Economic integration is an important strategy for promoting economic growth and enhancing the well-being of the population in a small economy like Sri Lanka, especially given the constraints imposed by a limited domestic market.
Regardless of the size of the economy, economic integration generates significant dynamic gains, including intensified competition, the realisation of economies of scale, enhanced investment incentives, and more efficient allocation and utilisation of resources.
In Sri Lanka, post-independence preferential trade integration measures date back to 1975, the year the country first became a member of the Bangkok Agreement, which later became the Asia-Pacific Trade Agreement (APTA). Since the mid-1990s, Sri Lanka has actively pursued a strategy of preferential trade liberalisation.
At present, the country has six Free Trade Agreements (FTAs) under implementation. Additionally, initiatives have been taken in recent times to negotiate several preferential trade agreements with selected Asian countries. However, Sri Lanka lags behind its Asian peers in pursuing preferential economic integration through FTAs.
Among all preferential trade agreements, the most important initiative undertaken by Sri Lanka in recent times is its effort to become a member of the Regional Comprehensive Economic Partnership (RCEP) – a free trade agreement linking the Association of Southeast Asian Nations (ASEAN) with Australia, New Zealand, Japan, South Korea, and China – which came into effect in January 2022. It is the world’s largest FTA in terms of population, Gross Domestic Product (GDP), and trade.
The RCEP has the potential to deliver significant opportunities for businesses in the East Asian region, given that the 15 RCEP participating countries account for almost half of the world’s population, contribute about 30% of global GDP, and account for over a quarter of global exports. The RCEP will provide a framework to lower trade barriers and secure improved market access for goods and services for businesses in the region.
The scale of opportunity
It is worth highlighting Sri Lanka’s early but unsuccessful attempt to integrate with the emerging ASEAN framework in the late 1960s, largely due to external influences and domestic political opposition, as ASEAN was perceived as a pro-American and anti-communist trading bloc at the time.
At its inception in 1967, ASEAN invited Sri Lanka to join the association as a founding member. However, Sri Lanka decided against joining and chose to maintain its commitment to non-alignment. Later, in the early 1980s (1981), the country reevaluated its stance and attempted to join the grouping, but the request was rejected.
In 2007, Sri Lanka joined the ASEAN Regional Forum (ARF), a platform for bilateral and multilateral dialogue and consultation on political and security issues in the Asia-Pacific region. Sri Lanka also entered into ASEAN’s Treaty of Amity and Cooperation in Southeast Asia in the same year.
The adoption of the ASEAN Charter in 2007 imposed restrictive admission criteria that barred non-Southeast Asian countries from joining ASEAN. The only remaining feasible option was to become a Dialogue Partner.
Joining the RCEP offers a new opportunity for Sri Lanka to integrate into a dynamic region in Asia. The share of intra-ASEAN trade (around 25%) alone is much higher than that of the South Asian Association for Regional Cooperation (SAARC) (around 5%) – meaning that joining the group offers a significant opportunity for export expansion, enabling a structural change in the export basket of the trade in goods and the deepening of trade in services.
Membership in the RCEP is expected to open significant opportunities for Sri Lanka, enabling export diversification, expanded market access, and a stronger role in regional and global value chains. The agreement aims at eliminating 85–90% of tariffs over time, creating a more open and predictable trade regime across the member states.
The RCEP comprises a diverse mix of developed, developing, and least developed economies of the region. It is broad in scope, covering trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce, Small and Medium-sized Enterprises (SMEs), and other issues.
Attempts to join RCEP
Sri Lanka conducted its first official enquiry into the possibility of entry following a fact-finding mission to Jakarta. A team of senior officials representing the Government of Sri Lanka concluded a successful fact-finding mission to Jakarta, Indonesia, from 12 to 14 June 2023.
Sri Lanka’s strong interest in joining the RCEP was well received by then ASEAN Secretary-General Dr. Kao Kim Hourn, ASEAN Deputy Secretary-General Satvinder Singh, senior officials of the ASEAN Secretariat, and Indonesian Government officials during the mission. Both parties also discussed the formalities of the accession procedure and the way forward for an early entry agreement.
The Sri Lankan delegation also met with some of the RCEP ambassadors in Jakarta, including those from Brunei, Cambodia, China, Japan, Singapore, and Thailand. It was a good opportunity to share Sri Lanka’s intentions with them and seek their support to reach a potential agreement with the RCEP.
This mission was the first of its kind after the RCEP’s entry into force on 1 January 2022. Sri Lanka was keen to be part of the group, having submitted its letter of intent to join on 28 June 2023. At the time of the fact-finding mission, the RCEP had not cleared the accession procedure for enrolling new members.
In October 2024, the RCEP sent an initial questionnaire to several prospective member states, including Sri Lanka. The document requested detailed data to evaluate compliance with existing trade provisions and the applicant’s preparedness to provide “commercially meaningful access” in line with the partnership’s objectives.
The data required by the questionnaire has already been submitted. Prior to submission, the Cabinet formally approved the proposal made by the Minister of Trade, Commerce, Food Security, and Cooperative Development to proceed with the application process and completed the necessary documentation, marking an important step towards potential accession to the RCEP.
Over the last two-and-a-half decades, Sri Lanka’s trade balance has been in favour of RCEP countries, and the trade deficit has been widening. Sri Lanka’s exports to RCEP countries have been largely stagnant compared to imports. In 2024, Sri Lanka’s exports to the RCEP accounted for a meagre 9.37% of total exports, whereas imports from the RCEP were as high as 44.18% of total imports (see Figure 1).
Challenges to accession
First, although the RCEP is a comprehensive regional integration agreement, there are no established accession protocols and procedures, as in the World Trade Organization, to facilitate the accession of interested new members to the organisation.
Its member countries are currently working to formulate a formal accession process, which is yet to be publicly established.
Second, the scope of trade liberalisation under the RCEP framework (trade in goods, services, and investments) is significantly broader than that of Sri Lanka’s existing trade and investment regime. A clear strategy needs to be developed in each area while thoroughly evaluating the flexibility available or built into the RCEP framework.
Third, a significant effort is required to prepare a bilateral schedule of commitments to address potential requests, particularly those from current RCEP members.
Accession strategy
Sri Lanka’s successful accession to the RCEP will require a carefully sequenced, two-track strategy combining sustained political and diplomatic engagement with the development of a coherent and forward-looking trade policy framework.
On the external front, continuous high-level dialogue with all 15 RCEP Member States will be essential to build confidence, secure support, and navigate the evolving accession process. In parallel, on the domestic front, Sri Lanka must undertake a comprehensive review of its trade, investment, and regulatory regimes to align with RCEP disciplines, while identifying priority sectors for competitive integration into regional value chains.
To ensure coherence and continuity, a dedicated national task force – bringing together key Government agencies and private-sector stakeholders – should be established to steer the accession process, formulate negotiating positions, and manage implementation.
Given the breadth and complexity of the agreement, covering areas from goods and services to e-commerce, intellectual property, and dispute settlement, Sri Lanka’s approach must be both technically rigorous and strategically calibrated.
Ultimately, accession to the RCEP should not be viewed merely as a trade policy objective, but as a transformative step towards embedding Sri Lanka more deeply within the dynamic economic architecture of Asia.
(The writer is the Executive Director of the Pathfinder Foundation)
(The views and opinions expressed in this article are those of the writer and do not necessarily reflect the official position of this publication)
Figure 1: SL’s exports, imports and trade balance with RCEP