Sri Lanka's new trade deal to open up opportunities for tech firms in ICT sector

Ongoing talks to establish a free trade agreement (FTA) between Sri Lanka and Singapore in 2017 have taken an innovative line with regard to the services category, with trade in digital services singled out for special consideration. Although negotiations are at an early stage, any agreement that does specifically include accommodations for digital services is likely to open up new opportunities for Sri Lanka’s e-commerce sector and its digital entrepreneurs. The Information Communications Technology Agency (ICTA) has targeted $5bn in ICT exports by 2020. An FTA between Singapore and Sri Lanka that includes provisions for digital services could benefit the country’s growing number of active tech start-ups, estimated at between of 150 and 300 currently, according to the “Global Start-up Ecosystem Report 2017” prepared by the Start-up Genome.

Liberalisation

Sri Lanka and Singapore began negotiations in July 2016. When concluded, the FTA is expected to liberalise Sri Lanka’s services sector by removing market access restrictions on service suppliers and providing national treatment in certain sectors. Telecoms is among the many service sectors currently liberalised in Singapore. The reason the FTA may be extended to include e-commerce and digital services is a historical one. Sri Lanka was the second country in Asia, after Singapore, to become a party to the UN Electronic Communications Convention (UNECC). The convention aims to facilitate the use of electronic communications in international trade, building on principles such as irrelevance of place of origin, non-discrimination, technological neutrality and functional equivalence. Because the UNECC does not define a company’s place of business according to its physical location, it allows a digital presence to be acknowledged as a place of doing business.

Sri Lanka’s early adoption of the UNECC has enabled it to include e-commerce and digital services in the negotiations agenda for the Sri Lanka-Singapore FTA, according to Jayantha Fernando, director of the ICTA. While digital services have been included in other trade agreements between Singapore and other countries, the agreement with Sri Lanka would be the first of its kind negotiated under the UNECC, Fernando said at a seminar in March 2017. Other trade deals under negotiation by Sri Lanka include one with China and a partnership with India. Currently, Sri Lanka has FTAs with India and Pakistan, and the Generalised System of Preferences Plus, which offers duty-free access to EU markets, was recently restored in May 2017.

Increased Bilateral Trade

An agreement would ease Sri Lankan tech companies’ ability to do business in Singapore. Cross-border investment and trade between Singapore and Sri Lanka already stands at more than $1bn. The FTA would further provide Sri Lanka with duty-free access to Singapore for almost all its goods, including digital services. Beyond trade with Singapore alone, the FTA would also grant Sri Lanka access to the larger ASEAN market, as a large number of ASEAN companies have headquarters in Singapore. Such a potential is mutually beneficial, according to Fernando. “Potentially, Sri Lankan digital services companies can use the FTA to reach out to other South-east Asian markets through Singapore, while they [Singaporeans] can use Sri Lanka as a base to service the South Asian region,” he said at an industry event in March 2017.

Foreign direct investment (FDI) from Singapore would also likely increase with the signing of an FTA. Singapore is the fourth-largest investor in Sri Lanka, with $102m worth of Singaporean FDI arriving in Sri Lanka in 2014. More than 100 Singaporean companies operate in Sri Lanka, taking part in commercial activities like telecoms, tourism, and food and beverage processing, among others. While the FTA with Singapore could open up Sri Lanka’s sector to competition from Singaporean firms, such competition is likely to spur innovation. Furthermore, any cooperation between Singaporean and Sri Lankan tech firms enabled by the FTA would consolidate innovation in mutually beneficial ways.