Abstract
The India-Sri Lanka Free Trade Agreement (ISLFTA) shows how bilateral cooperation can lead the way for regional cooperation. In operation, it has led to the rapid growth and diversification of Sri Lanka's exports to and imports from India. India's investment in Sri Lanka has also increased; India is now the second largest investor in Sri Lanka; and service sector cooperation has followed the growth of trade and investment. There were problems along the way but they were resolved. Moreover, this economic cooperation has overshadowed whatever political problems there were in the past. Now a Comprehensive Economic Partnership Agreement is expected to come into operation by the end of December 2006. The ISLFTA dispels the myth that economic cooperation between a large and small country benefits only the large country. Dormant complementarities can be invigorated through a bilateral free trade agreement, and new comparative advantages can be discovered, further stimulating trade.
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