Sri Lanka WT/TPR/S/128 
 Page 27 
 
 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
(1) INTRODUCTION  
1. At the time of its previous Trade Policy Revi ew in 1995, Sri Lanka had made substantial 
progress in liberalizing trade as a part of its extensive economic reform programme introduced in the 
late 1970s.  Since then, liberalization efforts ha ve slowed and economic reform in general has 
received less attention as efforts have con centrated on ending the long civil conflict. 
2. The planned two-band tariff system has not been attained mainly because of revenue 
considerations and political pressure from protected  producers and other interest groups.  Reflecting 
these pressures, the tariff lacks pred ictability;  rates have been rai sed and lowered frequently during 
the period under review.  The current average app lied MFN tariff (as of March 2003) is 9.8%, up from 
9.2% in 2001.  In 2001, an impor t surcharge of 40% was introduced to  increase tax revenues, but then 
lowered to 20%.  A number of duty exemptions remain in place.  Their elimination could add 
transparency to the tariff and compensate for the possible decline in tariff revenue from the planned 
across-the-board tariff reduction.  Non-tariff barrier s, especially licences affect a substantial number 
of goods.  Moreover, as in the case of tariffs, licence s are removed and restored easily, and often used 
interchangeably with tariff increases.  Sri Lanka  does not have any provisions in place to use 
contingency measures.  Standardi zation is aimed at ensuring the quality, safety, and performance of 
products and services.  Sri Lanka’s national standard s and technical regulations follow international 
guidelines whenever possible.  
3. Export policies also suffer from inconsistencies.   In order to promote exports, procedures 
have been streamlined;  nevertheless, they continue  to be regulated by a myriad of laws.  Several 
incentive programmes (e.g. duty exemptions, drawback s, export-processing zones), some of which are 
contingent on export performance, are available to  support exports.  According to the authorities, 
export duties have been phased out in all sectors, although they may be restored if the Government 
feels that there is a need to promote further processing  of local materials.  Traditional exports are still 
subject to export cess;  apparently these cesses are ea rmarked to finance specific activities (e.g. R&D, 
export promotion, and to support small-scale land holde rs).  In addition, a few items are subject to 
export licensing.  Export competitiveness would bene fit from the implementati on of more coherent 
and predictable trade policies. 
4. Tax and non-tax incentives to develop expo rt-oriented industries and to promote 
industrialization remain in place.  Government in tervention through ownershi p and regulation remains 
important.  Privatization has been slow, and lo ss-making state-owned enterprises remain a heavy 
budgetary burden.  The main objective of privatiza tion has been to raise revenues rather than to 
improve economic efficiency of the enterprises and sectors involved.  As a result, in some sectors, 
private monopolies have merely replaced public ones;   a new competition law, passed by Parliament 
in January 2003, does not seems to address this  or other weaknesses of the former competition 
regime.  While new statutes have been drafted to go vern the protection of intellectual property rights 
(IPRs), it is not clear when these will come into for ce.  In any event, there is no evidence that the 
existing IPR laws are being enforced WT/TPR/S/128 Trade Policy Review 
Page 28 
 
 
 (2) MEASURES DIRECTLY AFFECTING IMPORTS  
(i) Procedures 
(a) Registration and documentation 
5. Importers (and exporters) must register with the Inland Revenue Department to obtain a tax 
identification number (TIN).  Once they have obtaine d the TIN, they can automatically register with 
Customs and operate in Sri Lanka.1 
6. The Import Division of the Sri Lanka Customs De partment consists of two separate units, one 
dealing with sea cargo in Colombo and one dealing with air cargo at Katunayaka.  To process the import document, a completed customs declaration (CUSDEC), signed by the consignee and/or the 
declarant, must be submitted to the Department with  all other relevant documents.  These may vary by 
case;  they include a delivery order, bill of lading, i nvoice, packing list, certificate of origin, certificate 
of registration with an English translation for used motor vehicles, and, if applicable, an import licence.  Sri Lanka Customs ensures that the necessary approvals have been obtained from the relevant government authorities (e.g. Import and Export Control Department, Sri Lanka Standard 
Institution, and Health, and Plant Quar antine) prior to releasing a cargo.  
7. In 1994 the processing of import documents was computerized with the implementation of the 
ASYCUDA system.  This was aimed at minimizing de lays, errors, and irregularities.  Sri Lanka is 
trying to implement an electronic data interchange (EDI) system.  
8. No duties are levied on goods in transit, or on trans-shipped goods.
2  Goods re-imported into 
Sri Lanka after two years of exportation are subject to the same duties, regulations, and restriction as 
any import.  Goods subject to any duty rebates or drawback at the time of exportation would be 
subject to the appropriate duties,  if re-imported into Sri Lanka. 
(b) Preshipment inspection 
9. Sri Lanka has no regulations on preshipment inspection.3   
(ii) Customs valuation and rules of origin 
(a) Customs valuation 
10. The Import Division of the Sri Lanka Customs Department is in charge of ascertaining 
whether commodities are correctly classified and valu ed for collection of the correct customs duty and 
other levies as well as for statistical purposes.4 
11. In 1995, Sri Lanka became a contracting part y to the WTO Agreement on Customs Valuation 
and invoked provisions to delay its application.  Sri Lanka was sche duled to apply these provisions by 
                                                      
1 Sri Lanka Customs (undated d). 
2 Trans-shipment means that goods are transferred under customs control from the importing means of 
transport to the exporting means of transport within the customs area. 
3 WTO documents G/VAL/W/41/Add.1, 3 March 2000, and G/PSI/N/1/Add.10, not yet distributed. 
4 Sri Lanka Customs (undated f). Sri Lanka WT/TPR/S/128 
 Page 29 
 
 
 1 January 2000, but has since requested and been gr anted several extensions to delay its application.5  
Sri Lanka required additional time to complete th e necessary legislation, administrative mechanisms 
and procedures, train Customs personnel, and modernize Sri Lanka Customs.  The required 
amendments to the Customs Ordinance were approved by Parliament on 11 December 2002.6  S r i  
Lanka started applying the WTO Custom s Valuation Agreement on 1 January 2003.7  Until that date, 
Sri Lanka used a valuation system based on the Brussels Definition of Value (BDV). 
12. Sri Lanka will continue to apply minimum va lues on used motor vehicles and motorcycles 
(HS 87.01-87.04 and 87. 11) until 1 March 2005.8   
(b) Rules of origin 
13. Sri Lanka does not apply rules of origin for imports from MFN sources.  Preferential rules of 
origin are applied under bilateral a nd regional trade agreements (Table III.1).  With the exception of 
the SAPTA rules of origin, which were reviewed dow nward in 1999, the other rules of origin applied 
by Sri Lanka have not changed since the last Review. 
Table III.1 
Rules of origin 
Agreement Rules of origin 
Bangkok Agreement No less than 50% value added "crite rion" for all signatory members (40% for LDC's). 
South Asia Preferential Trading 
Agreement (SAPTA) Foreign content should not exceed 60% of the f. o.b. value of the finished good if produced 
in a single country, (70% for LDC's);  and 50%  if several members are involved (40% for 
LDC's). 
Indo–Sri Lanka Free Trade Agreement Minimum national content 35% of  the f.o.b. value;  foreign content should not exceed 65% 
of the f.o.b. value of the product. 
Global System of Trade Preferences 
(GSTP) No less than 50% of the f.o.b. value of the fi nal good if it originates from a single member 
State, (60% for LDC's);  60% if severa l members are involved, (50% for LDC's). 
Source:  The Gazette  of the Democratic Republic of Sri Lanka, 5 Ja nuary 1979;  Government Notifications, Customs 
Notification Under Schedule A to the Customs Ordinance;  the Gazette of the Democratic Republic of Sri Lanka 
No. 794/8, 24 November 1993;  P. Weer aseekara and T Kananthalingam (2002), Customs Law of Sri Lanka 2002:  
A Manual ;  and Downward Revisions of the SAPTA Rules of Origin, Kathmandu, 5 April 1999. 
(iii) Tariffs 
(a) Applied tariff 
14. The Sri Lankan applied tariff (2003) has 6,225 tari ff lines at the eight-digit level, comprising 
rates ranging from 0% to 250%.  Most tariffs are ad valorem  levied on the c.i.f. value of imports;  
specific duties apply to 1.2% of all tariff lin es.  The simple average applied MFN is 9.8%. 
15. At the time of the last Trad e Policy Review in 1995, and in other instances since, the Sri 
Lankan authorities have stated their intention to simplify the tariff structure, by moving towards a 
two-band system, and reducing the simple average app lied MFN rate to a single digit.  Despite this 
                                                      
5 WTO documents G/VAL/W/41, 24 September 1999;  G/VAL/W/41/Add.1, 3 March 2000;  
G/VAL/W/41/Add.2, 11 October 2000;  G/VAL/W/90, 15  October 2001;  G/VAL/W/90/Add.1, 22 October 
2001;  G/VAL/W/90/Corr.1, 25 October 2001; G/VAL/52, 8 January 2003. 
6 Sri Lanka’s draft legislation regarding the application of the WTO Agreement on Customs Valuation 
is in WTO document G/VAL/W/99, 25 April 2002. 
7 WTO document G/VAL/W/118, 10 January 2003. 
8 WTO document G/VAL/W/118, 10 January 2003. WT/TPR/S/128 Trade Policy Review 
Page 30 
 
 
 intention, the applied tariff in 1998 and 2001 comp rised 11 and 10 rates, respectively, ranging from 
0%-250%;  the 2003 applied tariff still comprises 11 rat es.  Most goods bear applied tariffs of 0-5%, 
5-10%, and 20-25% (Chart III.1).  The major change  in the distribution of applied rates was the 
reduction in duty-free lines from 36.2% in 2001 to 10% in 2003, seemingly in an effort to render the 
applied MFN tariff more uniform and to collect more revenue.  In 2001 there were 2,188 duty-free 
items compared with only 625 in 2003.  In addition, the number of tariffs subject to specific duties has 
increased since 1998 from 0.6% to 1.2%, rendering the tariff less transparent (Table III.2).  Specific 
duties affect mainly agricultural products (Chapt er IV).  However, during 2003 the list of goods 
subject to specific or alternate duties has been  expanded to include goods such as bicycles 
(HS 8712.00.09) and footwear (HS 6401, 6402, 6403, and 6405).9  In the absence of AVEs to indicate 
otherwise, specific rates may well conceal tariff peaks. 
 
16. The average level of applied MFN tariff prot ection has declined substantially from 20% in 
1995 to 9.8% in 2003, notwithstanding the impos ition of tariffs (ranging from 2% to 10%) on 
formerly exempted goods.  This was part of a package of measures taken in the 2003 Budget to 
increase revenue, which raised the average applie d MFN tariff from 9.2% in 2001 to 9.8% in 2003 
(Table III.2).  
                                                      
9 Information provided by the authorities. 
02004006008001,0001,2001,4001,6001,8002,0002,2002,4002,600
Duty free >0- 5 >5-10 >10-15 >15-20 >20-25 >25-30 >30-35 >35
Not applicable.
Calculations exclude speci fic rates and include the ad valorem  part of alternate rates.    Figures in parentheses 
denote the share of total lines.  Totals do not add up to 10 0% as no tariff rate is available for 0.6%, 0.5%, and 0.7% 
(representing specific lines) for respectively 1998, 2001, and 2003.WTO Secretariat calculations
, based on data provided b y the Sri Lankan authorities.Number of tariff linesChart III.1
Distribution of MFN tariff rates, 1998, 2001 and 2003
Tariff rates
n.a.
Note:
Sourc e:MFN 1998
MFN 2001
MFN 2003
Sri Lanka WT/TPR/S/128 
 Page 31 
 
 
 Table III.2 
Structure of MFN tariffs in Sri Lanka 
(Per cent)  
 1998 2001 2003a Final boundb 
1. Bound tariff lines (% of all tariff lines)c 36.7 36.6 .. 36.6 
2. Duty-free tariff lines (% of all tariff lines) 19.8 36.2 10.0 0.2 
3. Non- ad valorem  tariffs (% of all tariff lines) 0.6 0.7 1.2 1.7 
4. Tariff quotas (% of all tariff lines) 0.0 0.0 0.0 0.0 
5. Non- ad valorem  tariffs with no AVEs (% of all tariff lines) 0.6 0.7 1.2 1.7 
6. Simple average bound rate .. .. .. 31.2 
 Agricultural products (HS01-24) .. .. .. 49.5 
 Industrial products (HS25-97) .. .. .. 19.7 
 WTO agricultural products .. .. .. 49.8 
 WTO non-agricultural products .. .. .. 19.9 
 Textiles and clothing .. .. .. 12.5 
7. "Nuisance" bound rates (% of all tariff lines)d .. .. .. 0.0 
8. Simple average applied rate 11.8 9.2 9.8 .. 
 Agricultural products (HS01-24) 27.0 21.5 21.0 .. 
 Industrial products (HS25-97) 9.4 7.2 7.9 .. 
 WTO agricultural products 27.6 21.5 21.3 .. 
 WTO non-agricultural products 11.5 7.2 8.0 .. 
 Textiles and clothing 6.9 5.8 5.2 .. 
9. Domestic tariff "spikes" (% of all tariff lines)e 0.3 0.5 0.3 .. 
10. International tariff "spikes" (% of all tariff lines)f 26.5 20.8 21.9 .. 
11. Overall standard deviation (SD) of tariff rates 14.2 12.8 12.4 .. 
12. "Nuisance" applied rates (% of all tariff lines)d 0.0 0.0 27.1 .. 
.. Not available. 
a As at March. 
b Final bound calculations are based on the 2001 tariff schedule.   Calculations are based on 36.6% bound rates (2,210 tariff li nes) 
only. 
c Out of which 36.5% and 36.4% are fully bound, resp ectively for 1998 and 2001, and 0.2% are partially bound. 
d "Nuisance" rates are those greater than  zero, but less than or equal to 2%. 
e Domestic tariff spikes are defined as those exceeding th ree times the overall simple applied rate (indicator 8). 
f International tariff spikes are defined as those exceeding 15%. 
Note: Excluding specific rates.  The ad valorem  part of alternate rates are taken into account for the calculations.  The 1998 and 2001 
tariff is based on 8-digit HS96 nomenclature;  th e 2003 tariff is based on 8-digit HS02 nomenclature. 
Source:  WTO Secretariat calculations , based on data provided by the Sri Lankan authorities.  
17. The Sri Lankan tariff shows a clear pattern of escalation in certain industries, with a higher 
tariff on processed items than on semi-processed goods and raw materials (Chart III.2).  The Sri 
Lankan tariff provides higher levels of protecti on for processed goods and raw materials than for 
semi-processed goods.  This has promoted th e development of a manufacturing sector, which 
concentrates on processing of parts and components.  This is for instance the case in the wood and 
furniture industry and in the textile industry, Sr i Lanka’s most important manufacturing and export 
product.  This pattern of protection has increased since 1998 as tariffs on certain inputs were reduced 
to assist specific sectors (e.g. the textil es and clothing sector) (Chapter IV). WT/TPR/S/128 Trade Policy Review 
Page 32 
 
