Note: Advance written questions by WTO Members and replies provided by the Government of  
 Sri Lanka are reproduced in document WT/ TPR/M/128/Add.1 and will be available online 
 at:  http://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm.  WORLD TRADE  
ORGANIZATION  WT/TPR/M/128 
16 April 2004 
 (04-1706) 
Trade Policy Review Body 
3 and 5 March 2004  
 
 
 
TRADE POLICY REVIEW 
 
SRI LANKA 
 
Minutes of Meeting  
 
Chairperson:  H.E. Mr. Milan Hovorka (Czech Republic) 
 
 
   P a g e  
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON 3 
II. OPENING STATEMENT BY THE REPRESENTATIVE OF SRI LANKA 4 III. STATEMENT BY THE DISCUSSANT 8 
IV. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY 10 
V. REPLIES BY THE REPRESENTATIVE OF SRI LANKA AND ADDITIONAL 
COMMENTS  18 
VI. CONCLUDING REMARKS BY THE CHAIRPERSON 22 
  WT/TPR/M/128 
 Page 3 
 
 
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON 
1. The Chairperson welcomed members of the Tr ade Policy Review Body to the second Review 
of Sri Lanka;  as well as Mr. Harsha Wickremasinghe , head of the delegation of Sri Lanka, and the 
other members of the delegation;  and the discussan t H.E. Mr. Muhamad Noor Yacob (Malaysia).  As 
usual, the discussant would speak in his personal capacity and not as a representative of his 
government.  In accordance with the established pro cedures, he had made available, in advance, 
outlines of the main issues he intende d to raise, (document WT/TPR/D/106). 
2. The Chairperson recalled the purpose of the Tr ade Policy Review Mechanism and the main 
elements of the procedures for the meeting.  The report by the Government of Sri Lanka was 
contained in document WT/TPR/G/128 and that of the WTO Secretariat in document WT/TPR/S/128.  
Copies of advance written questions, submitted by Aust ralia;  Canada;  Japan;  Hong Kong, China;  
the European Union;  Korea;  New Zealand;  Chinese Taipei;  and the United States had been 
transmitted to the delegation of Sri Lanka.  These  questions and the replies to these and other 
questions raised on the first day of the meeti ng would be reproduced in WT/TPR/M/128/Add.1.  
Where full replies could not be given during the meeting, supplementary written replies could be 
provided later.  These would reproduced in the WT/TPR/M/128/-series.   
3. The Chairperson had considered the two reports pr epared for this review.  He was struck by 
the resilience of Sri Lanka's economy in the face of  political uncertainty and challenges, as well as 
related economic difficulties.  Real annual growth during the period under revi ew had averaged 4%.  
Despite some setbacks in 2001, economic recovery  had begun in 2002, helped by the cessation of 
hostilities and the ongoing peace process.  Nonethel ess, the economy remained fragile;  its full 
recovery depended, inter alia,  on lasting peace.  Sustainable economic growth also required major 
macroeconomic and structural reforms to redress fiscal imbalances and allow greater private sector 
involvement in the economy.  In an effort to inte grate Sri Lanka further into the world economy, its 
trade policy regime appeared to have been further opened.  Nevertheless, trade barriers still existed, 
and there had been some backward  steps in the reform effort, as trade-related a nd other economic 
policies were changed frequently in an ad hoc manner.  He also noted that, in recent years, Sri Lanka's 
trade policy focus appeared to have shifted towa rds greater bilateralism and regionalism.  Members 
would probably be interested in learning more about these and other features of Sri Lanka's trade policies, and how the Government hoped to sust ain economic recovery, given the downside risks 
summarized in its report. WT/TPR/M/128 
Page 4  
 
II. OPENING STATEMENT BY THE RE PRESENTATIVE OF SRI LANKA 
4. The representative
 of Sri Lanka highlighted some of Sri Lanka's recent achievements.  Since 
the liberalization of the economy in 1977, Sri Lanka  had continued with wide ranging reforms, aimed 
at greater openness and international economic inte gration.  Successive governments, since 1977, had 
consistently adhered to these policies because  the country's economic prospects depended, inter alia , 
upon the successful implementation of such reforms.  Although the implementation of some of the 
reforms had experienced set backs from time to time ma inly due to the civil conflict and other factors 
beyond the authorities' control, Sri Lanka had remain ed committed to taking the process forward.  In 
the last three years, the Government had initiated the essential peace process an d intensified its efforts 
to re-invigorate the economy ravaged by 20 years of war.  These reforms in cluded implementation of 
several policies towards enhancing transparen cy, accountability and promoting good governance. 
5. Major reforms had been implemented in areas su ch as labour, finance, and exchange control.  
Legislative amendments had been introduced in 20 03 to increase labour market flexibility to assist the 
economy to face emerging challenges.  Similarly, ex change control restrictions had been further 
relaxed in 2003 to improve efficiency and remove bo ttlenecks that hindered inv estment.  Efforts were 
being taken to strengthen the financial sector, im prove its competitiveness a nd bring it to a level 
compatible with international norms.  Modern technol ogy was being used to enhance the efficiency of 
payment and settlement systems, wh ile improving financial sector stability.  To this end, a real time 
gross settlements (RTGS) system had b een introduced in 2003 and a scripless  securities settlement 
(SSS) system in early 2004.  
6. He mentioned the Government's medium-term development strategy outlined in the policy 
document "Regaining Sri Lanka".  The Government 's reconstruction and rehabilitation programme 
had received strong international support, especi ally from donors.  Donors including multilateral 
agencies had committed an aid package of US$4.5 billion during the medium term.  The IMF, recognizing Sri Lanka's commitment to the reform pr ocess and the policies aimed at private-sector-led 
growth, had provided support through a poverty-re duction growth facility and an extended fund 
facility.  The World Bank had followed suit by gr anting a poverty-reduction support credit, and the 
ADB had also strongly supported Sri Lanka's reforms. 
7. During the two decades up to 2000, Sri Lanka ha d recorded an impre ssive average annual 
growth of 5% despite the continuation of the civ il conflict.  The year 2001 had been an unfortunate 
one, not only for Sri Lanka but also for the entire world.  The weakened global economy had had an adverse impact on Sri Lanka, slowing down trade, tourism, investment, and remittances.  Additional 
domestic factors, such as severe drought, and the attack on Sri Lanka's only international airport, 
resulted in the first ever negative economic growth of 1.5% in 2001.  
8. With the gradual improvement of both intern ational and domestic factors, the economy had 
rebounded, with growth of 4.0% in 2002 and 5.5% in 2003.  Projected growth for 2004 was 6%.  This 
turnaround since 2002 was attributed to the peace initiative and the reform programme, and would 
continue to provide impetus to the economy  on its path of continuing economic growth. 
9. Growth had been accompanied by gradual loweri ng of unemployment and inflation.  Prudent 
monetary policy adopted in the previous two years had helped to keep inflation low.  Inflation had come down since 2001 to reach 6.3% by December 2003.  Interest rates had come down to historically low levels since liberalization in 1977 (7.5% in 2003), stimulating investment and 
supporting economic expansion.  The exchange rate was floated in Ja nuary 2001, bringing in stability 
while contributing to a build-up of internationa l reserves to 4.2 months of imports by 2003. 
10. The continuation of economic growth was not without difficulties, especially on the fiscal 
front.  During the 1970s and early 1980s, fiscal defi cits had mainly been as a result of large public 
investment programmes and generally had been fi nanced through foreign concessionary borrowings.   WT/TPR/M/128 
 Page 5 
 
