Bilateral trade is in Malaysia`s favour, as 92% of total trade in 2017 was imports from Malaysia at a cost of $641 million. Malaysia was Sri Lanka`s seventh largest import source in 2017. The top imports from Malaysia (2017) were wood, portland cement, plastics, gasoline, synthetic rubber and diesel/diesel. Sri Lanka`s main exports to Malaysia (2017) were food preparations, meslin flour, tea and clothing. According to the Sri Lankan Ministry of Commerce, bilateral trade between Sri Lanka and Malaysia increased by 20 percent over the five-year period 2013-`17 to $693 million. This year, trade from January to June amounted to $361 million. It is a matter of concern, however, that frequently used trade indicators do not suggest significant potential for bilateral trade expansion. Export growth has been negative over the past five years. The trade intensity index has declined over the past decade, indicating that Sri Lanka has traded less intensively with Malaysia than the world, while the trade index also remains low. The latter point indicates that Sri Lanka`s export/import structures do not correspond well to those of Malaysia.
This premise is supported by a fleeting look at the Revealed Comparative advantage indicators of Sri Lanka and Malaysia, which show that the two countries are competitors for some exports, reducing the potential for bilateral trade expansion. Given the importance of the services sector in both countries, from which more than half of economic activity has escaped, and the expansion of services exports and imports, liberalization of trade in services could be more beneficial. The chances have multiplied since 2009 due to Malaysia`s liberalization policy. Malaysian Prime Minister Najib Razak, who was on an official visit to Sri Lanka in December 2017 on the occasion of the 60th anniversary of diplomatic relations between the two countries, agreed with his counterparts to strengthen cooperation in areas such as trade and investment. He said a free trade agreement (FTA) would be useful to expand bilateral trade and steps would be taken to examine its feasibility during his meetings with President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe. "I welcome your interest in a free trade agreement with Sri Lanka, on which we have agreed in principle. Such an agreement will dramatically boost trade between Lanka and Malaysia," the Sri Lankan minister said. Relations between Sri Lanka and Southeast Asian countries began a long time ago, when Sri Lanka became the main entrance to the Bay of Bengal.  During this period, there were links between Sri Lanka and the Malaysian Peninsula due to commercial activities.
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