 
  
05101520253035
Food,
beverages
and tobaccoTextiles and
leatherWood and
furniturePaper,
printing and
publishing Chemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products and
machineryOtherChart III.2
Tariff escalation by 2-digit ISIC industry, 1998 and 2003
05101520253035
Food,
beverages
and tobaccoTextiles and
leatherWood and
furniturePaper,
printing and
publishingChemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products and
machineryOtherAverage applied rate in manufacturing
(11.2%)
Not applicable.
Calculations exclude specific rates and include the ad valorem  part of alternate rates.  1999 tariff is based on 
HS96 and 2003 tariff is based on HS02 nomenclature.WTO Secretariat calculations, based on data provided by the Sri Lankan authorities.n.a.
Note:
Source :Per cent
First sta ge of processin g Fully processed Semi-processedPer cent
Average applied rate in manufacturing
(9.3%)1998
2003Sri Lanka WT/TPR/S/128 
 Page 33 
 
 
 18. Since 1998, the simple average tariff for agri cultural goods (WTO definition) has decreased 
from 27.6% to 21.3%.  Despite this decline, the average for agricultural goods  remains substantially 
higher than for manufactured goods (Table III.2 and Table III.3).  Tobacco, and beverages and spirits 
receive the highest protection.  Tobacco is the on ly agricultural subsector in which protection has 
increased substantially since 1998, from 148.6% to 152.8%;  other activities in  which protection has 
increased slightly include live animals and dairy products, but protection has declined in most agricultural sectors.  Non-agricultural products have  been protected by an average tariff of 9.3%, 
7.2%, and 8% in 1988, 2001, and 2003 respectively.  The recent rise in the average rate may be attributed to the (already mentioned) decline in  the number of duty-free goods.  During the period 
under review, manufactured goods such as leather, rubbe r, footwear and travel goods, and wood, pulp, 
paper, and furniture have benefited fro m above average rates of protection. 
Table III.3 
Summary analysis of Sri Lanka's MFN tariff, 1998, 2001, and 2003  
 MFN 1998  MFN 2001  MFN 2003a 
 No. of 
lines Average 
(%) Range 
(%) No. of 
lines Average 
(%) Range 
(%) No. of 
lines Average 
(%) Range 
(%) 
Total  6,018  11.8 0-250  6,040  9.2 0-250  6,225  9.8 0-250 
By WTO definition       
Agricultural products 833  27.6 0-250 837  21.5 0-250 883  21.3 0-250 
Live animals and products thereof  93  26.9 0-30  93  22.4 0-25 108  22.7 2-25 
Dairy products  25  24.8 10-30  25  19.0 10-25  21  20.7 10-25 
Coffee and tea, cocoa, sugar, etc. 179  28.7 0-35 182  21.6 0-35 180  21.6 2-25 
Cut flowers and plants  50  13.8 0-35  49  10.1 0-25  49  9.8 0-25 
Fruit and vegetables 176  33.6 0-35 177  24.3 0-35 213  23.9 0-25 
Grains  18  23.9 0-35  18  18.6 0-35  18  13.0 0-25 
Oils seeds, fats, oil and their products  78  26.2 10-35  79  19.4 0-25  81  17.0 0-25 
Beverages and spirits  39  32.9 20-35  39  24.1 10-25  45  24.4 10-25 
Tobacco  19  148.6 50-250  19  148.6 50-250  18  152.9 50-250 
Other agricultural products, n.e.s. 156  11.5 0-35 156  8.1 0-25 150  7.8 0-25 
Non-agricultural products (excl. 
petroleum)  5,172  9.3 0-35  5,189  7.2 0-25  5,324  8.0 0-25 
Fish and fishery products 118  10.2 0-30 118  9.5 0-25 139  10.3 2-25 
Mineral products, precious stones, etc. 395  12.5 0-30 382  10.4 0-25 368  10.9 0-25 
Metals 660  9.8 0-30 659  6.7 0-25 675  7.7 2-25 
Chemicals and photographic supplies 948  7.9 0-30 948  3.8 0-25 989  5.1 0-25 
Leather, rubber, footwear, travel goods  184  18.3 0-30 186  14.2 0-25 193  14.9 2-25 
Wood, pulp, paper and furniture 332  13.8 0-35 359  11.6 0-25 329  12.3 2-25 
Textiles and clothing 876  6.9 0-30 877  5.8 0- 25 890  5.2 0-25 
Transport equipment 257  9.6 0-30 259  7.9 0-25 306  10.5 2-25 
Non-electric machinery 623  6.1 0-30 622  5.7 0-25 650  6.4 2-25 
Electric machinery 294  9.4 0-30 294  7.9 0-25 288  10.0 2-25 
Non-agricultural products, n.e.s. 485  10.7 0-30 485  9.4 0-25 497  9.8 2-25 
Petroleum  13  16.9 10-30  14  14.6 0-25  18  5.0 0-20 
By sectorb          
Agriculture and fisheries 383  21.8 0-75 385  17.0 0-75 428  16.7 0-75 
       Table III.3 (cont'd)WT/TPR/S/128 Trade Policy Review 
Page 34 
 
 
  MFN 1998  MFN 2001  MFN 2003a 
 No. of 
lines Average 
(%) Range 
(%) No. of 
lines Average 
(%) Range 
(%) No. of 
lines Average 
(%) Range 
(%) 
Mining 107  6.9 0-30 107  4.7 0-25 107  5.3 0-25 
Manufacturing  5,527  11.2 0-250  5,547  8.7 0-250  5,689  9.3 0-250 
By stage of processing        
First stage of processing 756  16.1 0-75 759  12.3 0-75 804  12.4 0-75 
Semi-processed products  1,887  7.2 0-35  1,887  3.8 0-35  1,933  4.4 0-25 
Fully-processed products  3,375  13.4 0-250  3,394  11.4 0-250  3,488  12.1 0-250 
a As at March. 
b ISIC (Rev.2) classification.  Electricity, gas and water are excluded (1 tariff line). 
Note: Excluding specific rates.  The ad valorem  part of alternate rates are taken into account  for the calculations.  1998 and 2001 tariffs 
are based on HS96 and 2003 tariff is  based on HS02 nomenclature. 
Source:  WTO Secretariat calculations , based on data provided by the Sri Lankan authorities. 
19. The Treasury Secretary reportedly stated that fo r many years import duties have been used 
"both as a source of revenue and as a means of influencing the speed and direction of economic 
growth by protecting selected... industries".  The Government's policy is to move towards a "low 
standardized tariff structure".  This, according to the authorities, will be in conflict with revenue 
objectives.10  However, the elimination of tariff exemptions could mitigate the loss in revenue of a 
future decrease in tariff rates.  It has been estim ated that as a consequence of existing exemptions 
some 70% of all imports enter Sri Lanka duty free.11 
(b) Bound tariff 
20. In the Uruguay Round, Sri Lanka bound most agricu ltural and other non-agricultural tariffs, at 
50%.  Since then Sri Lanka has bound all items incl uded in Annex I of the Agreement on Agriculture 
and has fully bound all tariffs affecting textiles (HS Section 11)12 (Chart III.3).  Some agricultural 
items were not bound at the time of the Uruguay Round because they were subject to Article XXVIII 
negotiations;  the authorities expect these negotiations to be finalized by end- 2003.  Additional tariff 
concessions affecting textiles and clot hing came into effect on 1 March 2001.13  Most bound rates are 
ad valorem , there is one specific bound tariff rate (HS 24.11.002) and there are 38 alternate rates 
(1.7% of total bound rates).14  Bound tariffs range from 0% to 75% ;  some 47% of all bound tariffs are 
bound at 50%.  Bound rates greatly exceed applied rates;  this provides the authorities with 
considerable scope to raise applie d tariffs, which the authorities have done in 2003, although the trend 
in applied rates is downwards.  Such scope undermines the predictability of the tariff. 
                                                      
10 The Island , 9 September 2003 [Online].  Available at:  http://www.island.lk/2003/08/busine02.html 
[10 September 2003]. 
11 UNESCAP (2003a). 
12 Textiles and clothing using the WTO definition is not fully bound.  The WTO classification includes 
unbound tariff lines from HS Chapters 39, 65, 66, and 77. 
13 Modifications and rectifications to Schedule VI of Sri Lanka were  certified and became effective on 
7 June 2001 (WTO document WT/Let/398, 22 June 2001), and WTO document  G/MA/TAR/RS/77, 
7 March 2001. 
14 Out of 2,210 (including 11 partially bound rates) 2,171 are ad valorem  rates, one specific and 
38 alternate rates. Sri Lanka WT/TPR/S/128 
 Page 35 
 
 
  
(c) Tariff quotas 
21. Sri Lanka does not apply tariff quotas.  
(d) Variable levies and seasonal tariff 
22. Sri Lanka does not seem to apply variable levi es or seasonal tariffs.  However, agricultural 
tariffs are changed in certain instances according to domestic supply;  these tariff changes have the 
same results as a seasonal tariff.   
(e) Concessional entry and exemptions 
23. Imported goods may be stored in a bonded warehous e exempt of duties for up to two years.  If 
goods are taken out of the warehouse for domestic consumption, they are subject to duties.  No duties 
are levied if goods are exported.   Warehoused goods may be sorted, separated, packed or repacked, 
and any other alterations necessary for the preservation,  sale, shipment or disposal of the warehoused 
goods are allowed.  The Director-General of Cu stoms may allow the processing and manufacturing of 
goods in warehouses, in the interest of the count ry's "economic development".  These goods are 
subject to duties if released for consumption in Sri Lanka. 0102030405060708090100
010203040506070809101112131415161718192021
TotalChart III.3
Share of bound tariff lines by HS section, 2001
Per cent
Source:   W TO Secretariat calculations, based on information prov ided by the Sri L ankan authorities.Fully bound Partially bound
01 Live animals and prod.  
02 Vegetable products
03 Fats and oils      
04 Prepared food, etc.
05 Mineral products
06 Chemical and prod.07 Plastic and rubber
08 Hides and skins
09 Wood and articles
10 Pulp, paper, etc.
11 T extiles and articles
12 Footwear, headgear13 Articles of stones
14 Precious stones, etc.
15 Base metals and prod.
16 Machinery
17 T ransport equipment
18 Precision instruments19 Arms and ammunition
20 Miscellaneous manuf.
21 Works of art, etc.WT/TPR/S/128 Trade Policy Review 
Page 36 
 
 
 24. Under the Revenue Protection Order15, an array of imported inputs and capital goods may be 
imported at a concessional duty rate of 2.5% (T able AIII.1).  In addition, under the terms and 
conditions approved by the Secretary of Treasury, export-oriented industries are allowed to import goods under concessional terms.  The concession is contingent upon the quantity exported 
(section (3)(vii)). 
25. Duty exemptions are granted on a list of goods, if the Director-General of Customs is able to 
verify that goods have been imported for the purpose indicated and that approval has been obtained from the Secretary to the Treasury.
16  The Minister may, if deemed necessary in the "public interest", 
exempt by Order any imported good (Chapter 19A).17  This Order must be published in the Gazette 
and be tabled in Parliament;  it can be revoked by Parliament. Imported goods  to be used by the 
President are exempt from duties. 
(f) Tariff preferences 
26. Preferential rates are granted for certain articles in view of several multilateral (GSTP, 
Bangkok Agreement), regional (SAARC (SAPTA)), and bilateral agreements (Indo–Sri Lanka).18  
These preferences, with the exception perhaps of those provided under Indo–S ri Lanka Agreement, 
are not significant as they are not substantially lowe r than the simple average applied MFN of 9.76% 
(or 9.8%) (Table III.4). 
Table III.4 
Sri Lanka's preferential rates, 2003 
(Per cent) 
Agreement  Simple average (%) 
Global System of Trade Preference (GSTP) countries 9.72 
Bangkok Agreement countries   9.66 
SAARC Preferential Trade Arrangement (SAPTA) countries   
General 9.73 
Least developed countries (LDCs)  9.71 
Indo-Sri Lanka Free Trade Agreement 8.26 
Average MFN applied tariff rate 9.76 
Source:  WTO Secretariat, based on data provided by the Sri Lankan authorities. 
(iv) Other charges affecting imports  
27. Imports are subject to several additional levies:   an import surcharge, the VAT, excise duty, 
cess, the Ports and Airports Development Levy (PAL), seal charges (Rs 100 per container), and a 
container examination charge (Rs 400 for the firs t container and Rs 100 per additional container).19  
28. Most imports, with the exception of basic goods , are subject to a 20% surcharge effective 
from 1 January 2003 to 31 December 2003.20  This surcharge was reduced from 40% in 2002.  The 
                                                      
15 Information provided by the Sri Lankan authorities based on the Revenue Protection Order 
No. 07/2002.  
16 Weeserasekera and Kananathalingam (2002). 
17 According to the authorities, "public interest" refers to ensuring the availability of essential consumer 
goods at an affordable price and of good quality. 
18 Weeserasekera and Kananathalingam (2002). 
19 Sri Lanka Customs (undated f) and (undated d). Sri Lanka WT/TPR/S/128 
 Page 37 
 
 
 authorities were planning to phase it out by the end of  2003, but this period has been extended, the 
authorities have no phase-out plans.21  They consider that its elimination is not possible at present 
because of the reductions made in the 2002 and 2003 Budgets to other taxes, including to the 
corporate and personal taxes (Section (4)(ii)(a)).22  The surcharge is based on the c.i.f. value and the 
import duty (i.e. c.i.f. value times import duty). 
29. The VAT is levied on imported and domestically produced goods alike.  It came into 
operation on 1 August 2002 to replace the goods and ser vices tax (GST) and the national security levy 
(NSL).23  The VAT is levied on all goods at a general rate of 20%, and at a reduced rate of 10% and 
0%.  Some 219 goods were subject to a reduced ra te;  these are goods that were subject only to the 
NSL prior to the introduction of the VAT;  they  include maize, textiles and handloom products, 
machinery, and medical and surgical instruments.   Some 465 goods, including basic food, fertilizers, 
and petroleum oil and gases, are totally exempt.24  In the case of imports, the VAT is levied on the 
c.i.f. value of the good plus the import duty, the import surcharge, the cess, and the excise duty25;  it is 
also levied on top of any excise taxes, which are applied to imported a nd domestically produced 
goods alike.   
30. Imported cigars, cheroots, cigarillos, cigarettes made of tobacco or of a tobacco substitute, 
and manufactured tobacco substitute are subject to import cess.  The rate of this cess was not made 
available to the Secretariat.  It is not clear whet her similar domestically pr oduced goods would also be 
subject to cess.  A cess of 1% is levied on imports of plastic.  Imports subject to a tariff higher than 45% are subject to a 10% import cess.  This is the Export Development Board (EDB) cess, a levy 
used to finance the EDB. 
31. Excise duties are levied on tobacco products, o il products, and motor vehicles (Table III.5). 
32. Imports are also subject to the Ports and Airports Development Levy (PAL) at a rate of 1% or 
a concessionary rate for imports used solely for processing and re-export purposes.
26  As of 1January 
2003, the PAL levied on imports used solely for processing and re-export was reduced from 0.75% to 
                                                                                                                                                                     