 
However, with the intensification of the civil conf lict since the early 1980s, the nature of the problem 
faced in the public finance area had changed signi ficantly.  The Government's fiscal policy strategy 
especially since 1999, had been aimed at reduci ng the high budget deficits, at containing the 
burgeoning public debt, and at ins tilling prudent financial management practices in public institutions 
through well-considered and well-structured fiscal re forms.  Multiple tax exemptions granted in the 
past had been frozen and a new rationalized tax ex emption regime had been introduced effective 
April 2002.  These had resulted in a continuous reducti on of the budget deficit, from 10.9% of GDP in 
2001 to 7.8% in 2003 while the government debt declined from 105% of GDP in 2002, to 100% in 2003.  Sri Lanka expected the budget deficit to declin e further to 6.8%.  Fiscal consolidation remained 
the key focus of the macroeconomic programme. 
11. The Government's commitment to fiscal discip line had been clearly demonstrated by the 
introduction of the Fiscal Management (Responsibility) Ac t in 2003.  This act set targets regarding the 
budget deficit and the public debt;  and laid down time tables for the Government to explain its fiscal 
operations to the public.  
12. The Government intended to withdraw from comme rcial activities that could be performed by 
the private sector.  The Government viewed its role, as essentially that of a fac ilitator.  Since the early 
1980s, Sri Lanka had been engaged in  creating an environment conducive to privatization and had in 
recent years made laudable progress in this area.  A large number of public industrial enterprises, plantations and services-related enterprises, both loss and profit making, had been privatized over the 
years.  In addition, whenever, there had been diffi culties in privatizing, the Government had entered 
into strategic alliances with the private sector, fo r instance in public utilities/infrastructure projects 
such as telecommunications, ports, and electricity generation. 
13. Privatization of government-owned enterpri ses, together with the removal of entry 
restrictions, ensured gradual dismantling of any private-sector monopoly arising immediately after 
privatization.  In this regard, for exam ple, the ending of the government monopoly of 
telecommunication had led to several major competitors entering into the supply of 
telecommunication services.  Both liquid petroleu m gas and petroleum distribution sectors had now 
become competitive with the entry of several impo rtant players.  The Government's policy was to 
encourage and facilitate entry of more players, thus ensuring benefits to consumers via keen 
competition. 
14. Sri Lanka continued to offer an environment conducive to investment.  All areas were now 
opened for foreign investment, except in four areas:   money lending, pawnbroking, retail trade with a 
capital of less than US$1 million, and coastal fishi ng.  Investment was allowed up to 100% foreign 
ownership in many areas, and there were no restric tions on repatriation of foreign exchange via share 
holdings and profits.  Safety of foreign inv estment was guaranteed by the constitution. 
15. On trade performance and policy, the overall stra tegy had been to diversify both products and 
markets whilst implementing micro-economic reform s to improve competitiveness.  International 
trade had expanded since 1995, except during the slow down in 2001 and 2002.  However, the average 
growth of exports and imports during 1995-2003 had remained at around 4%.  Exports continued to 
diversify.  Total value of exports other than t ea and garments grew by 1% during 1995-2002.  The 
prominence of garments in exports was a result of  Sri Lanka's response to global opportunities offered 
by quota allocation while exploiting Sri Lanka's co mparative advantage.  Sri Lanka had captured 
several niche markets due to its competitiveness in product design and supply-chain management, 
including efficiency in air and sea freight.  To fu rther diversify the products and markets and gain 
market access, Sri Lanka had embarked on deve loping several important bilateral and regional 
agreements.  However, further diversification depended on domestic supply capacity, the dismantling 
of non-tariff barriers, and mutual recognition of standards and certification.  With the increased 
private-sector participation in the economy, imports  of intermediate and investment goods had been 
increasing. WT/TPR/M/128 
Page 6  
 
16. Trade policy reforms were a key element of th e market-oriented strategy pursued by Sri 
Lanka within the framework of its obligations to the WTO, and regional and bilateral trade 
agreements.  Hence, Sri Lanka's commitment to liberalize trade remained unchanged despite some 
domestic pressures. 
17. Over the years, Sri Lanka's weighted average cu stoms duty had been falling.  It had remained 
at 4.8% in 2002, thus placing Sri Lanka as one of most open and low-tariff countries in South Asia.  
This had been achieved despite the surcharge on tari ff, which was imposed in 2001:  the Government 
had been compelled to introduce a surcharge on all im ports due to revenue con cerns;  this had been 
reduced to 10% and would be eliminated in th e near future.  Ad hoc duty waivers had been 
streamlined and minimized.  To ensure transp arency, all such waivers were published in the 
Government Gazette , and placed before parliament. 
18. Sri Lanka was firmly committed to the multilate ral trading system.  It had participated 
actively in the negotiations of the Doha Developm ent Agenda (DDA), as it was convinced that the 
DDA could bring benefits to trade-dependent small economies like Sri Lanka, through further 
opening up of markets.  A number of initiatives had been taken to put negotiations back on track 
following the temporary setback in Cancún.  It w as the membership's collective responsibility to agree 
on a framework agreement within the next few months. 
19. Given the importance of agriculture in the Sr i Lankan economy, Sri Lanka was keen to obtain 
a balanced outcome in the agriculture negotiations  of the WTO.  Sri Lanka supported substantial 
improvements in market access, flexibility for tari ff policy to be adjusted through SSM and SP 
concepts, and elimination of export subsidies.  
20. Sri Lanka had taken steps to strengthen th e implementation of its commitments under a 
number of the WTO Agreements, such as TRIPS, Customs Valuation and Import licensing, and modification of subsidy programmes.  A new IP la w had been enacted in November 2003 with revised 
penal provisions, and amended provisions on authors' ri ghts and some related rights and patent rights.  
The provisions of the new IPR law would be  implemented strictly and impartially. 
21. The special and differential treatment provisi ons in the current WTO Agreements did not 
address problems specific to small economies.  To address the specific trade-related problems of these countries, and the concerns of net food importing de veloping countries, an innovative approach was 
needed.  Often, the multilateral trading system had disappointed and disa dvantaged small economies 
like Sri Lanka, as it had failed to provide a level playing field. 
22. Sri Lanka considered regionalism as a compleme ntary process to multilateralism.  There was 
a further need for bilateral negotiations with key partners, as bilateral and regional agreements and 
other preferential arrangements elsewhere in the wo rld tended to marginalize Sri Lanka.  However, 
despite the bilateral and regional initiatives, Sri Lanka remained committed to the primacy of the 
multilateral trading system.  Sri Lanka's FTAs were comprehensive in scope and were WTO-
consistent.  
23. Sri Lanka faced a series of challenges in further liberalization.  First, the peace process at 
times appeared to slow down, thus a greater effort to promote investment in Sri Lanka was required.  
Second, the small domestic market did not allow su fficient product development and specialization:  
Sri Lanka had to depend on external markets and market access.  Hence, the performance of the 
economy was dictated by the performance of the global economy. 
24. With Sri Lanka's dependence on textiles and ga rments, the phasing out of the textile and 
clothing quotas under the WTO ATC constituted a signi ficant challenge.  Sri Lanka was searching for 
fallback options.  In this context, export diversifi cation in terms of both products and markets needed  WT/TPR/M/128 
 Page 7 
 
 
further emphasis and attention.  However, severe resource constraints limited Sri Lanka's efforts to implement export diversification effectively. 
25. As in any other country, domestic pressures re mained a significant challenge to further 
liberalization.  Trade policy consistency was ofte n disturbed by constraints in the fiscal sector. 
26. Liberalization, especially in the services sector, should be preceded by a strong legal, 
procedural, and physical infrastructure.  Designing a suitable process required significant human 
capital skills.  In the absence of su ch infrastructure and skills, the liberalization process might weaken 
an economy, particularly by making it vulnerable to contagion and crises. 
27. To conclude in spite of the challenges referre d to, the Government of Sri Lanka was firmly 
committed to continue and move forward its economic  reforms, to strengthen infrastructure, to 
consolidate the fiscal position, and to create an e nvironment conducive to attracting investment, and 
effective good governance to accelerate economic growth.  
28. The representative reiterated Sri Lanka's commitm ent to the ideals of the multilateral trading 
system, based on a "truly free, fair, rules-based a nd predictable system of governance for international 
trade practices".  Although the objectives of Doha were yet to be realized, Sri Lanka remained 
unerringly committed to the successful conclusion of the DDA.  Active participation in the WTO was 
an essential component of Sri Lanka's trade strategy .  He expected that with a breakthrough in 
important areas like agriculture and NAMA, the member ship would be able to meet mid-year to agree 
on the framework text for negotiations. 
29. Sri Lanka appealed to Members to assist it to  continue the economic reform process and face 
its challenges by facilitating market-access opport unities and providing technical assistance for 
capacity building. WT/TPR/M/128 
Page 8  
 
