Much before SAFTA came into existence, the India-Sri Lanka FTA came into effect in March 2000. One salient feature of this arrangement is that Sri Lanka, being a smaller developing country, has offered less than full reciprocal preferences to India. While many consider the FTA a success, others argue that most important items of export interest to both countries are being on the negative list, the impact on trade and welfare has been minimal. A close analysis of India-Sri Lanka FTA will help derive important lessons for SAFTA. The specific objectives of this paper are: (i) to provide a brief evolution of bilateral trade cooperation between India and Sri Lanka; (ii) to analyze the trends in trade between two countries before and after the formation of the FTA; (iii) to analyse the trends in investment flows and services trade between the two countries; (iv) to provide an assessment of the depth of preferences (both across sectors and sector-specific) taking into consideration of the products kept in the negative lists; and (v) to derive any lessons that may have relevance to implementation of SAFTA and its impact on other members.