20 Exempted goods include milk and cream (HS h eadings and sub-headings:  0402.10, 0402.21, 
0402.29, 0402.91, 0402.99, and 0402.99.09);  potatoes (HS 0701.90);  onions and shallots (HS headings and 
sub-headings:  0703.10, 0703.10.01, 0703.10.02, and 0703.10.09);  dried leguminous vegetables (HS headings 
and sub-headings:  0713.40, 0713.40.01, and 0713.40.02);  chillies (HS headings and sub-headings:  0904.20, and 0904.20.01);  rice (HS 10.06);  wheat or meslin flour (HS 11.01);  edible oil (HS heading and sub-headings:  
1507.10, 1507.90, 1511.10, 1511.90, 1511.90.01 , 1511.90.02, 1511.90.09, 1512.11, 1512.19, 1513.11, 
1513.11.01, 1513.11.09, 1513.19, 1513.19.01, 1513.19.0 9, 1513.21, 1513.29, 1515.21, 1515.29, and 1515.50); 
sugar (HS 1701);  infants' milk foods (HS 1901.10.01);  infants' food (HS 2106.90.05);  and Chapters 50 to 63 
both inclusive (Sri Lanka Customs, undated e). 
21 In March 2003 the authorities stated that the surcharge would be cut to 10% by January 2004, and 
then fully eliminated by January 2005 (IMF, 2003b). 
22 Ministry of Finance (2003). 
23 Other information provided to the Secretariat indicates that th e VAT replaced only the goods and 
services tax.  The Secretariat was unable to clarify the situation. 
24 For a complete list of these products at the HS eight-digit level see:  
http://www.customs.gov.lk/slcnew/ Articles/NewV at.htm and Sri Lanka Customs (undated e). 
25 VAT calculation:  VAT (c.i.f. value + import duty + surcharge + cess + excise duty). 
26 Information provided by the authorities. WT/TPR/S/128 Trade Policy Review 
Page 38 
 
 
 0.5%.27  In addition, tobacco (HS 240110) imported for processing and re-export has been exempted 
from the PAL.28 
Table III.5 
Excise (special provisions) duty 
(Per cent and Sri Lankan rupees) 
Good  Rate 
Cigarettes  
 60 mm in length Rs 1,330 per 1,000 sticks 
 60 mm-67 mm Rs 3,142 per 1,000 sticks 
 67 mm-72 mm Rs 4,503 per 1,000 sticks 
 72 mm-84 mm Rs 4,965 per 1,000 sticks 
 84 mm Rs 5,156 per 1,000 sticks 
Pipe tobacco Rs 250 per kg. 
Diesel Rs 3.00 per litre 
Petrol Rs 21.00 per litre 
Motor vehicle  
 Petrol cars 15% 
 Diesel cars 65% 
Vans 35% 
Source:  IMF (2002), Sri Lanka:  Selected Issu es and Statistical Appendix,  IMF Country Report No. 02/208. 
(v) Import prohibitions, restrictions, and licensing 
(a) Import prohibitions and restrictions 
33. Import prohibitions, which apply to a range of  goods, are maintained for health, safety, 
security, environment, and moral reasons (Table AIII.2).  The list of prohibited imports may be 
amended by Parliament at any time.29  If prohibited imports enter Sri Lanka they will be forfeited and 
destroyed and the importer is subject to a fine.  In  certain instances, import prohibitions do not apply 
to the Government. 
(b) Import licensing 
34. Sri Lanka notified to the WTO its rules regard ing import licensing procedures in May 2003.30  
The Special Licensing Scheme (SIL), which was in troduced on grounds of national security, health 
and environment, as well as "economic " reasons remains in place.  At the time of the previous Review 
licences covered an array of goods including grains, chemicals, petroleum, and motor vehicles.  In 
2003 (March), 474 items at the eight-digit level we re subject to import licensing (Chart III.4).  
Licences are issued in one hour by the Department of Import and Expor t Control at a fee of 0.1% of 
c.i.f value;  they are valid for six months from the da te of issue.  According to the authorities, import 
licences are a policy instrument used by the Govern ment from time to time to control domestic supply 
and prices;  import licences, especially on agricu ltural goods, are removed and imposed frequently 
(Table III.6). 
 
                                                      
27 Ministry of Finance (2003). 
28 Sri Lanka Customs (undated g). 
29 According to the authorities, this means when the need arises.  
30 WTO documents G/LIC/N/1/LKA/1, 20 May 2003;  and G/LIC/N/3/LKA/1, 27 May 2003. Sri Lanka WT/TPR/S/128 
 Page 39 
 
 
  
Chart III.4
Import licensing by HS section, as at March 2002
Mineral products (V)
6.1Prepared foodstuffs  & beverages (IV)
4.2Precious metals;  coins  (XIV)   1.3
Chemicals & prod. thereof (VI)
26.8Machinery & electrical equip. (XVI)
7.2
Rubber & articles thereof (VII)
1.1Other
3.2Transport equipment (XVII)
25.7
Arms and ammunition (XIX)  
4.4
Live animals & products (I)
12.0Per cent
Source : Data provided by the authorities of Sri Lanka.Note:    Percentages refer to the share in total import licensing.  Numbers in parenthesis show HS section number.      
             Other includes the following HS sections, each with a share of less than 1%:  vegetable products (II),              animal/veg etable fats and oils (III),  paper or paperboard (X ), articles of stone, cement (XIII), and precision 
             instruments (XVIII).Misc. manufactured articles  (XX)  
8.0
 
 
Table III.6 
Selected amendments to the import licensing regime, 2000-03 
Items Licence requirement-
imposed or removed Reasons Gazette No. and date 
Wheat and wheat flour Removed To liberaliz e wheat flour imports 1121/9 of 29.02.2000 
Rice and used furniture Imposed To protect local producers 1141/26 of 21.07.2000 
Vehicle parts Imposed To protect local producers 1179/20 of 12.04.2001 
Cigarette papers Imposed To avoid revenue  loss to the Government. 1203/31 of 28.09.2001 
Cashew nuts  Imposed To protect local producers 1214/15 of 12.12.2001 
Rice Removed To protect consumers 1228/15 of 22.03.2002 
Inboard and outboard motors Removed To protect tourist and fisheries industries 1294/26 of 25.06.2003 
Source:  Government of Sri Lanka. 
(c) Import quotas 
35. According to the authorities, seasonal import quot as on food items, such as potatoes and dried 
chillies, have been removed.  Only importers of food were allowed to import these items and 
importation was subject to a licence, which was granted based on the importer's past performance.31  
In 2003, Sri Lanka notified the WTO that  it applies no quantitative restrictions.32 
                                                      
31 WTO (1996). 
32 WTO document G/MA/NTM/QR/1/Add.10, not distributed yet. WT/TPR/S/128 Trade Policy Review 
Page 40 
 
 
 (vi) Contingency measures  
(a) Anti-dumping and countervailing measures 
36. Sri Lanka has no laws or regulations gove rning anti-dumping or countervailing actions.33  
However, it intended to introduce anti-dum ping legislation towards the end of 1997.34  A draft anti-
dumping (and countervailing duties) law has been prepar ed, but it has not been enacted.  According to 
notifications to the WTO, Sri Lanka  has taken neither anti-dumping actions35, nor countervailing 
actions during 1996-02.36  Sri Lanka made no notifications regarding anti-dumping actions for 2000 
and 2001, nor regarding countervailing actions during 2001. 
(b) Safeguard measures 
37. Sri Lanka has no laws or regulations relevant  to safeguard measures.  However, it has 
indicated its intention to formulate legislation in this regard.   
38. Sri Lanka retained its right to use the transiti onal safeguard for products  covered in the Annex 
to the WTO Agreement on Textiles and Clothing.37 
(vii) Standards and other technical requirements 
(a) Standards, technical requirements, and certification 
39. The Sri Lanka Standards Institution (SLSI) is the national standards body operating under the 
Ministry of Science & Technology.  It is in charge  of formulating standards, certifying products and 
systems, inspecting imports and exports, and pr oviding laboratory services such as industrial 
measurement and calibration services.38 
40. The national standards formulated by the SLSI  are developed through a participatory and 
consultative process, with the voluntary involvem ent of all interested parties representing, inter alia , 
consumers, producers, and independent technical organizations.  In the formulation of national 
standards, SLSI's policy is to be as far as possible in  line with international standards;  international 
standards are adopted as Sri Lanka Standards, whenever feasible.39  The standards prepared by SLSI 
are mostly for products and processes.  They descr ibe the officially recognized levels of quality, 
safety, durability, and performance of products and services that are appropriate for the Sri Lanka 
market. 
41. There are over 1,600 Sri Lanka Standards rela ting to products, commodities, materials, 
processes and practices.40  According to information provided by the authorities, only 47 Sri Lankan 
Standards conform to international standards.  Sri Lanka Standards are intended to be voluntary unless 
made compulsory under the provisions of the Sr i Lanka Standards Institution Act or by specific 
                                                      
33 WTO document G/ADP/N/1/LKA/1 – G/SCM/N/1/LKA/1, 26 April 1995. 
34 WTO document G/ADP/Q1/LKA/1 – G/SCM/Q1/LKA/1, 19 February 1997. 
35 WTO documents G/ADP/N/- series;  and WTO documents G/ADP/N/92/Add.1/Rev.2 and 
G/ADP/N/98/Add.1/Rev.1, not yet distributed. 
36 WTO documents G/SCM/N/- series; and WTO documents G/SCM/N/93/Add.1/Rev.1 and 
G/SCM/N/98/Add.1, not yet distributed. 
37 WTO document G/TMB/N/23, 6 March 1995. 
38 SLSI (undated). 
39 SLSI (2003c). 
40 SLSI (2003c). Sri Lanka WT/TPR/S/128 
 Page 41 
 
 
 reference to standards in other acts and regulations .  According to the authorities, there are some 87 
technical regulations in place.  However, the Imports (Standardization and Quality Control) 
Regulations 2001 includes a list of some 84 items, which must conform to a Sri Lanka Standard 
(SLS), otherwise they cannot be imported (Chart III.5).41  These goods are subject to the Import 
Inspection Scheme (IIS) to ensure their conformity with the relevant (SLS).42  Importers must furnish 
a certificate of compliance with th e stipulated standard, issued by a laboratory in the exporting 
country, that is accredited by a recognized accr editation body or recognized by the Sri Lanka 
Standards Institution.43  
Chart III.5
Items that must comply with SL standards, by HS section, 2001
Fats & oils (III)
13.1
Prepared foodstuffs
 & beverages (IV)
21.4Textiles & articles thereof  (XI)   2.4
Chemicals & prod. thereof (VI)
10.7Machinery & 
electrical equipment (XVI)
25.0
Plastics & rubber (VII)
6.0Other
4.8Base metals & articles 
thereof (XV)
9.5
Articles of stone, asbestos etc. (XIII)  2.4
Live animals & products (I)
4.8Per cent
Source : Sri Lanka Customs Department online information.  Available at:     
               http://www.customs.gov.lk/laws/SLSI/SLSI-Regulations.htm [23 April 2003].Note:     Percentages refer to the share in total compul sory standards.  Numbers in parenthesis show HS section 
               number.  Other includes one item each of the following HS section:  mineral  products (V), paper or                paperboard (X), headgear (XII) and miscellaneous manufactured articles (XX).
 
 
42. The "SLS Marks Scheme" is Sri Lanka’s produc t certification scheme.  The SLSI allows 
domestic and overseas manufacturers who produce goods that conform to Sri Lanka standards to put 
the "SLS mark” on their products.44  The SLS mark means that the product has been manufactured in 
accordance with the relevant Sri Lanka standards spec ification and is verified by regular inspections 
and tests by the SLSI.  Sri Lanka standards form the basis for this certification.45  Product certification 
is, in general, voluntary;  nevertheless, some 22 of the aforementioned 84 items are covered by the 
                                                      
41 For a complete list of these items and the standard/technical regulation see: 
http://www.customs.gov.lk/laws/SLSI/SL SI-Regulations.htm [23 April 2003]. 
42 SLSI (2003d). 
43 Sri Lanka Standard Institute Regulations for Imports, Extra Ordinary Gazette Notification 
No. 1203/29, 28 September 2001 [Online].  Availabl e at:  http://www.customs.go v.lk/law/customs/index.htm 
[18 February 2003]. 
44 The procedures to obtain a permit from SLSI to use the certification mark are available online at:  
http://www.nsf.ac.lk/slsi/qa. htm [18 March 2003].  
45 SLSI (2003b). WT/TPR/S/128 Trade Policy Review 
Page 42 
 
 
 compulsory certification marks scheme (i.e. they must bear the SLS mark)46 for health and sanitary 
reasons.  Up to now, permits to use the SLS mark  have been granted only to local producers;  
however, a few applications from overseas manufactu rers are being considered.  Some 200 permits 
were granted during 1996-03 (31 August).  Permits ma y be revoked if production stops, if fees are not 
paid47, or if the product does not conform.  During the period under review, 12 permits have been 
cancelled on the first two grounds. 
43. SLSI provides ISO 9000 and ISO 14000 certification.48 
44. The Telecommunication Regulatory Commission (TRC)  sets quality regulat ions and technical 
specifications for equipment and quality of service (QAS) standards.49  Telecommunications 
equipment, including imports, requires type approval from the TRC (Section 5(q) of the 
Telecommunication Act).50  According to authorities, the time taken to obtain type approval has been 
reduced to one week from two to four weeks.  Renewe d type approval is require d for all future models 
or design changes.  Provisional type approval based on  sample test results is initially granted for six 
months;  this may be extended for another six mont hs.  Subject to satisfactory performance (including 
after-sales service), full type approval is issued, gene rally for five years.  Sellers of equipment must 
have a vendor’s licence from the TRC. 
45. Since 1996, Sri Lanka has made 30 notifications to the Committee on Technical Barriers to 
Trade.51  It has accepted the WTO TBT Code of Good Practice.52 
(b) Sanitary and phytosanitary measures 
46. Sri Lanka has a quarantine system in place to ensure that exotic diseases are not introduced 
through the importation of liv estock and livestock products.53  A pre-export permit, which needs to be 
approved by the Director General of the Departme nt of Animal Protection and Health (DAPH), is 
required to import livestock and livestock products.  Food imports require an export certificate from 
the country of origin.  Imports of live animals for human consumption are prohibited, except for 
breeding purposes.  Consignments of live animals must be accompanied by a zoo-sanitary certificate 
issued by the government veterinary authority in the country of origin.54  At the port of entry, the 
                                                      