III. STATEMENT BY THE DISCUSSANT   
30. The discussant (Ambassador Muhammad Noor Yac ob) stated that despite difficult economic 
and political circumstances, Sri Lanka had manage d to achieve real GDP growth averaging 4% 
between 1996 and 2003.  Of particular interest was the 2002 data, which showed that that the 
economy had recovered, with real GDP growth rebou nding after a contraction.  Per capita income had 
also risen since the last Review.  However, the ra te of unemployment was of concern, reaching 9.1% 
in 2002:  overcoming this problem would contribute to poverty eradication and better social stability.  
Inflation stood at 10.2%, this represented a decline fro m the previous year.  In regards to fiscal policy, 
the overall budget deficit during the period under re view had averaged 9% of GDP;  however, it had 
fallen in 2002.  The Secretariat report noted that the large deficits had had a crowding-out effect and a 
concomitant rise in interest rates.   On the external front, Sri Lanka's current account deficit had 
narrowed.  Substantial private remittances had cushi oned the impact of a merchandise trade deficit.  
The net external debt and debt-service ratio as a share of GDP had remained stable.   
31. In the area of macroeconomic management Sri Lanka needed to pay attention to the fiscal 
deficit.  He considered it a priority given that debt  service payments were at rather high levels.  This 
could be achieved by reviewing the tax administration with a view to improving the efficiency of tax 
and customs collection;  and by reducing the size of  the public sector, including by restructuring and 
privatizing certain public enterprises.  He noted that reducing the fiscal deficit had been a major 
policy objective of Sri Lankan authorities since the 2002 budget. 
32. The Secretariat Report mentioned the need for structural reforms in order to place Sri Lanka 
on a path of sustained economic growth.  In this regard, he was interested in learning about:  the 
targets to contain the fiscal deficit;  whether Sri La nka intended to take further steps to diversify the 
economy and widen the economic base to reduce re liance on a few goods;  and Sri Lanka's future 
economic development plans. 
33. As in many other parts of the world, Sri Lanka  had also seen a reduction of FDI, although in 
recent years FDI stock had increased.  An improvement in domestic circumstances could result in 
improved FDI inflows.  He aske d the Sri Lanka delegation to comment on whether the current 
investment regime was considered sufficient or whet her there were plans for a review, in the light of 
increasing global competition for FDI. 
34. On trade policies, he referred to the total valu e of Sri Lanka’s exports and to the proportion of 
manufactured goods in total exports.  Exports rema ined concentrated on a few items, with clothing 
and textiles accounting for 53.3% and black tea fo r 13.8%, although the share of exports of semi-
manufactured goods, and machinery and transport equi pment had risen since 1996.  The main markets 
for Sri Lanka's exports remained the United States and the European Union.  This dependency on a 
limited range of products and few major markets exposed Sri Lanka to risk of instability, not only for 
export earnings but also for the overall economy.  He also noted that the trad e deficit had remained 
high.   
35. Sri Lanka had to a large extent liberalized tari ffs:  the simple average applied MFN tariff was 
relatively low.  Sri Lanka had bound most agricultu ral and non-agricultural products at 50% and had 
fully bound almost all agricultural items and tex tile products.  The average applied tariff rate for 
industrial goods was lower than that on agricultura l products.  Some 50% of the tariff lines had duties 
of 5% or less, with 10% of tariff lines at zero duty;   duty-free tariff lines were higher in 2001.  Tariff 
peaks could be considered insignificant.  Howeve r, tariff rates were higher in some industries, 
denoting a certain level of protection for some domestic  industries, such as footwear and leather.  In 
terms of non-tariff measures, Sri Lanka had a we ll-developed SPS system with strict quarantine 
requirements for the import of livestock and plants.  WT/TPR/M/128 
 Page 9 
 
 
36. Sri Lanka was a member of the South Asian A ssociation for Regional Cooperation, which had 
created the South-Asian FTA in 1997.  The discussant sought information on the state of implementation of this FTA.  The Indo-Sri Lanka FTA  had entered into force in 2000, and Sri Lanka 
had signed a Trade and Investment Framework Agreement with the United States and a Free Trade Framework with Pakistan.  Given these developments, he asked whether there had been a deliberate 
shift in trade policy focus towards greater regionalism. 
37. Regarding intellectual property rights, Sri Lanka ha d a regime in place in the form of the 1979 
Consolidated Code on Intellectual Property.  Accordi ng to the Secretariat's Report, this Code was still 
in force pending ratification of the new Intellectua l Property Act of 2003.  He asked whether this new 
statute was already in force, and the reasons for delaying its ratification. 
38. On sectoral policies, he referred to the importanc e of the agriculture sector to the Sri Lankan 
economy, both in terms of its contribution to GDP and as a source of employment and export earnings.  Given the crucial role of this sector, th e Sri Lankan Government had intensified efforts to 
address challenges of low productivity, lack of good infrastructure and the need for a good marketing 
system that could further enhance the contribution of this sector to the economy.  The need to 
diversify this sector away from a reliance on a few so-called traditional crops had also been 
recognized.  A National Agriculture Policy and St rategy paper, which addressed some of these 
problems and stated policy objectives, had been published in 2002;  he highlighted the importance of implementing it.  In recent years, there had been some success in the effort to move away from over-
reliance on traditional crops such as tea, rice, and rubb er to new products such as spices, shrimp, fresh 
fruit, vegetables, and organic crops.  Export pro ceeds from these crops exce ed those earned from 
rubber and coconuts. 
39. Unlike the agriculture sector, the manufacturing sector had not seen much diversification 
despite the adoption of policies to promote manufactured  exports and foreign inv estment in the sector;  
its contribution to GDP had declined since 1996.  Manufacturing remained concentrated in a few 
sectors, particularly textiles and clothing, whic h accounted for 53% of Sri Lanka's total export 
earnings;  the major markets were the United Stat es and the European Union.  Much of the raw 
materials used in the garm ent industry were imported. 
40. Sri Lanka's low labour costs and well-educated  labour force were strengths.  Given this 
endowment, Sri Lanka could consider  further improving its infrastructure as an additional effort to 
accelerate progress not only of the industrial sector but also of the rest of the economy.  This assumed, however, that political stability would prevail in the country. 
41. The services sector represented a large part of GDP.  The largest component was wholesale 
and retail trade, but the fastest growing services were financial and telecommunications.  Rules 
regarding foreign participation in financial services were liberal, with no foreign ownership 
limitations.  However, the banking subsector had been  weakened in recent years by high levels of 
non-performing loans and low provisioning.  This ar ea required urgent attention, and he referred to 
the experience of a number of countries where banki ng-sector problems had had a crippling effect on 
the overall economy. 
42. The potential for growth in the telecommunications  sector remained high, with rising demand 
for fixed telephony as well as mobile services.  Th e streamlining of administrative procedures seemed 
to be needed to realize the potential.  This was one component of infrastructural improvements that 
would be needed to catalyse economic growth.  He  asked the Sri Lankan delegation to indicate the 
government plans in this area. 
43. Sri Lanka had been affected by an unfortunate internal armed conflict.  However, there was 
hope and scope for the Sri Lankan economy to do better in the years to come.  The prognosis was for the Sri Lankan economy to achieve better growth. WT/TPR/M/128 
Page 10  
 
IV. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY 
44. Members were pleased to participate in the second Trade Policy Review of Sri Lanka.  They 
commended the Government of Sri Lanka for its effort s to liberalize the trade and investment regimes 
in order to stimulate economic growth under very difficult political circumstances.  Some Members encouraged Sri Lanka to further develop and liber alize its trade and economy.  Members appreciated 
Sri Lanka's active participation in and strong sup port for the multilateral trade system including the 
Doha Development Agenda.  They looked forwar d to receiving answers to their written questions 
from Sri Lanka 
45. The representative of Kenya
 commended the Government of Sri Lanka for its liberalization 
efforts.  Despite the political unrest created by civil war, Sri Lanka had been able to attain real annual 
growth in GDP of 4% during the period under review .  This had been as a result of policies aimed at 
enhancing production and productivity through a con tinuous process of economic reforms.  With the 
end of the civil war and enhanced process of reform s, the economy was headed for a robust growth 
with a positive impact on poverty and integration of the national economy into the world economy. 
46. Creating a macroeconomic environment suitable for attracting private domestic and foreign 
investments remained a major challenge in Sri Lanka.  Towards this end, she encouraged the 
Government to continue its efforts to reduce the budget deficit and tackle the debt crisis.  Related 
structural objectives such as sale of loss-making state enterprises and tax reforms should aim at 
increasing levels of revenue and at creating a competitive business environment and building 
domestic productive capacity. 
47. Sri Lanka's exports remained highly concentrat ed in a few products and markets, hence its 
vulnerability to changes in the external environment.   She encouraged Sri Lanka to enhance efforts to 
diversify both export products and markets. 
48. She noted with concern the difficulties faced by  developing countries such as Sri Lanka in 
implementing multilateral trade agreements.  Sri Lank a needed enhanced support to fully implement 
multilateral trade obligations as well as to establish a coherent domestic frame work to formulate and 
implement trade related policies. 
49. The contribution of the agriculture sector to  economic growth and development remained 
important in Sri Lanka.  Kenya shared most of Sri Lanka's views in the context of the ongoing 
negotiations in agriculture.  Sri Lank a needed to improve productivity in this sector in order to reap 
maximum benefits from the multilateral trading system.  She referred to the difficulties experienced by Sri Lanka in the provision of services, and encouraged Sri Lanka, with the support of the 
international community, to modernize its servi ces sector, as this was essential to improving the 
economy's international competitiveness. 
50. The representative of Australia
 noted that Australia and Sri Lanka shared long-standing trade 
links, and Australia was a significant foreign investor in Sri Lanka.  Sri Lanka had made some progress in implementing its economic reform pr ogramme, particularly in the areas of fiscal 
consolidation, and in the telecommunications and insurance sectors.  Sri Lanka's new labour 
legislation had increased certainty for foreign invest ors.  The introduction of new intellectual property 
legislation was also welcomed;  this had to be followed up by effective implementation and 
enforcement. 
51. On market access, Australia was currently talking to the Sri Lankan Department of 
Agriculture on the issue of  access for Australian meat and bone m eal (MBM).  Concerns were raised 
regarding Sri Lanka's high tariff protection for ma ny agricultural and food products.  He urged Sri 
Lanka to remain closely engaged in the market a ccess negotiations on agriculture, industrial products,  WT/TPR/M/128 
 Page 11 
 
