INDO-LANKA FREE TRADE AGREEMENT (FTA) AND THE ENVIRONMENTAL EFFECTS THE CASE OF LAND DEGRADATION IN SRI LANKA

Abstract

Sri Lanka has implemented far- reaching trade policy reforms to improve internationalcompetitiveness of its agricultural and industrial products and trade-in services and to attractforeign direct investment (FOI) during the last two decades since the introduction of the Indo-Lanka Free Trade Agreement (FAT), there has been growing concern on its environmentalimpacts on non-plantation agriculture.

This paper analyzes the FAT-induced likely environmental impacts. In particular landdegradation -induced on site effects such as loss of agricultural production and off-site effectssuch as reduction in downstream irrigated agricultural production and hydro-power generationand increasing cost of flushing downstream reservoirs, operation and maintenance cost of uplandroad network, and cost of health hazards. In this analysis an appropriately modified computablegeneral equilibrium (CGE) model of the Sri Lankan economy is used.

Results show that trade policy framework of ITA in non-plantation agriculture (i.e. imposingtariff on non-plantation agriculture) does not result in likely benign on- site and off- siteenvironmental on -site and off-site environmental effects. It is suggested that ITAhave effects that are harmful to long-term sustainability of non-plantation agriculture in SriLanka.