46 These include brown sugar, canned fish, cemen t blocks, cement (masonry ), cement (portland), 
condensed milk, corrugated asbestos sheets, domestic hotplates, electric bulbs , flat asbestos sheets, fresh fruit 
cordials, fruit cordial concentrates, fr uit squash concentrates and fruit syru p concentrates, ready-to-serve fruit 
drinks, synthetic cordials, household electric lamp holders, household electric plugs and socket outlets, household electric switches, structural steel angles, structural steel bars, and structural steel wire (SLSI, 2003a). 
47 A fee of Rs 100 plus 20% VAT is charged for each application form, and there is a processing fee of 
Rs 1,000 plus 20% VAT per application.  
48 SLSI (undated). 
49 The TRC issued QAS standards for fixed telephon e operators (wire and wireless) in August 2001 
(Quality of Service Standards Rules, No. 2 of 2001).  These introduced maximum operator assistance answering 
times of 30 seconds as of October 2001, and network effi ciency (call completion ratio) and repair standards will 
be applied as of 2002. 
50 This applies to telephone instruments, fax machines, PABXs, modems, cordless telephones, and any 
other customer-premises equipment to be connected to a licensed network. 
51 WTO documents G/TBT/N/LKA- series. 
52 WTO document G/TBT/CS/N/76, 7 August 1997. 
53 Animal Diseases Act No. 59 of 1992.  
54 For full details on all the procedures to import live animals and products, documents required, fees 
and required forms see online information, available at:  http://www.gov.lk/estate/animal/quarantine.htm.  Sri Lanka WT/TPR/S/128 
 Page 43 
 
 
 Animal Quarantine and Inspection Officer (AQ&IO) inspects these consignments, and irrespective of 
the outcome of the inspection, they are put into quarantine.55   
47. Consignments of animals and animal products imported into Sri Lanka must be accompanied 
by an International Veterinary Certificate issued by  the government veterinary authority in the country 
of origin, in accordance with the h ealth requirements stipulated by the DAPH.  Animal products to be 
imported into Sri Lanka have to be slaughtered an d processed in establishments registered with the 
government veterinary authority in the country of or igin.  Imports of animal products are subject to a 
joint inspection by the AQ&IO and officials from th e Health Authorities.  If the requirements are 
fulfilled, the consignment is released;  if necessary,  samples are drawn for further investigations.  
Imports of meat from any warm-blooded animal mu st be accompanied by a certificate or other 
document issued by a competent authority in the count ry of origin warranting that the meat or meat 
product is fit for human consumption.56 
48. Since 1996, Sri Lanka has made one notifi cation to the Committee on Sanitary and 
Phytosanitary Measures regarding restrictions on im ports of 21 genetically modified products on the 
grounds that safety for human consumption is not known.57  Sri Lanka banned the importation of 
genetically modified (GM) food products on 1 September  2001.58  Imports of items included on the 
banned list must be accompanied by a certificate st ating that they do not contain GM organisms. 
49. The SLSI is planning to operate a generalized hazard analysis critical control point (HACCP) 
registration scheme to certify food safety. 59  In 2000, an HACCP registration scheme was introduced 
for meat processing export industries. 
50. Sri Lanka also has an import quarantine sy stem in place for plants;  these must be 
accompanied by a permit.  The application for a pe rmit must be submitted to the Deputy Director of 
Plant Quarantine or to the Director of Seed Certifi cation and Plant Protection;  it is processed within 
one week of being received.  Permits are issued immediately for vegetable seeds that are included in the approved list, which is published in the ne wspaper periodically.  Consignments must be 
accompanied by:  a phytosanitary certificate issued within 14 days prior to dispatch
60;  a declaration 
stating that the consignment is free of soil;  and a ce rtificate of origin.  Importers of fresh fruits and 
vegetables for human consumption must obtain a certificate from the plant protection authority of the country of origin stating that the fruit has been in co ld storage (below 0°C) for more than two weeks.  
A certificate from the master of the ship may be acceptable if pre-cooling is done en route to 
Sri Lanka.  However, no certificates are accepted from countries where there are fruit flies, unless the 
fruits and vegetables have been treated in a manner a pproved by the Director of Agriculture to kill the 
fruit fly larvae.  Upon arrival in Sri Lanka, the cons ignment is inspected by a Plant Quarantine Officer 
and/or a representative from the Seed Certification a nd Plant Protection Centre of the Department of 
                                                     
 
55 Department of Animal Production (undated). 
56 Such products include meat or an y meat product, packed in air-tight container;  cooked, cured or 
dried meat;  intestines or other parts prepared in the form of sausage;  animal fats;  and pies, sausage or other 
prepared or manufactured article of food containing meat other than fat (Customs Ordinance No. 17 of 1869, Schedule B, Table of Prohibitions and Restrictions – Inward). 
57 WTO document G/SPS/N/LKA/1, 19 July 2001. 
58 The list of banned items include, among others, GM soya bean products (except for soya bean oil), 
corn and corn products, tomato and tomato products, cheese, potatoes, yeast, an d micro-biological starter 
cultures (Dun and Bradstreet, 2001). 
59 SLSI (undated). 
60 The certificate must conform to the model set out by the International Plant Protection Convention 
and should be issued by a duly authorized officer of the official plant protection organization of the country of 
origin. WT/TPR/S/128 Trade Policy Review 
Page 44 
 
 
 Agriculture.  They will take samples for testing.  If a pest is detected in the consignment, the 
consignment will be subject to treatment or a suita ble method of disposal.  Entry into Sri Lanka may 
be denied to any consignment of plant materials imported without the required certificates or which, 
in the opinion of the Plant Quarantine Inspector, carries a dangerous pathogen, insect or any other 
organism (pest).   
51. Importation of certain plants is prohibited, unless they receive permits issued by research 
institutes.61  Imports of any plant, plant material, plant product or seed from "Tropical America" are 
prohibited to prevent the introduction of the "Sou th American Leaf blight pathogen of rubber".  
Imports of soil and living modified organisms (LMOs) are prohibited. 
(c) Labelling and marking requirements62 
52. As mentioned, manufacturers who conform to th e relevant Sri Lanka Standard may use the 
SLS mark.  A licence is granted to use the mark on the product label;  the SLSI will continue to monitor the manufacturer to ensure that the produc tion process, the design, and the quality of the 
product are consistent with the standard. 
53. Through SLSI, Sri Lanka is planning to implem ent an energy efficiency labelling scheme for 
household electrical appliances sold in Sri Lanka.  In  addition, SLSI will launch a programme to test 
the safety of electrical appliances and issue a saf ety mark to appliances that conform to safety 
standards. 
54. There seems to be a special marking requireme nt for dairy products and various other food 
products.  There is a voluntary marking and labelli ng scheme for imports of GM food products not on 
the banned list.   In addition,  fabrics must be stamped in a conspic uous area to show the full length of 
the piece in the metric equivalent of standard yards and fractions of a yard.  The marking must not be 
removable except by washing, it should be in a colour different from that of the fabric, and it must be placed on an outside fold of the fabric that can be seen easily.
63 
(viii) Government procurement64 
55. Government procurement is used as an importa nt instrument of economic policy.  Sri Lanka 
does not participate in the WTO plurilateral Ag reement on Government Procurement (GPA).  
However, according to the authorities, they are considering joining it. 
56. In 1999, a Procurement Support Bureau (PSB) was established in the Ministry of Finance and 
Planning.  The Bureau acts as a reference point for providing procurement information, technical 
expertise, and training, to streamline and impr ove procurement procedures.  The PSB services all 
government entities (i.e. ministries, departments, provincial councils, local authorities, and state-
owned corporations).  It is also in charge of:  monitoring the progress of the tenders against agreed 
deadlines;  overseeing tenders for projects financed w ith donor funds;  appointing technical evaluation 
                                                      
61 The Regulations made under the Plant Protectio n Act (Gazette Extraordinary of the Democratic 
Socialist Republic of Sri Lanka, No. 165/2, 20 November 1981) lists prohibited and restricted plants.  This list 
was not provided to the Secretariat. 
62 This section is based on SLSI (undated). 
63 Dun and Bradstreet (2001). 
64 This section is based on:  Procurement Support Bureau (undated b). Sri Lanka WT/TPR/S/128 
 Page 45 
 
 
 committees (TECs) to assist in  the evaluation of tender docum ents;  and updating the published 
Guidelines on Government Tender Procedure.65   
57. The Guidelines on Government Tender Procedure must be followed by ministries and 
departments, as well as by state-owned enterprise s, statutory boards, and all other government 
institutions and agencies. 66  The provincial councils and local authorities must also adopt these 
guidelines.  Since 1996, when the central proc urement office was closed and its functions 
decentralized, there has been no central procur ement agency in Sri Lanka. The PSB acts as a 
facilitating body.  
58. Tenders are awarded either by a head of depa rtment, a Departmental Tender Board (DTB), a 
Ministry Tender Board (MTB) or a Cabinet A ppointed Tender Board (CATB) depending upon the 
value of the project.67  In all instances, a technical eval uation committee (TEC), a committee of 
experts on finance and technical matters, assists the different boards in examining and evaluating 
documents for tenders.  Although Guidelines are pres cribed for the creation of an Appeal Board to 
review complaints regarding awards recommended by a CATB, no such entity has been established.  
At present, disgruntled parties can complain to th e PSB, which will investigate and review decisions 
under the direction of the Secretary to the Treasury and/or refer the matter to the "line ministry". 
59. Works, services and supplies must, as far as possible, be procured through the normal tender 
procedure (i.e. open competitive procedure).  Howeve r, exceptions and deviations from this procedure 
may occur under specific circumstan ces.  Exceptions include:  entrusting construction works to 
"approved societies";  emergency purchases;  purchases by Sri Lankan missions abroad;  repairs of 
motor vehicles and other machinery;  purchases of spare parts and periodicals; and purchases of 
labour services (e.g. loading, unloading, etc.).  In addition, procurement of supplies or services (e.g. 
construction) from other governme nt institutions may be author ized without following tender 
procedures under "exceptional" circumstances or emer gency situations.  However, according to the 
authorities this is rare. 
60. Calls for tender must be given the widest possible publicity.  The tender notice must be 
published in an abridged form in local newspa pers and at least once in the Government Gazette.   In 
the case of worldwide tenders, these should also be a dvertised abroad.  As a general rule, selection of 
bidders should follow the open competitive procedur e.  However, selection using other procedures 
may be adopted under specific circumstances (Table III.7). 
61. The basic principle guiding the selection among bids is the "lowest evaluated substantially 
responsive bid".68  However, the evaluation of a bid may be based on number of other factors.  These 
include:  technical factors such as the efficiency and reliability of the equipment;  the construction 
method to be used;  the time of completion or de livery;  the availability of after-sales service and 
spare parts;  and the operating cost may be taken into account in determining the best bid. 
                                                      
65 Procurement Support Bureau (undated a). 
66 Procurement procedures vary according to the sour ce of the funding;  d onor-funded projects have 
their specific guidelines.  This section refers  to procurement financed with public funds. 
67 Heads of Department may decide on projects of up to Rs 100,000, Departmental Tender Boards on 
projects of up to Rs 10 million;  a Ministry Tender Board on projects of up to Rs 20 million;  and a Cabinet Appointed Tender Board on projects with a values above Rs 20 million. 
68 A substantially responsive bid is one that conforms  to all the terms, conditions, and specifications of 
the bid documents, without material deviation or reservation (Procurement Support Bureau, undated b).  WT/TPR/S/128 Trade Policy Review 
Page 46 
 
 
 Table III.7 
Methods to select bidders 
Method  
Open competitive procedure As a general rule selection of bi dders should be done following the open competitive procedure 
Registration of suppliers The issue of tender notices may be confined to a list of suppliers  registered with a specific 
Department.  This procedure is used for procurem ent of items of small value or for purchases of 
items on a continuous basis 
Construction works For works not exceeding Rs 5 million, tende r documents shall be issued either to names appearing 
on the register of construction contractors; and/or to those registered under the National 
Registration System of the Institute for C onstruction Training and Development (ICTAD) 
 For works exceeding Rs 5 million, the issue of te nder documents is confined to those registered 
under the National Registration System of the IC TAD, and are members of National Construction 
Contractors' Association of Sri Lanka (NCCASL) 
Restricted tenders In special cases, where the number of available suppliers/contractors is limited, tender documents 
are issued only to those firms 
Restricted tenders for minor 
services In the case of purely local and minor services (not exceeding Rs 100,000) such as laundry, supply 
of cooked meals, road metal and firewood, and ta iloring, tenders and quotati ons may be restricted 
to those engaged in the trade or carrying out business in the area 
Limited quotations Works, services, and supplies are to be awarded only to firms included on a limited list.  
 For projects exceeding Rs 20 million approval is re quired from the Secretary to the Treasury is 
required 
 For projects with values between Rs 20 million and Rs 50 million, the approval of the Secretary 
to the line ministry is required 
 For projects with a value exceeding Rs 50 million, Cabinet approval is required 
Quotation for small contracts In the case of works, services or supplies of a value up to SL Rs 100,000, quotations from a 
limited number of recognized parties (pre ferably three or more) may be obtained 
Pre-qualification of bidders Invitation for bids is confined only to those who ha ve adequate capacity and resources.  Pre-
qualification is mandatory in all projects ex ceeding SL Rs 1,000 million and for procurement 
involving large and complex works, custom designed equipment, industrial plants, and 
specialized services 
Source:  Guidelines for Government Procurement. 
62. The first step in examining a bid is determining whether the bidder is eligible (i.e. whether the 
bidder complies with the qualifications laid down in  the bid documents).  Once the bid is deemed 
eligible the TEC/TB examines it to identify any actual and/or potential deviations.  If deviations are so 
material as to be unacceptable, they could c onstitute grounds for rejecting a particular bid.69  If there 
is a substantial number of eligible bi ds, they will not all be evaluated.  Where there is a cluster of bids 
around the lowest price, these are evaluated, irrespective of the number;  however, if there is no 
cluster of low-priced bids, only the three lowest are evaluated.   
63. Immediately after the evaluation is completed,  TEC should prepare a bid evaluation report 
and submit it to the relevant Tender Board.  The TB  should recommend the lowest (in the case of sale, 
the highest) evaluated bid for acceptance.  Awards sh ould be published in the local newspaper and in 
the Government Gazette .  Once the intention to award the tender is announced, other bidders may 
appeal the decision.  Appeals should be lodged w ithin a week of the award determination.  As 
mentioned, since the Tender Appeal Board  has not yet been established, a ppeals are currently directed 
to the PSB.   
64. According to the authorities, there is no diffe rentiation between nationa lly owned and foreign-
owned companies in the government procurement process  Since the process of procurement is 
                                                      