 
and services, and to look for ways in which the Doha Round could be used to reinforce domestic 
policy and institutional reform objectives. 
52. The representative of Canada  said that the Government of Sri Lanka was to be commended 
for its efforts to introduce economic reform and im prove governance in the face of a political conflict 
and uncertainty.  The November 2003 budget ha d brought further welcomed news with the 
simplification of the value-added tax and the duty regi mes.  He was pleased to note that an agreement 
was made at the South Asian Association for Regi onal Cooperation Summit to renew efforts to create 
a South Asian Free Trade Area.  
53. Economic reforms had to go on if Sri Lanka was to build a modern economy.  Economic 
growth had continued despite the challenges faced by Sri Lanka but much work remained to be done.  
A sustained commitment to increasing stability, pr edictability and transparency in trade and 
investment was essential to lessen th e impact of political uncertainty. 
54. Greater stability, predictability and transparency would be particularly welcomed in Sri 
Lanka's customs tariff policy.  Sri Lanka's tariff binding commitments were low and the rate of 
applied tariffs changed frequently.  This did not insp ire confidence in traders or investors.  He urged 
Sri Lanka to implement a simpler and more consistent customs ta riff and tariff policy;  the duty 
exemption policy should also be revised.  A transp arent and consistent tariff with fewer exemptions 
could yield greater revenues from duty collection than the present system.  Sri Lanka's import surcharge was also an area of concern.   
55. He welcomed the Government's "Regaining Sri Lanka" economic de velopment strategy. 
Canada believed that trade liber alization was key to enhancing productivity and competitiveness and 
commended the Government's efforts to establish a modern, WTO-consistent legal foundation for 
trade.  However, the best incen tive for increasing trade and investment in Sri Lanka remained a 
lasting peace agreement. 
56. The representative of Japan
 also stated that it was essential for Sri Lanka's economic 
development to maintain peace and political stability .  Japan had been actively engaged in achieving 
peace in Sri Lanka and been contributing to the reconstruction and development of Sri Lanka.   
57. The other key element for the economy to deve lop was the implementation of macroeconomic 
reform.  Japan welcomed the measures taken by Sr i Lanka to improve its macroeconomic policy and 
the imbalance of finances, which had resulted in the recent high economic growth rate.  Sri Lanka's 
promotion of privatization was appl auded; this could encourage fore ign direct investment.  He hoped 
that Sri Lanka would hastily realize full privatizati on.  Japan hoped that Sri Lanka could resume trade 
liberalization, which seemed to have slowed down. 
58. Another key issue for the development of trade and the economy was the creation of a good 
business environment.  Foreign investors were not en couraged to invest in Sri Lanka, partly because 
under the current labour laws it was too difficult to  dismiss employees.  In this regard, Japan 
welcomed Sri Lanka's attempts to create a flexib le labour market.  Businesses spent a lot of time 
dealing with dispute settlement cases;  he urge d Sri Lanka to improve its current dispute settling 
system.  Japan also welcomed Sri Lanka's intention to accede the GPA. 
59. On customs procedures Japan hoped that Sri La nka would improve its customs system, and 
welcomed the introduction of a computerized syst em to clear customs.  Current bound rates were 
higher than the applied rate, thereb y reducing exporters' predictability. 
60. The introduction of a new Intellectual Property Act was appreciated;  he hoped that this 
would be implemented and enforcement improved.  WT/TPR/M/128 
Page 12  
 
61. The representative of Hong Kong, China
 was encouraged that Sri Lanka maintained relatively 
low tariff rates among the developing countries in it s region.   Nevertheless, several areas merited 
some attention and further improvement:  the num ber of duty-free items had decreased;  the number 
of tariff lines subject to specific duties had in creased;  bound rates generally exceed average applied 
rates;  and there was significant tariff escalation for certain products, providing protection to specific 
industries.  The import surcharge was also of concern. 
62. The representative appreciated Sri Lanka's revenue  considerations, but believed that a simple 
and low tariff regime was in the interest of consumers, manufacturers and the economy as a whole.  He encouraged Sri Lanka to particip ate actively in the NAMA negotiations. 
63. The policy of the Sri Lanka Standards Institute  was to formulate national standards in line 
with international standards, and where feasibl e to adopt international standards as Sri Lanka 
Standards.  However, few of the Sri Lanka Standa rds conformed to international standards.  He 
encouraged Sri Lanka to increase its effort to wards harmonization of national standards with 
international standards.  In government procuremen t, Sri Lanka gave price preferences to locally 
manufactured products and local works contracts.  He  encouraged Sri Lanka to move towards a more 
open and transparent government procurement regi me, and to join the WTO GPA or become an 
observer of the WTO Committee on Government Procurement. 
64. Hong Kong, China appreciated the steps taken by  Sri Lanka to modernize its services sector 
by reducing direct state involvement and raising pr ivate, including foreign, participation through the 
relaxation of foreign investment limits for instance in financial services. 
65. The representative of the European Union
 referred to the challenges Sri Lanka was facing in 
driving ahead the peace process after 20 years of in ternal conflict.  Sri Lanka had adopted an 
ambitious strategy for accelerated development through trade liberalization, economic reform, 
privatization and increasing government efficiency. 
66. The European Union was cooperating closely w ith Sri Lanka to promote economic growth 
and prosperity, key to sustaining the ongoing peace  process.  In a Joint Study on EU-Sri Lankan 
Trade, a number of issues where identified and reco mmendations made to enhance bilateral trade and 
to promote the competitiveness of Sri Lankan industries by tackling domestic constraints.  As a developing country, Sri Lanka bene fited from the EU GSP and the EU was willing to consider ways 
to increase the utilization of GSP. 
67. The EU was also supporting the efforts of Sri La nka through trade related technical assistance 
aiming at improving and putting in place conditions fo r sustained and stable economic growth through 
stronger integration into the global trading system  and increase economic growth.  The basic aim was 
to ensure that a liberal trade policy and the domest ic policy environment were mutually supportive. 
68. Sri Lanka had taken a number of steps that pa ved the way for its development, and the EU 
looked forward to receiving further information on th e need for trade-related technical assistance.   
69. Sri Lanka had made substantial progress in tr ade liberalization as part of a long-standing 
economic reform process.  Sri Lanka had also rec ognized the need to address domestic impediments 
to economic development, inter alia , the high budget deficit, the high cost of utilities and poor 
infrastructure particularly in the energy sector, labour  market reform, and the simplification of the tax 
system.  However, there had been a recent tendenc y to slow down and sometimes even backtrack on 
reforms.  The EU urged Sri Lanka to continue with fiscal and economic reforms, as well as policies 
and actions for export diversifica tion.  This was essential for th e long-term competitiveness of its 
industry, in particular in the run-up to the elim ination of textile and clothing quotas under the WTO 
ATC.   WT/TPR/M/128 
 Page 13 
 
