The European Union (EU) and Sri Lanka share a well developed relationship. The major factors influencing Sri Lanka’s relationship with EU are economic cooperation, trade and development aid.
After institutions of intra-European cooperation emerged in 1967 and formed a single commission and European parliament, the relationship between EU and Sri Lanka began to develop. Since Sri Lanka surrendered to a market economy in 1977, successive governments have signed many trade and cooperation agreements with Europe.
Sri Lanka was one of the first Asian countries to sign a formal cooperation agreement with Europe in 1975. A third generation cooperation agreement on partnership and development was signed in 1995. The European commission sent a delegation to Colombo in 1995. These relationship-building measures are important because thousands of Sri Lankans live and work in Europe while a large number of Europeans visit Sri Lanka as tourists.The nature of goods traded between EU and Sri Lanka represents the typical relationship between a developed and developing region. The manufactured goods of the EU have high technological input whereas goods exported by Sri Lanka have high labor input. Since the late 1970s Sri Lanka has diversified its export base away from agriculture. Whereas plantation and agricultural commodities accounted for 74% of total Sri Lankan exports in 1977, industrial export receipts rosek from 14% of total export earnings in 1977 to around 75% during each of the five years between 1996-2000.
The EU was also Sri Lanka’s largest source of imports, accounting for 15.7 % of the total in 2001. Important Sri Lankan industrial exports to EU include machinery and equipment (6%), rubber based products (5%), and diamonds and jewellery (4%). In line with this industrialization, the import structure has also shifted away from consumer goods, and towards intermediate and investment goods. Investment goods imports as a proportion of total imports (in value terms) rose from 12% in 1977 to 24% in 2000, whilst intermediate goods increased from 42% to 52% over the same period. Textile products are amongst the principle exports of Sri Lanka. Together with clothing, vegetable products and precious stones cover 70 percent of Sri Lanka’s exports to the EU. 50 % of Sri Lanka’s exports to EU are made-up garments. On textiles, Sri Lanka is trying to build on the market access agreement that was signed with the EU in spring 2001 in the textiles sector and which provides for improved access to each other’s textile markets and reducing tariff barriers.
European Union has made substantial investment in Sri Lankan economy. The trade and investment relationship of the EU with Sri Lanka will prove useful for both sides. Sri Lanka is an underdeveloped region, which requires foreign investment to achieve a fast rate of growth.