69 For instance, bids will be rejected if they deviate from the requested qualifications;  if they are not 
signed;  if they are based on an entirely different alternative design, where this had not been requested or 
permitted;  or they are subject to price adjustment when fixed price bids were called. Sri Lanka WT/TPR/S/128 
 Page 47 
 
 
 decentralized, the authorities maintain that no data  are available on government procurement contracts 
for the period under review (1996-02).   
65. Price preferences for locally manufactured goods ar e determined and notified by the Treasury.  
At present there are several valid preferences:  a price preference of 5% is granted to approved 
societies;  a 20% preference applies to locally manufactured articles offered in competition with 
imported articles (with a minimum of 30% domestic  added value at ex-factory price);  and 10% 
preference for works contract (companies w ith more than 50% Sri Lanka ownership).70 
66. Improved transparency in government procur ement would enhance public accountability in 
this regard, and thus ensure greater value for mone y for government expenditure.  This, in turn, could 
help reduce the large fiscal deficit. 
(ix) Import operations of state-trading enterprises 
67. The Secretariat was unable to assess the opera tion of state-trading enterprises since no 
information was received from the Sri Lankan authoriti es in this regard.  Nor has Sri Lanka made any 
notifications to the WTO regarding state-trading enterprises.  It is not clear whether imports of petroleum, and arms and explosives are still imported by state-trading enterprises.  The authorities 
justify the trading monopolies conferred on the Ceylon Petroleum Corporation
71, and on the Lanka 
General Trading Company, for arms and explosives,  on security grounds.  Imports of wheat, which 
were formerly  imported by the state-owned Cooperative Wholesale Establishment (CWE), were liberalized in 2001.
72  According to the authorities, CWE is at  present not involved in any marketing 
activities. 
(x) Local-content schemes 
68. Sri Lanka does not implement any local-content schemes.73 
(xi) Other measures  
69. In 1998 Sri Lanka notified the WTO that it was disinvoking Article XVIII:B of GATT 
regarding balance-of-payment difficulties.74 
(3) MEASURES DIRECTLY AFFECTING EXPORTS  
(i) Procedures 
70. Exports procedures have been streamlined and co mputerized.  Nevertheless, exports continue 
to be regulated by a myriad of laws besides the Customs Ordinance.75  
                                                      
70 The World Bank and Asian Development Bank have approved the following preferences for the 
projects funded by WB/IDA and ADB:  a price preference of 15% for locally manufactured goods (a minimum 
of 20% locally added value at ex-factory price) and 7. 5% preference for domestic works contractors (the 
company should have minimum of 50% Sri Lankan ownership). 
71 CPC's monopoly on imports of oil products was to be eliminated in 2003. 
72 Other information also provided by the authorities indicates that imports of wheat by CWE were 
discontinued by Government Directive as of 25 June 2002. 
73 WTO document G/TRIMS/N/1/LKA/1, 31 March 2000. 
74 WTO document WT/BOP/N/36, 28 May 1998. WT/TPR/S/128 Trade Policy Review 
Page 48 
 
 
 71. All exporters must be registered with Customs.   Exporters must submit a goods declaration to 
the Director General of Customs for statistical purposes.  This document should, inter alia , specify the 
quantity, quality, and value of the goods.  Export control permits and licences are required for certain 
goods (section (iv)).76  Quarantine or veterinary certificates, issued by Agriculture Department, are 
necessary for plants and animals if requested by the buyer.  All consignments of animals and animal 
products exported from Sri Lanka are subjected to  quarantine inspection.  The Animal Quarantine 
Officer (AQO) of the Department of Animal Protec tion and Health (DAPH) issues an international 
Veterinary Certificate in accordance with the re quirements of the importing country.  Physical 
examination of the cargo to be exported may be re quired to monitor the content and for the payment 
of duties.  Exports of tea are subject to preshipme nt sampling to ensure the quality.  Cashew kernels 
and fisheries products require a quality certification prior to export. 
(ii) Export taxes and other charges 
72. As in the case of imports, several types of border charges are levied on certain exports.  While 
these charges may be justified by the authorities on grounds of national security, environmental 
protection, financing export promotion, and enc ouraging downstream processing, the use of such 
levies (or other restrictions) on the export of locally produced materials, is in effect, an input subsidy 
to processors.  Insofar as export sales of such ma terials are diverted onto the home market, the 
domestic prices of these materials are reduced by th e export restriction.  While processors benefit 
from lower domestic prices, domest ic suppliers of materials are penalized.  Encouraging production 
and exports of processed products  through export levies on inputs, risks developing inefficient 
industries.  
73. Export duties and cesses may be imposed to:  ensu re the availability of raw materials for 
higher-value-added industries and to promote furthe r processing of local materials;  finance export 
promotion activities;  and protect national security, archaeological items, and the environment.  Duties 
may also be imposed according to variations in worl d market prices;  the Director General of Customs 
determines the rate of the duty.  The exporter needs to register a contract with the Director General 
specifying, inter alia , the total quantity to be exported (i.e. covered by the contract) and the proposed 
period for the merchandise to be exported .  These goods may be subject to duties.77  At present, it 
seems that no exports are subject to duties.  However, export cesses are currently imposed on, 
inter alia , tea, coconut products, unshelled raw ca shew, raw hides and skins (Table III.8).78  It would 
appear that these cesses are earmark ed to finance specific activities.79 
                                                                                                                                                                     
75 These include the Revenue Protec tion Act, the Export and Exchange Controls Act, the Rubber 
Control Act, The Tea Board Act, The Coconut Developmen t Authority Act, the Fauna and Flora Protection Act, 
the Animal Disease Act, the Antiquities Act, the Forest Ac t, the Wild Life Act, the Fire Arms Act, The Opium 
and Dangerous Drugs Act, the Export Development Boar d Act, the Sri Lanka Standards Institute Act, the 
Textiles Act, The Minerals and Mineral Sands Act, the Excise Act, and the Fisheries and Aquatic Resources  
Act. 
76 Items subject to licence and permits include Tea Pe rmit issued by Tea Controller for Tea under Tea 
Board Act;  an R.M.V certificate issued  by Registrar of Motor Vehicles for export of registered vehicles;  a 
permit issued by Wild Life Department for items under Fauna and Flora Protection Ordinance;  a permit issued 
by Ministry of Fisheries and Aquatic Resources for rest ricted list of species;  an d a document for Ayurvedic 
Drugs should be produced in which name and the registration number of the physician who scrutinized the production should be mentioned. 
77 Weeserasekera and Kananathalingam (2002). 
78 Annual Review of Export Performance in Sri Lanka – 2000  [Online].  Available at:  
http://www.tradenetsl.lk/performance/annualre viewep/arep20001.html [19 February 2003]. 
79 For example, the revenue collected  from the tea export cess is used to finance R&D in the tea sector 
and to support small-scale growers. Sri Lanka WT/TPR/S/128 
 Page 49 
 
 
 Table III.8 
Export cess and other export levies  
Product  Rate 
EXPORT CESS  
Tea  
Tea export cess Rs 2,500 per MT 
Medical cess charged on tea exports Rs 3.5 per MT 
Coconu t  
Fresh coconut Rs 750 per 1,000 nuts 
Desiccated coconut Rs 1,000 per MT 
Copra Rs 900 per MT 
Coconut oil Rs 400 per MT 
Poonac Rs 250 per MT 
Coconut cream/milk powder Rs 450 per MT 
Coconut shell activated carbon  Rs 450 per MT 
Defatted coconut Rs 250 per MT 
Coconut shell charcoal Rs 250 per MT 
Coconut flour/pieces Rs 200 per MT 
Coconut ekels Rs 100 per MT 
Mattress/twisted/bristle fibres Rs 250 per MT 
Coir yarn/rope Rs 100 per MT 
Coir twine Rs 200 per MT 
Coconut based liquor Rs 3 per litre 
Thawashi brushes Rs 50 per 1,000 pieces 
Other brushes Rs 100 per 1,000 pieces 
Coir mats/rugs Rs 250 per 1,000 pieces 
Coir matting Rs 500 per 1,000 pieces 
Pads/matresses for bedding  Rs 500 per 100 pieces 
Rubberized coir pads (below 60 mm. th ickness) Rs 50 per 100 square meters 
Cashew nuts with shell Rs 200 per MT 
Natural rubber and compound rubber (Rubber Development Cess 
for medical aid) Rs 1.65 per 100 kg. 
Hides and skins  
Bovine or equine animals (raw) 50% of f.o.b. value or Rs 300 per kg. 
(Semi tanned) 25% of f.o.b. va lue or Rs 40 per square foot 
Other (raw) 50% of f.o.b. value or Rs 300 per kg. 
(Semi tanned)  25% of f.o.b. va lue or Rs 40 per square foot 
Non ferrous metal scrap 25% of f.o.b. value  
Gems 1% of f.o.b. value 
OTHER EXPORT LEVIES  
Quartz 20% of f.o.b. value 
Iron or non-alloy steel products Rs 125 per MT 
Chanks  Rs 75 per 1,000 units  
Conch shell Rs 75 per 1,000 
Tuskers Rs 500 per unit  
Source: Government of Sri Lanka.  
74. Export duties paid on goods that are later re-i mported into Sri Lanka may be partially or 
totally refunded. WT/TPR/S/128 Trade Policy Review 
Page 50 
 
 
 (iii) Minimum export prices 
75. Exports of silica quartz are still subject to a minimum price of US$300 per tonne.80  
According to the authorities, this  ensures a reasonable price.  Exports of sawn rubber wood are also 
subject to a minimum export price to prevent the indiscriminate felling of rubber trees, and thereby 
protect the rubber industry. 
(iv) Export prohibitions, licensing, and other restrictions 
(a) Export prohibitions and licensing 
76. According to the authorities, export prohibitions and licensing remain in place to protect the 
national heritage, public health, a nd the environment (including e ndangered species) (Table III.9).  
Other export restrictions are maintained in accordan ce with UN sanctions, in ternational conventions 
(e.g. CITES), and the WTO Agreement on Textiles and Clothing. 
Table III.9 
Products restricted or prohibited for export 
Product Restriction   Prohibition 
Animals dead or alive and parts of animal s Exports only under permit issued by the 
Director of Wild Life.  Domestic animals 
(non-indigenous species) are excluded.  
Permits are issued to promote scientific knowledge, including supplying foreign 
zoos, museums, etc.  
Live ornamental fish;  live fish or the eggs, roe 
or spawn of any live fish included in the First 
Schedule (i.e. Belonita Singate, Puntins cumingi, Puntins Titteya, Puntins Nigro Fascitis, and Rasbora Voterifloris). Exports only under permit issued by the 
Director of Fisheries and Aquatic 
Resources.  
Coral chanks and conch shells (HS 0508.00.01 
and 0508.00.02) Export under licence issued on the 
recommendation of the Director of Fisheries  
Protected plants   Exports of protected plants specified 
in Schedule V of the Fauna and Flora Protection Ordinance are prohibited.  
Flora and fauna listed in the Appendices I, II and III of the CITES (Convention on 
International Trade of Endangered Species) Exports of items included in Appendix II 
and III may be allowed under licence issued by the Director of Wild Life Conservation.  Exports of items included in Appendix 
I are prohibited 
Cinchona bark in any fo rm, including Cinchona 
bark powder or any other part of Cinchona tree.  Prohibited under Schedule "B" of the 
Customs Ordinance 
Wild cinammon Exported under a licence issue by the 
Director of Commerce  
Timber (Chapter 44) excluding: E xports under a licence issued on the 
recommendation of the Ministry of 
Agriculture and Livestock  
 Coconut shell charcoal Exporters must be registered with the 
Coconut Development Authority (CDA) 
and their names must notified by the CDA 
to the Customs Department  
  Table III.9 (cont'd) 
                                                      
80 At the time of the first TPR of Sri Lanka, in 199 5, exports of silica quartz were subject to minimum 
prices. Sri Lanka WT/TPR/S/128 
 Page 51 
 