 
70. The EU welcomed Sri Lanka's measures to broade n its export basket and export destinations.  
In this respect, the recent free- trade initiatives within South Asia n countries were welcome steps in 
regional integration, in particular from the South-S outh perspective.   The EU hoped that these efforts 
would not detract from the DDA negotiations, which should remain the priority.  
71. The European Union was certain that increased adherence to a trade liberalization agenda 
would be beneficial for the development of Sri La nka, provided that it remained fully supportive of 
the WTO system and its further development, gi ven that multilateralism was the surest way to 
promote the interests of any small country.  He hope d that Sri Lanka's readiness to liberalize in the 
area of services would apply to all areas covered by the WTO.  A number of issues in the Doha Development Agenda would be truly beneficial for Sri Lanka.  An agreement on trade facilitation and 
participation in the GPA would be of great value in  a number of ways.  They would, for example, 
assist the Government in strengthening its admini strative capacity and ability to carry out its trade 
policy.  Sri Lanka would also benefit from liber alization for both agricultural and non-agricultural 
products as well as services. 
72. The representative of Korea
 referred to Sri Lanka's commenda ble rates of economic growth 
and the increase in income per capita since its last  review.  The economy remained fragile, but Sri 
Lanka would be able to bring about full recove ry if it continued to pursue economic reforms, 
including efforts to redress fiscal imbalances and increase private-sector involvement in the economy. 
73. The two countries had a close bilateral economi c relationship;  while bilateral trade had 
declined slightly in recent years, he hoped that it would bounce back.   
74. The Secretariat Report had noted that some ar eas were in need of improvement and, among 
these Korea had sent written question in regard to layoff procedures and government procurement.   
75. The representative of Chinese Taipei  noted that Sri Lanka had done well in the past few years 
in terms of macroeconomics indicators.  Nonetheless,  serious problems remained in the areas of fiscal 
imbalance, state intervention, and the lack of di versity in foreign trade.  These were issues that 
required structural reforms, which the Sri Lankan Go vernment seemed to have  paid due attention to. 
76. The volume of trade between the two countries ha d been relatively meagre.  There had been 
some investment in Sri Lanka but unfortunately, it was not substantive yet.  He believed that there 
was great potential to strengthen the economic ties between them in the years ahead. 
77. The representative of the United States  appreciated the constructive role Sri Lanka had played 
in the Doha negotiations.  Sri Lanka had been an ef fective advocate for its inte rests in the negotiations 
and had worked hard to find and build convergences with the positions of others. 
78. The United States welcomed that steps were be ing taken to enhance Sri Lanka's commercial 
relationship with the United States on the bilatera l level where there was still a great potential for 
increased trade.  Sri Lanka and the United States ha d held three successful bilateral meetings under 
the auspices of their Trade and Investment Fram ework Agreement.  The United States was carefully 
considering Sri Lanka's proposal to  negotiate a free-trade agreement;  no decision had been made, but 
the United States was impressed with Sri Lanka's domestic economic reforms and peace efforts, and 
wished to contribute to them.  Sri Lanka was an a ttractive FTA partner, because of its relatively open 
economy and commitment to trade liberalization.  The trade policies of the Sri Lankan Government 
following the spring parliamentary elections would info rm U.S. consideration of Sri Lanka as an FTA 
partner. 
79. Sri Lanka had realized many rewards as a result of the cessation of armed conflict and the 
Government's continuing peace in itiatives during 2002 and 2003, including real GDP growth.  The 
Government had moved to capitalize on the peace by pus hing reform and reconstruction at home and WT/TPR/M/128 
Page 14  
 
attracting assistance and investment from abroad.  Significant IMF facilities and donor commitments 
were assisting efforts towards the objectives identified in the "Regaining Sri Lanka" policy 
programme.  He noted some of the main elements of this strategy and sought any further information 
on the implementation of this policy programme. 
80. It was apparent that the make-up of the Sri Lanka economy was beginning to change.  
According to the Government report, services activ ities had grown;  while much of the growth was 
attributable to the cessation of the conflict, the lib eralization of the telecommunications and financial 
services sectors, primarily through privatization a nd relaxation of foreign i nvestment limitations, had 
already begun to demonstrate results.  He refe rred to the National Communications Policy 2003 and 
was interested in receiving an update on its implem entation.  He asked whether Sri Lanka intended to 
reduce the infrastructure domination of Sri Lanka Telecom and whether it had plans to liberalize the 
banking sector, which was currently restricted to state-owned banks. 
81. While services accounted for an ever greater share of Sri Lanka's GDP, Sri Lanka continued 
to rely on merchandise trade, overwhelmingly garm ents, to generate export earnings.  The United 
States was Sri Lanka's main export market.  As no ted in the Secretariat report, garment exports 
accounted for 53% of Sri Lanka's total export earning s;  Sri Lanka was heavily dependent on the U.S. 
market in this sector, with 63% of such exports  bound for the United States.  According to the 
Secretariat report, the Central Bank attributed Sri La nka's inability to fill quota allocations for tea and 
garments under the India-Sri Lanka FTA to a lack of  competitiveness in the Indian market.  With the 
coming expiration of the apparel quotas in deve loped countries, Sri La nka could face a more 
competitive environment for its garments in its traditi onal markets.  In this regard, he sought more 
information on the Government's plans to improve  the competitive position of its garment producers. 
82. The United States was particularly interested in Sri Lanka's plans to diversify its export 
products beyond garments and tea.  According to th e Government report, the share of export earnings 
from non-garment industrial products had increased since 1996, surpassing the relative position held 
by agricultural products, including tea.  He listed other products that contri buted to export earnings, 
and enquired about the Government's plans to fu rther develop the contribution of these and other 
products to the export mix. 
83. The representative asked for information on how Sri Lanka was overcoming its reliance on 
industrialized markets for its exports, and to what extent Sri Lanka had been successful in exporting 
its non-garment industrial products to developing co untries.  The Government of Sri Lanka appeared 
to be actively seeking improved market access opportunities within its region through preferential 
trade agreements.  It had concluded or was negotia ting several agreements.  He sought an explanation 
of how these agreements related to each other, as part icipation overlapped.  Because of the size of the 
Indian market and its geographic proximity, he was particularly interested in the status of the 
implementation of the India-Sri Lanka FTA and curre nt plans to expand its scope to other areas, 
including services.  He asked whether Sri Lanka had a complementary strategy to obtain market 
access opportunities in developing countries outside  its immediate region through the Doha 
Development Agenda. 
84. Sri Lanka had successfully implemented the WT O Customs Valuation Agreement in January 
2003.  Sri Lanka was improving its customs proc edures through the Sri Lanka Automated Cargo 
Clearance System (SLACCS) and through new import  clearance procedures in an Electronic Data 
Interchange (EDI) environment.  The United Stat es would welcome an update on these developments. 
85. The United States was concerned about the predicta bility of Sri Lanka's tariff system.  At its 
last Trade Policy Review, Sri Lanka had noted its  intention to have a simplified two-band tariff 
system with a single digit simple average applie d MFN rate.  Since then, the tariff structure had 
undergone frequent changes.  According to the Gove rnment report, there were currently five tariff 
bands, ranging from zero to 25% rates, with specific duties on certain agricultural products.  The  WT/TPR/M/128 
 Page 15 
 
