The Indo-Sri Lanka Free Trade Agreement (ISLFTA), signed on 28 December 1998 and operational since March 2000, is the most recent illustration of a bilateral trading agreement in South Asia . The ISLFTA provides for both duty free as well as duty preference access for goods manufactured in the two countries, and lays down a timetable for the attainment of a free trade area in the future. This study intends to assess the implications of ISLFTA from the point of view of its coverage, trade potential and impact, and the possibilities of trade creation and diversion effects. Given the trade preferences exchanged, it sets guidelines that could maximize the gains (or minimize costs). Further, in order to ensure sustainable trade expansion, it seeks to link trade with investments, keeping in view the articulation of various interest groups that promote or hinder the implementation of the agreement.