 
 Product Restriction   Prohibition 
 Rubber wood Exportable in the form of semi-finished or 
finished components only if the f.o.b. 
value is higher than US$400 per cubic metre. (This value should be increased by 5% each year from 1992).  
Ebony products  Prohibited 
Ivory and ivory products HS 0507.10 and 
9601.10 Exported under a licence issued by the 
Department of Wild Life Conservation  
Tea seed, root stump or bud of any tea plant or 
cutting from or living portion of any such plant 
which is capable of bei ng used to propagate it, 
to India, Pakistan, Indonesia or any other prescribed country.   Exported under a licence issued by the 
Tea Controller under the Tea Control 
Ordinance (Chap.251).  
Antiquities/cultural property Exporte d under a permits issued by the 
Commissioner of Archaeology (Cultural property Act/Antiquities Ordinance)    
Motor vehicles first registered in Sri Lanka prior 
to 1.1.1945 (HS 8702.00 and 8703.00) Exported under a licence issued by the 
Commissioner of Motor Traffic.  
Minerals (brick/tile/cement-clay, sand, gravel, 
shale, stone aggregate, coral, shell, ball clay, 
kaolin, feldspar, sedimentary limestone, glass 
sand, calcite, dolomite (marble), silica quartz 
(vein quartz), garnet, mica, fluorspar, magnetite, 
green marble, radioactive minerals, etc.) Under the Mining (Licencing) Regulation 
No. 1 of 1993 the Geological Survey and 
Mines Bureau is the sole licensing 
authority for the exploration, mining, 
transport, trading, processing, and export 
of minerals.  Prohibited under the Mines & 
Minerals Act No.33 of 1992.  
Explosives  Prohibited under the Explosives 
Ordinance. (Chap.633)   
Dangerous drugs (poppy plant, cocoa plant or hemp plant or seeds, pods leaves, flowers or any 
part of such plant;  any resin obtained from the 
hemp plant or preparation or extracts from the hemp plant commonly known as bhang, hashish 
or ganja or any other preparation of which such 
resin forms a part;  and raw or prepared opium)  Prohibited under the Poisons Opium 
and Dangerous Drugs Ordinance (Chap.549) 
Obscene publications   Prohibited under the Obscene 
Publication Ordinance (Chap. 42) 
Jewellery or articles made out of ivory, tortoise 
shell, elephant hair, e bony, and other animal and 
plant products  Prohibited 
Non-ferrous iron scrap  Export licence   
Source:  Online information available at:  http://www.tradenetsl.lk/trade_info/annex1.html [10 April 2003];  and 
http://www.tradenetsl.lk/trade_info/annex2 .html [18 February 2003];  WTO (1996), Trade Policy Review – Sri 
Lanka ;  P. Weeserasekera and T. Kananathalingam (2002), Customs Law of Sri Lanka 2002:  A Manual ;  and  Sri 
Lanka Customs (undated). 
77. Parliament may at any time amend the list of prohibited exports.  For instance, in 2000,  
furniture used in medical, surgical, dental or veterinary professions;  metal, plastic, and wooden 
furniture and mattress support articles, such as quilts, cushions and pillows, were subject to an export 
licence.81  However, it seems that this requirement h as been revoked.  The Minister of Enterprise 
Development, Industrial Policy and Investment Pr omotion, may, by an Order published in the 
Gazette,  prohibit or restrict the exportation of good s, such as arms, ammunitions and gunpowder, 
naval, military and air stores, which the Minister j udges could be converted into naval, military or air 
stores provision. 
                                                      
81 IMF (2002a). WT/TPR/S/128 Trade Policy Review 
Page 52 
 
 
 78. Exporters attempting to export any prohibited go ods will be fined, a nd goods will be seized 
and destroyed. 
(b) Export quotas 
79. During the period under review, Sri Lanka's exports  of textiles and clothing have been subject 
to quotas, to varying extents, in Canada, the European Union, and the United States, under the 
provisions of the WTO Agreement on Textiles and Cl othing (ATC).  Sri Lanka  benefits from special 
treatment, as a small supplier under the ATC, throug h the advancement of the quota growth rate by 
one stage.  Sri Lanka retained th e right to use the transitional safeguard mechanism as provided for in 
Article 6.1 of the ATC.82  Sri Lanka has submitted the list of products, that have been integrated into 
GATT 1994 at the three different stages.83 
80. Sri Lanka has signed administrative arrangements with Canada, the United States, and the EU 
to implement the textiles and clothing restraints under the ATC.84  In December 2000, the Government of Sri Lanka signed an agreement with  the EU to lift the quantitative restrictions on 
exports of Sri Lankan garments to the EU by March 2001 (Chapter IV). 
81. Textile quotas are allocated by the Textile Quota Board (TQB);  this is a statutory body, with 
private-sector participation, under the Ministry of Enterprise Development, Industrial Policy and 
Investment Promotion.
85  Generally, quotas have been distributed to manufacturers depending on their 
size, capacity, and past performance (Chapter IV).  However, the system in place to allocate the 
quotas is very complex and opaque, which creates sc ope for administrative discretion in their 
distribution.  It has been reported that  there is corruption in the distribution of quotas.86  T h e  
authorities maintain that the quota a llocation system is transparent. 
(c) Other export restrictions 
82. Exports of tea are subject to quality check prior to exportation.  Samples are taken to ensure 
that the product is fit for export and therefore not likely to damage the reputation of Ceylon tea in foreign markets.  If the tea is deem ed unfit its exportation is prohibited. 
83. Exporters of gems must obtain a Gem Dealers Licence (renewable on a yearly basis) from the 
National Gem and Jewellery Authority (NGJA);  all exports of gems must be channelled through the 
NGJA.  
(v) Export operations of state-trading enterprises   
84. No information was provided to the Secretaria t regarding export operations of state-trading 
enterprises.  
                                                     
 
82 WTO document G/TMB/N/23, 6 March 1995. 
83 WTO documents G/TMB/N/145, 7 March 1996;  G/TMB/N/145/Corr.1, 17 December 1997;  
G/TMB/N/239, 20 March 1997;  and G/TMB/N/365, 4 January 2001. 
84 WTO document G/TMB/N/170, 16 July 1996;  WTO document G/TMB/N/286, 22 July 1997;  WTO 
document G/TMB/N/261, 18 July 1997. 
85 The private sector is represented through five associations:  the Sri Lanka Apparel Exporters 
Association, the Free Trade Manufact urers Association, the Sri Lanka Garm ent Buying Offices Association, the 
National Apparel Exporters Association, and the Sri Lanka Chamber of Garment Exporters. 
86 The  Sunday Times [Online].  Available at:  http://www.sundaytimes.lk/020602/bus/bus2.html 
[28 April 2003]. Sri Lanka WT/TPR/S/128 
 Page 53 
 
 
 (vi) Export support 
(a) Export subsidies and assistance 
85. Sri Lanka notified the WTO that during 1995-97 it did not provide export subsidies to 
agricultural products.  In 1997, a programme was impl emented to subsidize the cost of international 
transport/freight covering goods such as fresh fru it, fresh vegetables, foliage, live plants and 
preparatory materials, gherkins, cut flower s, floricultural products, and betel leaves.87 
86. The Export Development Board provides subsidized loans, and grants to direct, indirect and 
potential exporters with a maximum of Rs 1 million pe r project.  Funds may be used either to develop 
viable export ventures, or to increase export capacity  and export volume, or as working capital.  Most 
of EDB’s assistance is aimed at non-traditional expor ters of goods and services, but some is sector 
specific, aimed at, inter alia , the handloom industry, gems and jewellery, high-tech electronics, and 
the fruit and vegetables and flowers/foliage.88  However, according to the authorities, the EDB is not 
granting any assistance at present, due to lack of funds. 
(b) Duty and tax concessions 
87. Sri Lanka implements a number of incentive schemes aimed at promoting exports.  At present 
there are three main schemes in operation:  a dr awback scheme, a temporary importation for export 
processing scheme (TIEP) and the manufacture-in-bond scheme.89  These schemes include bonded 
warehouse facilities for imported capital and intermed iate goods, and the refund of duties and other 
fiscal levies on imported inputs used in the manufactu re of exports.  Tax incentives are also available 
to export trading houses (Table III.10).90  Other, sector-specific tax in centives are also available, 
including:  a ten-year tax holiday and duty con cessions for agricultural undertakings;  and a tax 
holiday of 5-10 years for exports of fruit and vegetables.91  The Export Village Programme (EVP) has 
been in operation since 1981;  it has benefited main ly producers of agricultural goods, handicrafts and 
packaging material.  The EPV offers exporters a full tax holiday for five years once they begin 
operations.  Data are not available on taxes forgone  as a result of these incentives.  Sri Lanka has not 
evaluated the success of these incentives in achieving their objectives and it seems that some of these 
schemes overlap. 
Drawbacks 
88. Under the duty rebate scheme, duties paid on imported materials used to manufacture or 
process goods in Sri Lanka may be partially or fully rebated or refunded once the final good is 
exported (22(A)(2) Customs Law).  The rate of reba te is determined by th e Director General of 
Customs.  The rates are gazetted periodically.92  Exporters who intend to use the scheme need to 
register at the Duty Rebate Unit of Sri Lanka Customs Export Division.93  However, the drawback 
                                                      
87 WTO document G/AG/N/LKA/1, 20 May 1999. 
88 WTO document G/SCM/N/3/LKA, 17 January 1997. 
89 Sri Lanka Customs (undated a). 
90 An export trading house is a marketing company lo cated in an export promotion zone that exports 
only locally procured products and re-exports imported products.  
91 Annual Review of Export Performance in Sri Lanka – 2000  [Online]. 
92 The revised rules and regulations governing the Duty Rebate Scheme were gazetted in the Gazette 
Notification (extraordinary) No. 1053/12 of 11 November 1998 and became effective on 1 February 1999. 
93 Registration is necessary for each  export shipment, and a copy of  the invoice and airway bill are 
required. WT/TPR/S/128 Trade Policy Review 
Page 54 
 
 
 system seems to apply only to goods prescribed by the Minister, who makes a decision taking into 
account the economic development of the country. 
Table III.10 
Export incentives 
(a) Non-exhaustive list of ince ntives available to exporters  
Beneficiary  Incentive  Policy objective 
To direct/indirect exporters of 
non-traditional products and 
servicesa  Concessionary income tax rate of 15% for 20 years 
commencing as of 1 April 1995 Encourage exports 
Exporters of non-traditional 
products Tax holiday for five years.  10% rate in 6th and 
7th year, and 15% thereafter Encourage new and existing export 
ventures 
Direct and indirect exporters Concessi onary tax rate on dividends, for 20 years 
commencing 1 April 1995 Expand investment opportunities of 
export-oriented companies 
Export projects in agriculture, industry, IT and allied services, and electronics Three-year tax holiday from the commencement of the 
project Attract investment to these areas 
Direct exporters of gems and 
jewellery Tax exemption for the lifetime of the project of profits 
arising from the sale of gems and jewellery and entrepot trade. Encourage investment 
Direct exporters of handicraft Three-year tax holiday from the commencement of the 
project Promote exports of rural-based products 
Exporters of handloom products Grant of 20% of the f.o.b. value up to 
31 December 2003 Increase exports of this rural-based 
product 
Exporters/farmers of poultry A rebate of Rs  17 per kg. to exporters and of Rs 3 per 
kg. to farmers. To revive and modernize the rural-based 
industry 
a These include ship repair, refurbishing of ship car go containers, and provision of computers and software. 
(b)  Incentives to export trading houses 
Income tax holiday  Import duty exemption Annual 
turnover 
(US$ million) Full 10% 15% 20%  Capital goods Raw materials Exemption 
from exchange 
control 
5-10 n.a. 5 years Thereaf ter n.a.  Yes Yes Yes 
10-25 5% tax up to 
5 years 5 years Thereafter n.a.  Yes Yes Yes 
>25 0% tax up to 
5 years 5 years  Thereafter n.a.  Yes Yes Yes 
Source:  Government of Sri Lanka;  and Board of Invest ment of Sri Lanka [Online].  Available at:  
http://www.boisrilanka.org/web/ investinc_common.php?conID=1. 
Temporary Importation for Export Processing Scheme (TIEP) 
89. The Temporary Importation for Export Processing (TIEP) Scheme allows indirect and direct 
exporters94 to import inputs without payment of fiscal le vies.  Manufacturers/exporters should apply 
to the Director General of Customs fo r approval to operate under the scheme.  
Manufacturers/exporters producing under the TIEP may not participate in any other export incentives 
scheme. 
90. The TIEP scheme has two sub-schemes.  TIEP1, wh ich covers the importation of inputs such 
as raw materials, components, parts and packagin g materials, allows for the importation of these 
goods exempt of duties.  The TIEP4 scheme cove rs the importation of capital goods, appliances and 
                                                      
94 Indirect exporters are manufacturers who produce inputs to produce exportables. Sri Lanka WT/TPR/S/128 
 Page 55 
 
 
 spare parts, which are eligible for whole or partial exemption of customs duties, of the Export 
Development Board Cess, and of the Excise (Speci al Provisions) Tax.  The amount of duty and tax 
exemption depends upon the amount exported.  A 100% duty exemption is granted to exporters who 
export 50% or more of their output, and to indirect  exporters who supply 50% or more of their output 
to direct exporters.  A 50% exemption is accorded to exporters who export at least 25% but less than 
50% of their output, and to indir ect exporters who supply 25% or mo re but less than 50% of their 
output to direct exporters.95 
Manufacture-in-bond scheme 
91. Any manufacturer who exports may apply to the Customs Department for approval to 
establish a manufacturing-in-bond warehouse.96  These manufacturers can avoid paying duties and 
taxes at the time of importation.  Any kind of production process, including mixing and assembling, may be undertaken in in-bond warehouses.  Impor ted goods can be stored for up to six months 
without payment of duties and taxes and for "valid reasons";  this period ma y be extended for up to 
two years. 
EPZs 
92. Sri Lanka has eight free-trade zones, also called export processing zones, administered by the 
Board of Investment (BOI).  Three new mini EPZs were opened in 1997-99.  There are some 
200 enterprises operating in the EPZs.
97  In 2002, exports of EPZs amounted to Rs 114.2 billion.98 
93. Locating an enterprise in an EPZ entitles the co mpany to tax holidays, duty-free imports, and 
concessionary land prices.  However, under curre nt government policies, foreign investors are 
allowed to establish factories in almost any part of the country and still receive tax incentives.  The 
establishment of companies in the EPZs is ne vertheless encouraged because of the existing 
infrastructure and security.99 
(vii) Export-performance requirements  
94. Exporters, are allowed, if approved by the S ecretary to the Treasury, to pay 50% of the 
normal rate of import duty on materials imported to build plants, machinery and equipment if it is to 
be used in an industry that exports at least 25% a nd less than 50% of its output.  Similarly, if approved 
by the Secretary to the Treasury, capital and interm ediate goods, and transport equipment to be used 
by an industry that exports and/or supplies to dir ect exporters at least 25% and less than 50% of its 
output, may be imported at a concessionary dut y rate of 50% of the normal duty rate.100  These two 
schemes are similar to the described in the previous section;  there seems to be an overlap in the 
incentives provided. 
                                                      