 
tariffs on agriculture fluctuated, based upon dom estic supply.  The tariff system was further 
complicated by concessional duties to certain produ cers and duty exemptions that, according to the 
Secretariat report, may apply on 70% of all imports .  Nevertheless, Sri Lanka remained committed to 
its goal of a consolidated two-band tariff structure and was interested in the near-term prospects for 
rationalization of the system.  He was also inter ested in hearing the Government's plans for the 
elimination of the remaining 10% tariff surcharge.   Imports of agricultural products, particularly 
poultry, meat, and wheat confronted seemingly discriminatory and non-transparent barriers. 
86. In the area of intellectual property rights, Sri Lanka had taken a major step forward in 
November 2003, when the new intellectual propert y law came into force.   The new law largely 
satisfied commitments made pursuant to TRIPS and to  the U.S.-Sri Lanka Bilateral IPR Agreement.  
He commended Sri Lanka for establishing a Working Group to implement the law, but noted that it 
would take time before the new procedures and co urt precedents were established.  High priority 
needed to be given to the provision of additional training in enforcement.  The United States encouraged Sri Lanka to consider the ratificati on of the WIPO Performances and Phonograms Treaty. 
87. The representative of Pakistan
 referred to the progress made on the negotiation of a free-trade 
area with Sri Lanka, and on the South-Asian Free- Trade Area, which would substantially increase 
trade between the two countries. 
88. There had been many achievements and some set ba cks since Sri Lanka's last Review.  On the 
positive side, there was the healthy growth of GDP and per capita GDP, growth in the services sector 
and in industrial output; and the low interest rates.  This level of growth should help alleviate poverty.  
Despite economic and political difficulties Sri Lanka was going ahead with economic reforms;  the 
enactment of a Fiscal Management Responsibility Law in 2002 was commendable given the political 
environment.  The customs and tariff reforms were  notable achievements.  Despite the progress in 
tariff reform, however, much remained to be done. 
89. On the negative side were the budget deficit, th e lack of predictability of the tariff, the low 
level of bound rates, the import surcharge, and the inconsistent export policies.  He also noted that 
there was no governmental office that dealt with sm all and medium-size trade disputes;  as a result 
these disputes took a long time to resolve. 
90. The representative of Singapore  noted that during the period under review Sri Lanka had 
continued its pursuit of trade liberalization and econo mic reform, with increased privatization and de-
regulation of the economy.  The Government had also increasingly allowed 100% equity stake for 
FDI.  She commended Sri Lanka for undertaking th ese reforms, despite less-than-favourable internal 
and external conditions.  The cessation of hostiliti es and the ongoing peace process had contributed to 
political and economic stability, and encouraged th e Sri Lankan Government to persevere in these 
efforts. 
91. Singapore continued to enjoy good trading relations with Sri Lanka and Singapore's 
investment in Sri Lanka was considerable and dive rsified.  Since 2002 three private sector MOUs and 
a Bilateral Investment Treaty (BIT) had been signe d by the two countries.  In light of the growing 
bilateral trade relations and significant investme nt interests, Sri Lanka and Singapore had started 
discussions for a Comprehensive Econom ic Partnership Agreement (CEPASS). 
92. The representative of India  noted that Sri Lanka's economic  performance had shown steady 
improvement since its first Review in 1996 despite the difficult political situation within which the 
Government had to pursue economic and trade refo rms.  Sri Lanka had embarked upon an ambitious 
economic restructuring in the 1970s and had been  transformed from a producer of predominantly 
primary agricultural products to a dynamic devel oping economy with a diversified production base.  
Its export basket, which comprised largely commoditi es such as tea, rubber, and tobacco in the 1970s WT/TPR/M/128 
Page 16  
 
comprised mainly manufactured goods in 2002.  A noteworthy aspect of this transformation had been the increase in trade in the Asia Pacific region.   
93. Sri Lanka had pursued outward oriented trade policies.  The Government had taken a number 
of steps to streamline rules and procedures governi ng foreign trade.  It had amended its customs 
valuation regulation, simplified its tariff regime, a nd enacted comprehensive IPR legislation, besides 
greatly liberalizing the financial services sector.   
94. Sri Lanka had also been an active participan t in the negotiations under the Doha work 
programme.  It had been effective in securing the implementation of the various S&D provisions.  In 
the agriculture negotiations, Sri Lanka had articul ated the need for a development box and been a 
strong advocate of an appropriate safeguard mech anism.  Similarly, in services Sri Lanka had 
presented a strong case for liberalization under mode 4. 
95. India and Sri Lanka shared membership in the South-Asian Association for Regional 
Cooperation, in SAFTA, in BIMSTEC, and the Indian Ocean Rim Association for Regional 
Cooperation.  In order to optimize the many complementarities in their economies India and Sri Lanka concluded a free-trade agreement in 1998.  Recent years had seen dynamic growth in bilateral 
trade.  India and Sri Lanka were now explori ng the further deepening of the FTA through the 
coverage of trade in services, investme nt, and other areas of economic cooperation. 
96. The representative of Mauritius
 stated that Sri Lanka and Mauritius shared many common 
interests.  Historical links brought them together in many platforms, including the Commonwealth and 
the Indian Ocean Rim Association for Regional Coope ration.  As small players in the multilateral 
trading system, they also shared the same anxi eties with regard to their sustained economic 
development. 
97. Since its last Trade Policy Review in 19 95, Sri Lanka had made significant economic 
progress despite the formidable challenges it had faced.  As Sri Lanka embarked on an important democratic process this year, Mauritius was hopeful th at the country would be able to maintain the 
path of sustained economic growth, which had b een initiated through impor tant economic reforms. 
98. From a primarily agrarian economy, Sri Lanka was increasingly shifting towards the 
manufacturing sector.  The leading foreign exchange earner was textiles, with the United States as the 
major market.  She welcomed the c ontinued diversification of Sri La nka's industrial base and efforts 
to establish an environment conducive for the prom otion of both domestic and foreign investment.  
The contribution of services to real GDP was on the increase.  Like Mauritius, Sri Lanka relied 
heavily on its tourism potential and she believed that  in this area the two countries could learn from 
each other for their mutual benefit. 
99. Sri Lanka was vulnerable to internal and external factors that constrained economic growth.  
The country had domestic supply constraints and f aced increasing competition from larger developing 
countries.  With the phasing out of the quotas in textiles and clothing, the future of this industry was being challenged.  Mauritius was confronted with  the same reality, and thus fully understood the 
socio-economic problems that arose when textiles factories closed. 
100. For countries such as Sri Lanka and Mauritius,  with small markets, and limited or no 
endowments, certain conditions were necessary to ensure development.  These included guaranteed 
market access and a longer period to allow local i ndustry to become competitive in an increasingly 
open international trading system.  Trading part ners should therefore take into account these 
fundamental concerns in the current round of trade ne gotiations.  In this context, it was essential that 
appropriate mechanisms, in add ition to S&D treatment, were put in place so that vulnerable 
economies could preserve at least their current market share and not be totally on the losing end.  WT/TPR/M/128 
 Page 17 
 
 
101. As a founding member of the WTO, Sri Lanka  was committed trade liberalization, while 
recognizing that the imbalances in the multilateral trading system had to be addressed for such 
liberalization to bring benefits to all partners.  Mauritius fully subscribed to this approach. 
102. The representative of Benin  noted Sri Lanka's reforms, wh ich covered both macroeconomic 
and trade policies;  the most recent had been, inter alia,  the enactment of the Fiscal Management 
(Responsibility) Law and the Intellectual Property Act.   Sri Lanka was committed to the multilateral 
trading system and had benefited from participating in  it.  Sri Lanka was also participating in several 
regional initiatives but had managed to combine this  with its obligations regarding the multilateral 
trading system.  Sri Lanka's reform efforts had led to GDP growth and to a decrease in the budget 
deficit.  He invited all Members to continue s upporting Sri Lanka so that its good economic and trade 
prospective could be maintained and pursued.   
103. The representative of Norway  referred to the progress in the peace process, which had 
allowed Sri Lanka to achieve an impressive eco nomic recovery in 2002 and 2003.  Continued 
progress and political stability were crucial for sustainable economic growth. 
104. The Secretariat report stated that the Sri Lankan economy seemed much more open than in 
1995.  Nevertheless, Norway encouraged Sri Lanka to continue the process of economic reforms.  A 
transparent and predictable trade policy regime might play an important role in further advancing the 
reform efforts. 
105. Sri Lanka played an active role in the WTO a nd its support for the multilateral trading system 
was appreciated.  Norway had noted Sri Lanka's  commitment to promoting a restriction-free 
multilateral trading system.  Norway was looking forw ard to further exploring, with Sri Lanka and 
other Members, ways to address the legitimate con cerns of developing countries in the ongoing WTO-
negotiations. 
106. The representative of Uganda  said that Sri Lanka had made c onsiderable progress, which was 
apparent from its GDP growth, but that Sri Lanka n exports remained concentrated in a few goods 
(clothing and tea) and markets (the United States an d the European Union).  This raised problems, 
hence the need for diversification.  In this effo rt, Sri Lanka could be assisted by the ongoing Round, in 
that areas of interest to Sri Lanka could be libera lized.  Given the importance of textile exports for Sri 
Lanka, there would be difficulties when the quotas are removed in 2005;  it would be necessary to look at how to adjust to the new regime.  Sri La nka, like most other developing countries, depended 
on tariffs as a trade policy instrument but also as source of fiscal revenue.  Therefore, it was necessary to ensure that account was taken in the ongoing ma rket access negotiations for measures to assist 
countries like Sri Lanka to adjust.  Sri Lanka also used the tariff as a defence mechanism since it did 
not have any other contingency measures (although an ti-dumping legislation had been drafted).  This 
had to be taken into account. 
107. Uganda and Sri Lanka were e ngaged in South-South cooperati on.  The two countries were 
trying to use their knowledge in the textile field to set up a network to help establish their industries 
and take advantage of the existing pr eferential regime.  In this regard , he referred to rules of origin 
which he considered should become more friendly, so that for instance Uganda could used imported 
inputs from Sri Lanka; this would furthe r promote South-South cooperation.  WT/TPR/M/128 
Page 18  
 
