Sri Lanka’s attempt to enter RCEP has moved another step forward. Access to a market stretching from China and Japan to Australia and ASEAN could be enormously important. But free trade is never simply about what Sri Lanka gets to sell. It is also about what Sri Lanka agrees to let in.
Sri Lanka has moved further along the road towards possible membership of the Regional Comprehensive Economic Partnership, better known as RCEP, after trade ministers approved machinery to advance the accession process of Sri Lanka and three other applicants.
The decision followed the fifth RCEP Ministers’ Meeting in Manila on September 21. Ministers endorsed the establishment of an ad hoc accession working group to progress discussions with Sri Lanka, Bangladesh, Chile and Hong Kong.
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That does not mean Sri Lanka has joined RCEP.
It means the application has moved into a more substantive stage in which preparedness, obligations and the terms upon which an applicant could enter the agreement can be examined.
That distinction is important because membership would be a major economic decision.
RCEP brings together the ten ASEAN economies with China, Japan, South Korea, Australia and New Zealand. Taken together, its members represent one of the largest concentrations of production, consumption and trade anywhere in the world.
For Sri Lanka, the attraction is obvious.
An economy of 22 million people cannot build long-term prosperity by selling principally to itself. Sri Lankan manufacturers and service providers need larger markets, deeper supply chains and better access to the economies driving Asian growth.
RCEP potentially offers all three.
Membership could make it easier for Sri Lankan companies to become part of regional production networks rather than simply exporting finished goods from Sri Lanka to individual countries.
That distinction matters.
Modern international trade increasingly involves products crossing borders several times before reaching the consumer. Components may originate in one country, undergo processing in another and be assembled in a third.
A common trading framework can make participation in those supply chains considerably easier.
For Sri Lankan exporters, that could create opportunities well beyond traditional tea, garments and rubber products.
But there is another half of every free-trade agreement.
Sri Lanka would not simply receive better access to other markets. Other RCEP economies would seek improved access to Sri Lanka’s market as well.
That raises difficult questions for domestic manufacturers that have historically operated behind tariffs and other forms of protection.
An inefficient industry can survive for years when imported competitors face sufficiently high barriers. Reduce those barriers and the consumer may benefit from lower prices and greater choice – but the protected producer suddenly has to compete.
That is why the detail of accession negotiations matters enormously.
Which tariff lines would Sri Lanka agree to reduce? Over what period? Which sectors could receive transitional protection? How would rules of origin operate? What commitments would apply to services and investment? And which domestic industries could realistically compete within a vastly larger Asian marketplace?
There is another important hurdle.
Accession is not automatic. The process requires agreement among the existing RCEP members. The establishment of the working group therefore represents progress, not admission.
Sri Lanka consequently has two jobs ahead.
The first is diplomatic: persuading existing members that Sri Lanka should be admitted.
The second is considerably harder: preparing Sri Lankan businesses to compete once the doors open in both directions.
Free-trade agreements do not magically create competitive industries. They create opportunities for industries that are already capable of competing – and expose weaknesses in those that are not.
Sri Lanka has spent decades discussing its ambition to become an export-driven economy.
RCEP could eventually provide access to an extraordinary marketplace in which to test that ambition.
But the real question is not simply whether Asia is prepared to open more of its market to Sri Lanka.
It is whether Sri Lanka is prepared for what happens when it opens more of its market to Asia.