95 Sri Lanka Customs (undated a). 
96 No data were provided to the Secretariat with regard to the number of in-bond warehouses operating 
in Sri Lanka;  the type of goods produced in these wa rehouses; the amount produced in these warehouses; or the 
percentage of goods produced in bonded warehouses that must be exported. 
97 Information provided by the authorities (Statistical Unit/Research Department, Bureau of 
Investment, October 2003. 
98 Information provided by the Board of Investment of Sri Lanka.. 
99 Dun and Bradstreet (2001). 
100 Weeserasekera and Kananathalingam (2002). WT/TPR/S/128 Trade Policy Review 
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 (viii) Export finance, insurance, and guarantees 
(a) Export finance 
95. The Export Development Board ceased to provide loans and equity finance to export-oriented 
firms  in 1996.  According to the authorities, there is  no state agency or bank that provides loans or 
equity finance to exporters.  In June 2003, th e Sri Lanka Export Credit Insurance Corporation 
(SLECIC) started to provide post-sh ipment financing to small expor ters who are unable to obtain a 
loan from a bank.101  Loans are not product specific and are provided at market rates. 
(b) Export insurance and guarantees 
96. The Sri Lanka Export Credit Insurance Corporati on (SLECIC), a statutory body that operates 
under the Ministry of Commerce and Consumer Affa irs, continues to be the Government's export 
credit insurer.  SLECIC issues in surance policies to exporters of goods and services against non-
receipt or delayed receipt of payments resulting from commercial and non-commercial risks.  It issues guarantees to banks and other financ ial institutions to facilitate the granting of pre-shipment and post-
shipment finance.  SLECIC also offers pre- shipment credit guarantees and export performance 
guarantees.
102   
(ix) Export promotion and marketing assistance 
97. The Sri Lanka Export Development Board (EDB ), which functions under the Ministry of 
Enterprise Development, Industrial Policy and Invest ment Promotion, continues to deal with the 
promotion and development of exports.  Its role is  to assist producers and exporters of goods and  
services (including professional services) to identify and penetrate new markets, as well as to develop 
goods and services that will meet market demands.  Special programmes are in place to support 
export-oriented small and medium enterprises (S MEs), and exporters of handloom products and 
poultry.103 
98. The EDB is financed mainly by public funds, but also by the Export Development Cess, a tax 
charged on imports that bear a tariff higher than 45 %.  Roughly two thirds of the funds allocated to 
the EDB are soaked up by the cost of administering the Board.  Of the remaining one third of funds, 
which are actually delivered as assistance to exporte rs, no information is available on the portion that 
stimulates worthwhile activities that would not ha ve been undertaken in  the absence of such 
assistance.  However, the high cost of administra tion alone casts doubt on the cost-effectiveness of the 
EDB in delivering such assistance. 
(4) MEASURES AFFECTING PRODUCTION AND TRADE  
(i) Industrial policy 
99. Sri Lanka's industrial policy is aimed in pa rticular at promoting and developing export-
oriented industries and industrialization in specific regions.104  This is to be attained through ensuring 
                                                      
101 Small-scale exporters are defined as those with a turnover of less than Rs 5 million per year. 
102 For more details on the various programmes see:  Sri Lanka Export Credit Insurance Corporation 
online information.  Available at:  http://www .tradenetsl.lk/slecic/#OBJ [25 April 2002]. 
103 EDB (1999);  and information provided by the Sri Lankan authorities. 
104 Industrial Promotion Act 1990 [Online].  Available at:  http://www.gov.lk.imst/industrial-
promotion-act/index.html [7 April 2003] and Industrialization strategy [Online].  Available at:  
http://www.gov.lk/imst/industrial_policy/index.html [7 April 2003]. Sri Lanka WT/TPR/S/128 
 Page 57 
 
 
 not just a "conducive macroeconomic envir onment" but also providing incentives and 
infrastructure.105  The Industrialization Commission together  with an Advisory Council of Industry 
and the Regional Industry Service Committees, is in charge of creating a conducive macroeconomic 
environment.  The Commission's functions include, inter alia:  advising the Government on policies 
and programmes to promote industrial development;  preparing plans for the provision of industrial 
infrastructure and services;  and providing product and market information to industries.  To promote 
industrial development in the provinces, each province must designate a region where industrial estates, industrial parks, science parks, and other specified industrial infrastructure could be built.
106  
There are regional industrial estate developments in eight provinces.107  The need to support small and 
medium industries has also been emphasized in the industrialization strategy.108 
100. According to the Industrial Promotion Act an ar ray of industries are subject to controls on 
grounds of public interest (Table III.11).  Wher e licences are required, they are issued subject to 
specific terms and conditions, including safety and hygi ene standards, procedures used to store inputs 
and to dispose of unused inputs and other waste, and distribution of products to customers.  According 
to the authorities, the licensing controls stipulated in the Act are not exercised;  at present, only the 
production of specific items, such as uranium, asbestos , and concrete products, are subject to control 
(Table III.11). 
Table III.11 
Industrial licensing and other controls 
(a) Industrial licensing 
Industry Type of control 
Industries with foreign investment   Licencea 
Industries employing high technology None  
Industries producing goods for export  Licencea  
Industry exploring, extracting or processing minerals or non-renewable natural resource Licencea 
Industries manufacturing arms and am munition, explosives, military vehi cles and equipment, aircraft 
and any other military hardware Licence 
Industries manufacturing poisons, narcotics, alcohol, dangerous drugs, and toxic hazardous and 
carcinogenic materials  Licence 
Industries producing currency, coins and security documents Licence  
Industries where the value of capital investment in  plant and equipment exceeds Rs 4 million and the 
number of permanent employees is higher than 50 Licencea 
Industries owned by the Government or by a company in which the Government holds a majority of the 
shares Licencea 
a Information supplied by the authorities. 
Source:  Industrial Promotion Act 1990;  and Government of Sri Lanka.  
                                                      
105  As defined by the authorities a "conducive macroeconomic environment" is characterized by a low 
budget deficit, tight inflation control and a competitive real exchange rate.  
106 Industrial Promotion Act 1990 [Online]. 
107 Regional Industrial Estate Developments [Online].  Available at:  
http://www.gov.lk/imst/activities/regional_industr ial_state_development/index.html [8 May 2003]. 
108 Industrialization strategy [Online]. WT/TPR/S/128 Trade Policy Review 
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 (b) Specific items subject to i ndustrial control (October 2003) 
HS Code Description of HS Code  Reasons for brought under control 
2524.00.01 
2530.90 
2530.90.01 Blue asbestos 
Other: 
Natural arsenic sulphides Health hazard 
2612.10 
2612.20 Uranium ores and concentrates 
Thorium ores and concentrates Radio active 
 
4012.11 
4012.12 
4012.13 4012.19 
4012.20 Retreaded tyres: 
Of a kind used on motor cars (incl uding station wagons and racing cars) 
Of a kind used on buses or lorries 
Of a kind used on aircraft Other 
Used pneumatic tyres  
Road safety and health hazard 
68.10 
6810.11 
6810.11.01 
6810.99 
6810.99.01 Tiles, flagstones, bricks & similar articles 
Building blocks and bricks 
Concrete cement blocks encasing industrial waste sludges 
Other articles: 
Other concrete cement blocks encasing industrial waste sludge Health hazard  
Source:  Ministry of Enterprise Development, I ndustrial Policy and Investment Promotion. 
(ii) Incentives 
(a) Tax incentives 
101. Since its previous Review in 1995, Sri Lanka has made several changes to its internal tax 
system;  each Budget has introduced new taxes, abolis hed others, and increased or decreased tax rates.  
As a result, the tax system had become increasi ngly complex, and hence more vulnerable to tax 
avoidance or evasion, thereby rendering tax administrati on more difficult.  It is estimated that as far as 
direct taxation is concerned, there ar e currently only around 350,000 taxpayers.109  Between 1996 and 
2002, the share of tax revenues in GDP fell from 17% to 14%, which is low by international 
standards.  Consequently, in 2002, the Government embarked on major tax reform with a view to 
simplifying the tax system, thereby making it more transparent, and raising greater revenues from internal taxes.  
102. The focus of the 2002 tax reform was the re placement of the goods and services tax (GST) 
and National Security Levy (NSL)
110 with a value added tax (VAT).111  In addition, complicated taxes 
such as the advance company tax (ACT) and the capita l gains tax were abolishe d, and ad-hoc taxes, 
such as the surcharge on income tax, were also eliminated.112  
103. Sri Lanka offers a wide range of tax incentives,  notably tax holidays, primarily for investment 
purposes.  In 2002, Sri Lanka notified a list of tax in centives available equally to national and foreign 
enterprises investing in Sri Lanka.113  The 2002 Budget proposed the rationalization of tax incentives 
but not their elimination.  The Government w as committed to granting no new exemptions either 
                                                      
109 Emoluments received by civil servants and employ ees of state-owned enterprises are apparently not 
subject to income tax.  
110 Other information provided to the Secretariat indicate that  the VAT replaced on ly the goods and 
services tax.  The Secretariat was unable to obtain clarification of this situation. 
111 The goods and services tax (GST), which was implemented 1 April 1998, was levied on most 
imported, or locally produced goods and services.  A range of essential goods such as certain food items and petroleum products, public transport services and health care were exempt from GST. 
112 Ministry of Finance (2003). 
113 WTO document G/SCM/N/74/LKA, 7 January 2002. Sri Lanka WT/TPR/S/128 
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 under the Board of Investment (BOI) or Inland Revenue Department (IRD) regimes.114  Under the 
IRD regime, income tax exemptions are provided usually for five years.  Despite this policy, there are 
still an array of tax incentives in place, which seem to overlap;  some are contingent on export and 
investment performance (Table AIII.3 and AIII.4).  These incentives are consid ered exceptions to the 
new policy, according to which, a "limited" number of incentives would remain in place.  These were 
aimed at assisting non-traditional exports (i.e. others  than exporters of tea, rubber and coconut), and 
sectors such as information technology, electronics,  industrial tools, and food processing, as well as, 
investments exceeding Rs 500 million in specific serv ices.  There is also a 5-10 year income tax 
holiday for pioneering investment in power genera tion, transmission and distribution, and for the 
development of highways, sea and airports, railway s, and water services.  Upon expiry of the tax 
holiday, these enterprises will be subject to a 15% income tax.115  The revenue forgone as a result of 
these tax incentives has not been assessed. 
104. In 1997, Sri Lanka notified a list of subsidies,  granted by the Sri Lanka Export Development 
Board (EDB) and the Board of Investment of Sri La nka, most of which were tax incentives contingent 
on export performance.116  According to the authorities, these  schemes are still in place with the 
exceptions of a some that were provided by th e EDB (e.g. the assistance scheme to manufacture 
exports of rubber and the "200 Garment Factory Programme"). 
105. The inevitable outcome of these tax incentives is th at marginal effective tax rates often fall 
short of the statutory corporate tax rate, which is currently 30%117, and can vary substantially by firm 
and sector.  Tax incentives thus run the risk of subs idizing good investments, that do not need such 
assistance and would have been undertaken in any case,  or turning intrinsically bad investments into 
profitable ones.  To the extent that they have s timulated investment in the latter, tax incentives may 
have distorted the domestic allocation of resources.  Even in instances where the market may fail to 
finance good investments, as in the case of R&D, for example, it is unclear whether tax incentives can 
effectively address such "market failure".   
106. There is also a lack of transparency in Sri La nka concerning tax incentives.  In particular, the 
tax authorities do not publish detailed informa tion on the amounts of tax revenue forgone as a 
consequence of individual measures;  nor do they rigorously and systematically evaluate the impact 
and effectiveness of such incentives.  These would gr eatly enhance the transparency of taxation and 
contribute to more effective tax policy in Sri Lanka.   Experience in other countries suggests that that 
tax incentives are seldom cost-effective.118  Elimination of incentives that are no longer appropriate or 
effective would permit a broadening of the tax base,  which could be accompanied by reductions in 
statutory tax rates without necessarily involving any loss in total tax revenues;  the outcome would be 
a more neutral, market-oriented tax system. 
                                                      
114 Sri Lanka operates two distinct direct tax systems:  the normal regime, and the other under the 
auspices of the BOI.  However, moves appear to be afoot to amend the BOI Act so as to abolish this distinction. 
115 IMF (2002c). 
116 WTO document G/SCM/N/3/LKA, 17 January 1997. 
117 The top personal tax rate is also 30%. 
118Most econometric studies show that  forgone tax revenues exceed the increase in investment induced 
by tax incentives.  Tax holidays are regarded as a partic ularly ineffective type of tax incentive compared to tax 
credits.  WT/TPR/S/128 Trade Policy Review 
Page 60 
 
 
 (b) Non-tax incentives 
Small and medium-sized enterprises (SMEs) 
107. The need to support small and medium-size en terprises (SMEs) has been emphasized in the 
Government's industrialization strategy.119  An SMEs Policy Unit has been  established at the Ministry 
of Enterprise Development, Industrial Policy and In vestment Promotion to help SMEs get installed 
and develop their businesses.  Industrial parks are bei ng created in the rural areas to cater to SMEs.  
The Export Development Board implements special  programmes to support export-oriented SMEs.  
Under the Inland Revenue Act, tax incentives are also  provided to small-scale infrastructure facilities 
engaged in, inter alia , power generation, tourism and recreati on, warehousing and cold storage, and 
construction of houses and hospitals.   
108. The National Development Bank (NDB) continu es to grant credit under the Small and Micro 
Industries Leader and Entrepreneur Promotion Project (SMILE2) implemented in 2001.  The 
'Sahanya' credit scheme, launched in 2002, provid es credit to SMEs to fi nance their start-up, 
expansion, modernization,  and re-allocation at "concessional" interest rates with flexible repayment 
periods.  Credit under this scheme is available to SM Es operating in all sectors.  The loans are for a 
maximum of Rs 35 million and the minimum interest rate charged is the average weighted deposit 
rate plus 5.5%-6%, depending upon the borrower’s cred it risk.  Additional special lines of credit are at 
present available to small and medium-size enterprises (SMEs).  The Ministry of Enterprise Development, Industrial Policy an d Investment Promotion is the im plementing agency for this loan 
scheme.  Funds are channelled through four ba nks including the NDB and the DFCC (Development 
Finance Corporation of Ceylon) Bank.  These two banks seem to specialize in development finance 
and cater particularly to the SME sector.  It is not clear to the Secretariat whether these funds are provided at concessional rates. 
109. Data on SMEs, such as the number of SMEs in operation, employment in the sector, and the 
amount produced and exported by these enterprises are not available.  
Relief measures 
110. In emergency situations the Government may offer relief packages.  For instance, in 2001 a 
relief package was offered to the hotel and tourist industry to cover for temporary losses incurred after 
a terrorist attack on the international airport.  The industry was granted a moratorium on the repayment of capital and interest from 1 August 200 1 until 31 March 2002;  the moratorium could be 
extended on a case-by-case basis.  Other relief me asures adopted during 2001 included removal of a 
1% turnover tax on banking and finance;  remova l of import duties on essential raw materials;  
reduction of import duty on bagged cement to 15% a nd bulk cement to 10%;  reduction of interest 
rates on loans in foreign currency to 6%;  and the allocation of Rs 1 billion for drought relief.
120  
(iii) Competition policy and regulatory issues  
111. Up to January 2003, competition policy in Sri Lanka was governed by two separate but inter-
related statutes, the Consumer Protection Act of  1979 (CPA) and the Fair Trading Commission Act of 
1987.  The Ministry of Commerce and Consumer Affairs administered both acts.121  T h e  C P A  
                                                      