V. REPLIES BY THE REPRESENTATIVE OF SRI LANKA AND ADDITIONAL 
COMMENTS 
108. The replies by the representative of Sri Lanka
 were divided into three main themes:  
(i) economic environment and trade policy developmen ts;  (ii) trade policies by measure;  (iii) and 
sectoral issues.  They were based on written responses,  which were circulated to Members.  Sri Lanka 
would provide answers to the outstanding questions at a later date.  Following the replies, the 
Chairperson opened the floor to TPRB memb ers for further comments and questions. 
(i) Economic environment and trade policy developments 
109. The representative of Sri Lanka  noted again, that since the liberalization of the economy in 
1977, Sri Lanka had continued wide-ranging economic re forms, needed for growth and development.  
A formidable task, in the middle of a civil conflict, had been to contain the budget deficit.  With the 
peace process, Sri Lanka had felt strongly the need for fiscal containment.  To do so the Fiscal 
Management (Responsibility) Act had been enacted;  under this Act strict requirements had to be 
fulfilled. 
110. As a result of the greater opportunities created by  the country adopting free market principles, 
and opportunities offered by international econom ic developments, Sri Lanka was gradually 
becoming industrialized.  The greater concentration of  garments and tea in exports was a result of Sri 
Lanka responding to opportunities while utilizing its comparative advantage.  Government continued 
to pave the way for creating an enabling environment fo r export diversification.  A key strategy in this 
endeavour was creating greater market access opportunities by way of bilateral and regional 
agreements, while maintaining Sri Lanka's co mmitment to the primacy of multilateralism. 
111. Sri Lanka felt that the benefits of trade in goods were reaching their limits, thus Sri Lanka 
was keen to liberalize trade in services.  It ha d made commitments in the WTO in several services 
sectors.  Sri Lanka was pursuing services liberalizati on through bilateral and regional levels in its 
negotiations on the Comprehensive Economic Partners hip Agreements with India, and Singapore.  
However, Sri Lanka was cautious because services sector liberalization could increase a country's 
vulnerability to external shocks. 
112. He emphasized Sri Lanka's commitment to the multilateral trading system.  Sri Lanka had 
actively participated in the negotiations of th e Doha Development Agenda (DDA), as it was 
convinced that the DDA could bring benefits to  trade-dependent small economies like Sri Lanka, 
through further opening-up of markets.  A number of initiatives had been taken to put negotiations 
back on track following the temporary setback in Cancún.  It was the Members' collective 
responsibility to agree on a framework agreement within the next few months. 
113. The discussant  had taken note of several issues in reviewing the initial statement of the Sri 
Lankan delegation, his own opening remarks, and the comments from the various delegations.  Sri 
Lanka's good economic performance in terms of GDP growth during the period under review had 
been recognized, especially given its difficult economi c and political circumstances;  and the EIU had 
forecasted that Sri Lanka's economic growth would rise further to 6.4% in 2005.  Economic growth 
was important because it increased the benefits fo r the people.  Although it was not always the case 
that with more growth there would be additiona l job opportunities there was always hope.  He 
reiterated that the unemployment situation in Sri La nka needed to be addressed because of its effect 
on poverty eradication.  GDP data in PPP terms seeme d to indicate that the welfare of the Sri Lankan 
people was better than what was presented by the nominal data.  Another positive feature in the Sri 
Lanka's macroeconomic scenario was the inflation data;  inflation had been decreasing since 2001 and 
a downward trend was expected.  An issue of con cern was the current account deficit;  however, the 
latest data showed that the current acco unt deficit was now expected to narrow.  WT/TPR/M/128 
 Page 19 
 
 
114. On the issue of fiscal discipline, the Sri Lankan delegation had mentioned the Fiscal 
Management Responsibility Act of 2003.  The budget deficit had fallen, and was expected to decline 
further.  On privatization, a measure that would assi st in reducing the budget de ficit, he noted that a 
large number of industrial enterprises, plantation and services sector enterprises  had been privatized.  
However, while the size of the public sector in ma nufacturing had been reduced the State continued to 
dominate the financial sector and utilities, and had a quasi-monopoly in health and education.  The 
State also remained the largest landlord, ow ning 90% of the land in the country.   
115. The representative of Chinese Taipei  congratulated the Sri Lankan delegation for their 
answers.  He had looked at the responses to the questions that his delegation had posed and their 
answers were satisfactory. 
116. The representative of Sweden  recognized that the figures given by the Sri Lankan delegation 
were very impressive but he sought further clarific ation as to whether the supplied figures covered the 
whole country. 
117. The representative of Sri Lanka  responded that these were official figures, which covered the 
full country. 
(ii) Trade policies by measure 
118. The representative of Sri Lanka  referred to rationalization, si mplification, and reduction of 
tariffs as the pillars of Sri Lanka's trade policy.  There had been a gradual decline in weighted tariff 
rates over the years, irrespective of the surcharge th at had to be imposed in 2001.  The surcharge had 
been reduced to 10% of the very low tariff, and would be phased out as soon as possible.  Sri Lanka 
was continuously converting NTBs into tariffs, ensuring greater transparency.  Sri Lanka was 
committed to actively promoting privatization of SOEs, with multiple objectives in mind.  The 
process had accelerated in recent years.   
119. Sri Lanka had had import licensing for various reasons, but now they were maintained only 
for non-economic reasons such as national security.  Moreover, due to the low incidence of such 
requirements it had been decided to close down the of fice of the Import Controller.  Nevertheless, Sri 
Lanka would closely examine all the licensing require ments with a view to further rationalizing them. 
120. Sri Lanka had prepared a four-year implementa tion plan outlining the measures to be taken 
for improving the government procurement mechan ism, and studies were in progress on the actual 
programme for the liberalization of government proc urement in line with the requirement under the 
GPA.  Sri Lanka intended to become an observer to the GPA, with a view to joining the Agreement. 
121. To protect intellectual property rights, Sri Lanka  had enacted a new Intellectual Property Law, 
effective 12 November 2003, which was in opera tion now.  It contained provisions that were 
compatible with the WTO TRIPS Agreement.  Th is IPR law provided for both civil remedies and 
criminal sanctions.  Sri Lanka was planning to en force this Act by training Customs and Police 
officers.  Training activities had already been planne d for the near future.  However, due to financial 
constraints the opportunities were rather limited.  He nce, technical assistance in the form of training 
by the WTO and its members was welcomed. 
122. Sri Lanka recognized that the adoption of inte rnational standards could contribute to the 
formulation of national standards thereby removing unnecessary obstacles to trade.  The Sri Lanka Standards Institute closely followed the path of harm onization;  for this he also requested technical 
assistance. 
123. The discussant
 noted that Sri Lanka had taken measures to diversify products and markets, as 
well as to improve competitiveness.  In terms of di versification of markets, Sri Lanka had used its WT/TPR/M/128 
Page 20  
 
