
Significance of the SLSFTA
Some key features of the SLSFTA include:
- Significant tariff savings: Sri Lanka will eliminate tariffs on 80% of Singapore’s exports over the span of 15 years, resulting in potential tariff savings of approximately S$10 million each year.
- Liberal rules of origin: Containing one of the most liberal rules of origin, the SLSFTA will allow more Singapore exports to qualify for the lower tariffs negotiated.
- First treaty commitment on government procurement: This commitment will allow Singapore companies to bid for projects by Sri Lanka’s large central entities and state-owned enterprises.
- Greater access to services markets: The SLSFTA includes a commitment by both states to grant greater access to their respective services markets, with particular focus on professional and trade-related services as well as the construction, environment and tourism sectors.
- Increased collaboration in e-commerce and digital services: The SLSFTA covers cross-border transfers of information by electronic means and data flow – an important benefit for Sri Lanka and Singapore companies dealing with the increase in demand for e-commerce and digital services.
- Safeguards against discriminatory treatment: The SLSFTA provides safeguards against discriminatory treatment based on nationality and protection against expropriation.
- The Singapore International Arbitration Centre (“SIAC”) listed as an institution of choice: Notably, the SLSFTA lists SIAC as an institution for the adjudication of Investor-State disputes. This is another step in promoting Singapore as a hub for cross-border dispute resolution and aligns with SIAC’s Investment Arbitration Rules 2017 (the first set of institutional arbitration rules tailored to meet the unique demands of investment treaty arbitration).
A further step to strengthen ties
The SLSFTA follows the ratification of the Avoidance of Double Taxation Agreement (“DTA”) on 1 January 2018 between Singapore and Sri Lanka, an agreement that was first entered into in May 1979 and subsequently revised in April 2014. Amongst other things, the DTA lowers the withholding tax rates for dividends and royalties. Along with the SLSFTA, the DTA aims to enhance trade and investment flows between both countries.
Other recent highlights:
- Since 2016, Singapore has been conducting workshops for Sri Lanka’s urban planners on master planning and urban greening,
- Trade agency IE Singapore’s agreement with Sri Lanka aims to catalyse growth and connectivity in Sri Lanka’s planned Megapolis, a project connecting Colombo with major cities in Sri Lanka’s Western Province to form a singular economic zone.
- Singapore provided skills development and training for Sri Lanka in the areas of public administration and governance as well as in technical and vocational education.
- Bilateral trade between the two nations hit S$2.7 billion in 2017, and Sri Lanka ranks as Singapore’s 36th largest trading partner in the same year.
- Singapore’s stock of Direct Investment Abroad in Sri Lanka amounted to S$590 million as of end-2015 while Sri Lanka’s Stock of Foreign Investment into Singapore amounted to S$240 million during the same period.
Key Singapore investors in Sri Lanka include:
- Prima Holdings, which has substantive business operations in multiple areas such as manufacturing, commercial farming, management of luxury apartments and IT services.
- The Star Anise Hotels and Resorts, a joint venture between Singapore’s Securitstate Pte Ltd and Sri Lanka entrepreneur Chandana Wijesooriya.
- The Shing Kwan Group, the majority owner of Overseas Realty (Ceylon) PLC, which is in turn the owner of the landmark 39-storey World Trade Centre in Colombo.
- The SLSFTA represent Sri Lanka’s first modern and comprehensive free trade agreement and will see (amongst other things) a significant enhancement to the continued collaboration and trade between the historically friendly states.
- The provisions in the SLSFTA mean that Singapore investors will enjoy “national treatment” in Sri Lanka, aimed at ensuring such investors feel part of the Sri Lankan business community.
Further updates to follow upon publication of the full terms of the SLSFTA.