Colombo, January 5

Sri Lanka and Pakistan have agreed to include services in a bilateral free trade agreement (FTA), Pakistani Prime Minister Nawaz Sharif said today.

India has been in discussion with Sri Lanka to liberalise the service sector under a trade pact for a Comprehensive Economic Partnership Agreement (CEPA) since early 2000.

But Sri Lankan entrepreneurs have strongly opposed such an agreement with India saying they would be at a disadvantage and could be forced out of businesses.

“The two countries have agreed on the inclusion of services and investments chapters in the bilateral FTA,” Sharif, who is visiting Sri Lanka, said after overseeing the signing of eight bilateral agreements. They signed their FTA in 2005.

“This would enable our companies to form joint ventures for export to third countries.”

Volume of trade between Sri Lanka and Pakistan has been estimated at about $325 million a year. Sharif said both South Asian countries had agreed to re-invigorate efforts to reach a target of $1 billion ‘at the earliest’.

Trade between Sri Lanka and India is an annual $4.7 billion, but a CEPA could boost that much higher with Indian investment coming into Sri Lanka’s service sector, economists say. Successive Sri Lankan governments have rejected India’s request to sign a CEPA, but Sri Lankan Prime Minister Ranil Wickremesinghe last month promised to sign an economic and technology cooperation agreement with India and China.

Political analysts say any move to liberalise service to Pakistan ahead of India could put a strain on relations between Sri Lanka and India, which could have costs for Sri Lanka.

“India is more important for Sri Lanka diplomatically and security wise than Pakistan,” said Terrene Purasinghe, senior lecturer in Political Science at the Sri Jayewardenepura University.