participation in bilateral and regi onal agreements in its effort to gain new markets, reducing reliance 
on US and EU markets.  This was done without  compromizing its commitment to multilateralism. 
124. Sri Lanka had liberalized tariffs to a large exte nt:  the simple average applied MFN tariff was 
relatively low, at 9.8%, only 0.3% of tariff lines had rates over 35%;  this meant that tariff peaks were not significant in Sri Lanka.  He welcomed the re duction of the tariff surcharge and was encouraged 
to hear that it would be withdrawn or eliminat ed.  Ad hoc duty waivers had been streamlined and 
minimized.  However, there was still some concer n regarding predictability of the tariff because 
bound rates were higher than the a pplied MFN rate.  He encouraged the authorities to consider this 
point. 
125. The representative of the United States
 congratulated Sri Lanka for its performance and its 
prompt replies.  It was noteworthy that continued rationalization of the tariff remained a key focus of 
Sri Lanka's trade policy.  This was the one area  that the United States thought required further 
attention in order to enhance the stability and predic tability of the tariff regime.  Substantial work had 
been done in other areas of customs procedures and in import licensing.  He welcomed Sri Lanka's plans to improve government procurement procedures  and its intention to become an observer of the 
GPA.  On TRIPS, he was pleased that the Novemb er 2003 law was in force, and that it provided for 
both civil and criminal sanctions.  He welcomed th e Government's commitment to provide training as 
early as possible.  He noted Sri Lanka's capacity constraint and its request for technical assistance.  He referred to the work that was being done with resp ect to harmonization to in ternational standards and 
the request for technical assistance. 
126. The representative of Sri Lanka
 welcomed the comments made by the United States.  Sri 
Lanka looked forward to receiving technical assistance in the areas of harmonization to international 
standards and more importantly for the enforcement of the new intellectual property law.  Sri Lanka 
would shortly apply to become an observer of the GPA. 
(iii) Sectoral issues   
127. The representative of Sri Lanka  reiterated that trade in goods had been liberalized to a great 
degree, and trade in services was being liberalized.  However, as was common in almost all countries, 
the degree of liberalization across sectors was asymme tric.  Specifically, the agriculture sector had 
been the least liberalized, and it was a politically sensitive issue.  The difficulty was that many 
countries, both developed and develo ping, had resorted to stark protectionist policies thus depriving 
others of a level playing field in trade in agri culture.  Nevertheless, Sri Lanka was gradually 
dismantling subsidies, and streamlin ing tariffs, and eliminating para -tariffs and non-tariff barriers. 
128. Liberalization and privatization had gone hand in hand in Sri Lanka.  Many state-owned and 
large-scale operations were being liberalized and privatized.  Thus, their monopolistic nature was 
being dissolved and competition was taking place.  For example, telecommunication, gas, and 
petroleum sectors were privatized and liberali zed and, as a result, monopolistic conditions had 
disappeared with several players entering the markets. 
129. Almost all services sectors were substantially  liberalized.  Sri Lanka had allowed market 
access to any services provider via mode 3, and ha d allowed 100% equity ownership in almost all 
sectors.  There were no restrictions imposed on repatriation of foreign exchange via share holdings and profits.  Safety of foreign investme nt was guaranteed by the constitution.   
130. Sri Lanka had protected employees' rights.  This  very freedom was slowing down the need for 
drastic reforms in the labour market.  However, the sector had been reformed so that it would have a 
catalytic effect on overall productivity.  WT/TPR/M/128 
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131. He apologized for not being able to fully respond to the questions on the insurance sector.  Sri 
Lanka would submit the responses to the Secretariat as soon as possible for circulation. 
132. The discussant  reiterated that while there had been pr ivatization and liberalization the State 
continued to have an important role in some sector s.  There was still room for privatization in certain 
areas, clearly in the financial sector and utilities.  The Government had a quasi-monopoly in health 
and education.   
133. The representative of the United States  sought information on tourism, including Sri Lanka's 
plans for its future development. 
134. Regarding the question raised on edu cation, the representative of Sri Lanka  explained that the 
provision of private higher education (pre-university  education) in Sri Lanka had been opened to 
foreign entities.  Foreign universities could also conduc t courses in Sri Lanka.  At the technical level, 
education had also been opened to local and forei gners.  Sri Lanka had also approved the operation of 
privately owned international high education institu tes, which prepared students for the SAT, TOEFL 
and A-levels. 
135. Tourism was very important for Sri Lanka's ec onomy.  The sector had recorded steady growth 
in 2003 and there had been up to 500,000 tourist a rrivals.  Sri Lanka issued visas on arrival to 
facilitate the entrance of tourists.  Sri Lanka was also liberalizing air services:  any operator was 
allowed to operate internal air services in Sri Lanka;  five had already been approved.  Sri Lanka was 
planning to build a new airport, as one seemed a c onstraint for tourism;  offers had already been 
advertised.  Hotels could be 100%  foreign owned;  and Sri Lanka would welcome investors in this 
area.  Land was available on a 99-year lease close to Colombo and also at a distance from Colombo.  
Tourism was a high priority sector and a high growth sector.  The main problem was that there was a 
shortage of rooms;  Sri Lanka had to increase th e number of rooms available.  The transfer tax on 
purchase of land had recently been abolished, which s hould be of interest to possible investors in land 
for tourism in Sri Lanka.  The Ministry of Tourism was actively trying to lure more tourists.  Tourism 
in Sri Lanka had been concentrated in charter touris m, which was not a great net income provider.  As 
a result, Sri Lanka was now concentrati ng on attracting high spending tourism. 
136. The representative of the European Union  congratulated Sri Lanka for its responses.  She took 
note of the request for technical cooperation in re gard to intellectual property and harmonization of 
standards.  She also noted that Sri Lanka would s oon provide responses on questions raised by the EU 
on insurance services.  The EU was struck by Sri Lanka's programme of lib eralization and hoped the 
Sri Lanka would continue along this path. WT/TPR/M/128 
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VI. CONCLUDING REMARKS BY THE CHAIRPERSON 
137. This second Trade Policy Review of Sri Lanka has provided a c onstructive exchange of views 
between Sri Lanka and its trading partners, thereby clarifying many aspects of Sri Lanka's trade policy 
regime.  The resulting discussion has been greatly facilitated by the valuable contributions of 
Secretary Wickremasinghe, together with the othe r members of his delegation, and our discussant, 
Ambassador Muhammad Noor Yacob. 
138. Members commended the Government's efforts to press ahead with the reconstruction and 
rehabilitation programme outlined in the policy docum ent "Regaining Sri Lanka".  They encouraged 
the authorities to continue trade and other economic reforms, which along with lasting peace would be 
essential for the achievement of sustained econom ic growth and poverty reduction.  Members 
reiterated their support for Sri Lanka's peace and reform process and expressed their readiness to 
contribute to it.  They praised Sri Lanka's privati zation initiative and steps to deregulate the petroleum 
and energy sectors.  Concerns were raised a bout Sri Lanka's heavy dependency on a few export 
markets and products, such as textiles and clothing. 
139. Members appreciated Sri Lanka's constructiv e involvement in the WTO and urged the 
authorities to continue its active participation in  the current negotiations on agriculture, industrial 
products and services.  They noted Sri Lanka's shif t towards regional agreements.  In response, the 
authorities reiterated the country's firm commitment to the primacy of the multilateral trading system, 
stressing that their regional agreemen ts would complement multilateralism. 
140. Several Members expressed concern about the tariff regime's lack of predictability and 
transparency.  They also noted, inter alia :  the high level of applied MFN tariffs, particularly for 
agricultural products;  the low percentage of bound rates;  the large gap between bound and applied 
rates;  high tariff escalation and consequently high effective protection.  Members also remarked on 
other import charges (notably the surcharge and the Ports and Airports Development Levy) and encouraged Sri Lanka to overhaul its duty exemp tions.  Members referred to the special import 
licensing regime and sought clarification on whic h goods are subject to licensing for "economic 
reasons".  In addition, questions were raised rega rding import restrictions on meat products, import 
prohibitions on GM products, standard s, and contingency measures.   
141. Members welcomed the simplification of custom s procedures, particularly the introduction of 
computerized systems for customs clearance, and encouraged further streamlining.  On government 
procurement, Members commented, inter alia,  on the existence of price preferences for locally 
manufactured products and local work contracts as we ll as on the opacity of tendering procedures.  Sri 
Lanka was encouraged to reform the procurem ent system and Members welcomed Sri Lanka's 
announced intention to apply for observer status in  the GPA.  Members welcomed the introduction of 
new intellectual property legislation, and emphasi zed the need to follow this up with effective 
implementation and enforcement.  
142. On services, Members expressed their appreciati on for steps taken by the authorities to reduce 
state involvement and eliminate foreign equity rest rictions in financial services.  They commended 
efforts to liberalize the telecommunications market  and encouraged Sri Lanka to continue this 
process. 
143. Members also expressed their appreciation of the oral and written responses provided by the 
Sri Lankan delegation;  they look forward to recei ving replies to any outstanding questions.   
144. In conclusion, this Review has provided Member s with considerable insight into Sri Lanka's 
trade and trade-related policies.  It has helped to identify areas where further reforms could establish 
the basis for sustained economic growth, and thus lasting peace and prosperity.  Members encouraged  WT/TPR/M/128 
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Sri Lanka to liberalize its trade regime further a nd to continue its active participation in the DDA 
negotiations. 
__________