119 A small-scale enterprise is defined as one with  fixed assets not exceeding Rs 20 million;  and a 
medium-size enterprise is defined as one with fixed assets above Rs 20 mi llion but not exceeding Rs 50 million. 
120 Ministry of Finance (undated). 
121 CUTS Centre for International Trade, Economics & Environment (2002). Sri Lanka WT/TPR/S/128 
 Page 61 
 
 
 provided for the setting up of the Department of Intern al Trade (DIT) to regulate internal trade and to 
establish fair trading practices.122  The Fair Trading Commission Act (FTC) established the Fair 
Trading Commission in charge of controlling monopoli es, mergers, and anti-competitive practices;  it 
also stipulated a national price policy. 
112. In January 2003, Parliament approved the C onsumer Affairs Authority Act (CAA Act No. 9 
of 2003) to regulate competition policy in Sri Lanka.123  The Act repealed the Fair Trading 
Commission Act and the Consumer Protection Act to become a combination of competition and 
consumer protection legislation.  It also amalgama ted the powers and functions of the Fair Trading 
Commission and the Department of Internal Trade.  The CAA Act created the Consumer Affairs 
Authority (CAA), which replaced the Fair Trading Commission (FTC) and the Department of Internal 
Trade (DIT).  The CAA comprises an  investigative authority and an adjudicative body, the Consumer 
Affairs Council (CAC).124  The CAA and the CAC have been in operation since March 2003 when 
CAA Act No. 9 of 2003 was "certified".  The functions of the CAA include the control and 
elimination of any restrictive trade agreement amon g enterprises with regard to prices, abuse of 
dominant position, any restraint on competition, and investigation of anti-competitive practices.125  
The CAC has the power to hear and determine all applications made under the law.  It has the 
authority to give an order in response to a compla int of an anti-competitive practice received from the 
Authority, any other person, or association of trad ers.  It also has the power to issue notices to 
witnesses, and to procure evidence.  For instan ce, the CAA can inquire into any anti-competitive 
practice as defined in Section 35 of the Act;  once the investigation is concluded, a report may be 
referred to the CAC to determine whether an anti- competitive practice exists and if so, whether it 
operates against the public interest. 
113. Neither the CAA nor the CAC have power to conduct investigations on the existence of 
monopolies or on mergers.   Anti-competitive practices relating to monopolies, mergers, and 
acquisitions are not covered by the CAA Act.  As a result, the CAA might be less effective as a competition law, than the former law under which co mplaints with respect to monopolies and mergers 
could be investigated.
126  The Government is contemplating establishing of a new entity to deal with 
these issues.  Nevertheless, in the CAA Act there is a provision to investigate any anti-competitive 
practice, including abuse of dominant position.127 
114. Despite the passage of this new law, critics believe that the weaknesses of the former 
competition regime, both legal and institutional, ha ve not been redressed.  Moreover, essential to an 
effective competition regime are adequate monito ring and enforcement mechanisms, which seem to 
be lacking in Sri Lanka.128  The privatization process has also b een at odds with competition since the 
main objective of the government privatization ini tiative has been revenue generation, rather than 
economic efficiency and consumer welfare.  In or der to enhance the proceeds from privatization, 
state-owned enterprises have in many instances been  privatized through granting monopoly status to 
the privatized entity.  Artificial barriers to entry (t hrough licensing for instance) effectively provide a 
first-mover advantage to the incumbent company, which tends to inhibit potential competitors from 
                                                      
122 Knight-John (2002). 
123 The Consumer Affairs Authority Act No. 9 of 2003 was certified on 17 March 2003.  
124 Indraratna (2003).  
125 Section 8 of the Consumer Affairs Authority Act No. 9 of 2003, 17 March 2003. 
126 However, the previous regulation did not have a definition for monopoly, a monopoly was illegal if 
it was contrary to the "public interest". 
127 Indraratna (2003). 
128 CUTS Centre for International Trade, Economics & Environment (2002);  and Sunday Observer  
(12 August 2001), "A National Competition Policy:  What is required?" [Online].  Available at:  
http://www.sundayobserver.lk/2001/08 /12/bus12.html [8 April 2002]. WT/TPR/S/128 Trade Policy Review 
Page 62 
 
 
 entering privatized markets.  The absence of an ef fective regulator in these markets also inhibits 
competition.129  Thus, while the Government has iden tified competition as a key benefit from the 
privatization process, there is no mechanism, by way of  either regulation or contract, to ensure greater 
competition in recently privatized industries.130  Moreover, the CAA Act exempts any "institution or 
body that has been granted the exclusive right to supply such goods or ser vices" from the provisions 
of the law relating to anti-competitive practices.131  This seems to be an attempt to accommodate the 
privatization initiatives of the Government a nd to protect government-sanctioned monopolies.132  
115. The CAA Act seems to be an improvement over th e previous legislation;  it brings goods and 
services (including professional services) under its surveillance, and does not exempt enterprises 
approved under the BOI Law from investigation.  The CAA Act covers services such as banking and 
insurance, which were not previously covered by the competition law.  The sale and supply of any 
utility, including electricity, water, gas, and te lecommunications, have also been included in the 
definition of services under the Consumer  Affairs Authority Act No. 09 of 2003.133  However, it 
seems that the generation of electricity is not c overed.  The new regulation spells out the interface 
between the CAA and other regulatory authorities, for example the Telecommunication Regulatory Commission (TRC) and the National Transport Commission (NTC). 
116. The previous competition regime had moved aw ay from price controls;  however, provisions 
to introduce price controls were reintroduced in th e CAA Act.  Section 18 prohibits the increase of the 
retail or wholesale price of a "specified good or  service" without prior written approval of the 
Authority.  The Minister of Commerce and Consumer  Affairs has the power to declare any item or 
service that they consider "essential" to the community
134 as a "specified good or service".135  
Sections 19 and 20 also refer to the contro l of prices if these are deemed "excessive". 
Enforcement 
117. The FTC had the power, either on its own initiativ e or based on complaints by another party, 
to investigate monopolies, mergers, or the prevalen ce of any anti-competitive practice.  However, the 
FTC rarely initiated investigations itself.  The investigation process was lengthy:  the FTC took 
several months to acknowledge receipt of a complain t and several years to complete an investigation 
and make an order.  Some cases would take as long as five years from the lodging of the complaint.  The FTC explained these delays as purely administrative.  FTC's dormancy had been attributed to a lack of financial resources:  the FTC was poorly funded.  Moreover, it offered lower salaries than 
other public-sector institutions.  As a result, the FTC was unable to recruit competent staff and to 
secure the expertise necessary to function efficien tly.  The two newly created institutions, the 
Authority and Consumer Affairs Council, with thei r increased staff, will face similar (or greater) 
difficulties unless their budgets are increased.
136  The CAA is at present financed with public funds.  
The Authority may also charge a fee for services rendered. 
                                                      
129 Knight-John (2002). 
130 CUTS Centre for International Trade, Economics & Environment (2002). 
131 Section 77 of the Consumer Affairs Authority Act, No. 9, 17 March 2003. 
132 Institute of Policy Studies (undated). 
133 Section 75 of the Consumer Affairs Authority Act No. 09 of 2003. 
134 The word "essential" is not defined in the Act.  However, according to the authorities, the CAA has 
developed guidelines based on which recommendations are made to the Minister to specify a good or a service. 
135 Institute of Policy Studies (undated). 
136 Sunday Observer  (19 August 2001), "Challenges of fast changing market structures" [Online].  
Available at:  http://origin.sundayobserver.lk/2001/08/19/bus05.html [8 April 2003];  and Knight-John, Malathy 
(2002). Sri Lanka WT/TPR/S/128 
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 (iv) Price controls  
118. During the period under review, the prices of bread , green tea leaf, wheat flour, petroleum, 
bus and rail fares, telecom rates, water, and electrici ty have been administered.  In addition, prices of 
wheat flour, utilities, petroleum, and fertilizer were  subsidized during the period,.  In 2000, the 
Government, no longer able to subsid ize fuel in view of the rising oil prices and the cost of war, 
announced a series of price increases on electricity, di esel, kerosene, fuel oil, and transport.  The 
pricing mechanism for petroleum products was modi fied in 2002 when an automatic pricing formula 
was introduced (Chapter IV).  However, it seems th at while the price of petroleum is set by the 
automatic pricing formula, the price of diesel and kerosene have been subsidized since February 2003 
to compensate CPC directly for the in crease in the international price of oil.  The cost of the subsidy is 
of Rs 300 million per month.137  Pharmaceuticals prices were al so set during 1989-2002 with the use 
of two different formulas:  one for imported drugs (which allows for a maximum mark-up of 165% of 
the c.i.f. price);  and one for domestically produ ced drugs based on the "true cost" of production.  
Locally manufactured drugs are classified in thr ee categories:  drugs imported in bulk and packed 
locally;  drugs that are partially processed in Sri Lanka;  and drugs that are fully processed in Sri 
Lanka.  The profit margins were set at 15%, 17. 5%, and 20% respectively.  The Tea Board has 
statutory authority to regulate the price of green leaf  paid by factories (since 1968);  the price of wheat 
flour and bus fares are also set by using a formula (Chapter IV). 
(v) Corporate governance 
119. An efficient capital market capable of mobiliz ing domestic savings and channelling them into 
the most productive uses is essential for Sri Lanka's  successful economic restructuring and long-term 
development.  Good corporate governance is considered essential for the establishment of such a 
market.  Thus, efforts have been made to increase the level of transparency and disclosure, and to 
ensure that companies operating in Sri Lanka satis fy appropriate accountancy and auditing standards. 
120. Confidence in Sri Lanka's accounting and a uditing arrangements was severely shaken 
following the collapse of a number of finance companies in the late 1980s and early 1990s.  Many depositors lost their savings and government incurred  significant fiscal costs through bailouts.  As a 
result, the Presidential Commission on Finance and Banking was established to investigate and 
strengthen financial sector arrangements and it recommended that international accounting and 
auditing standards be adopted to improve financ ial disclosure and that financial reporting be 
monitored. 
121. The Sri Lanka Accounting and Aud iting Standards Act (No. 15) 1995,  enacted in response to 
the Commission's recommendations, governs the prepar ation, presentation, and auditing of financial 
statements.  The Act also established the Sri La nka Accounting and Auditing Standards Monitoring 
Board (SLAASMB), which administers the Act a nd monitors the application of accounting and 
auditing standards.  Other institutions that regul ate private companies include:  the Registrar of 
Companies, which administers the Companies Ac t 1982;  the Central Bank of Sri Lanka, which 
administers the Banking Act 1995, approves bank  auditors, approves accounting and auditing 
standards for banks, and determines disclosure re quirements for financial institutions;  and the 
Securities and Exchange Commission (SEC), whic h administers the Securities Act 1987 and oversees 
the Stock Exchange.  
122. In its 2003 Budget Speech, the Ministry of Finance reiterated the authorities’ commitment to 
the development of the corporate bond market in Sri Lanka.  According to the authorities, the crisis 
                                                     
 
137 IMF (2003b). WT/TPR/S/128 Trade Policy Review 
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 faced by the finance companies in the past was largely due to lack of public information from 
independent sources relating to entities that solicit f unds.  An effective method for the public to be 
able to assess the risks involved in  their investments through a credit rating system is therefore 
deemed necessary.  The Government intends to ma ke credit ratings and publication of such ratings 
mandatory for all deposit-taking ins titutions and all varie ties of debt instruments other than those 
issued by the Government.  Credit ratings do not seem to be mandatory yet.  The Security and 
Exchange Commission (SEC) would regulate rating activities. 138 
123. The SEC has extensive powers with regard to the licensing of stock exchanges, brokers and 
dealers, formulation of rules for fair trading an d for the protection of investor interests, the 
suspension/cancellation of the listing of securities, and insider dealing.139  If any of the provisions of 
the Securities and Exchange Commission of Sri Lanka Act are breached, the offender may be 
subjected to a maximum punishment, of a sentence of five years imprisonment, or a fine of 
Rs 10 million, or both.140 
124. However, the investigation powers of the SEC are limited, since the present legislation only 
allows the Commission to request details of suspici ous transactions; it does not have the power to visit 
premises, to seize documents, to summon persons  and record statements, to impound travel 
documents, or to arrest persons.  These limited pow ers have compromised the SECs ability to regulate 
the market and has prompted the drafting of ne w legislation that will include wider powers of 
investigation and enable the Commission to regulate  new market intermediaries, i.e. credit rating 
agencies, underwriters, portfolio managers and investment advisors, securities depositories, and 
margin traders.141  The SEC has prepared the draft terms and conditions for registration of 
underwriters, margin providers, credit rating agenci es, investment managers, and clearing houses in 
consultation with a cross-section of the stakehol ders.  The SEC has invited the public to make 
comments on the draft terms and conditions. 
125. Commentators have nevertheless concluded that  the quality of Sri Lankan private financial 
reporting is in general sound.  It seems that Sr i Lanka's accounting and aud iting arrangements for the 
private sector compare well with those of other coun tries.  In contrast, public corporation financial 
reporting, which is governed by the Public Fi nance Act 1971, and governance practices are poor.142  
In particular, disclosure standards are deficient and compliance with these standards is weak as 
evidenced by delayed or failed s ubmission of audited annual reports.143 
126. A Committee on Public Enterprise (COPE) wa s established to scrutinize the financial 
accounts of state-owned enterprises (SOEs).  Howeve r, recent media reports indicated that COPE's 
ability to investigate over 40 SOEs has been jeopard ized by the position taken by Sri Lankan Airlines 
not to submit its accounts for scrutiny on the basis that it did not come within the definition of a 
public corporation under the 1978 Constitution.144  
                                                      
138 Ministry of Finance (2003). 
139 Securities and Exchange Commission of Sri Lanka (2002). 
140 Knight-John (2002). 
141 Knight-John (2002). 
142 The Public Finance Act 1971  governs the financial management, reporting, and auditing 
arrangements of public corporations. 
143 Asian Development Bank (undated). 
144 Knight-John (2002). Sri Lanka WT/TPR/S/128 
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 (vi) State-owned enterprises and privatization  
127. The Government of Sri Lanka started reform ing public enterprises in 1990, as part of the 
process of liberalization and deregulation of the ec onomy.  In 1996, the Public Enterprises Reform 
Commission (PERC) was established as a statutory body responsible for the implementation of the 
privatization programme and for restructuring loss-making state-owned enterprises.  At end June 2001, PERC had completed 46 transactions an d obtained some Rs 44 billion in revenue.
145  As a 
result, the controlling interests in a number of public enterprises, including Sri Lanka Telecom, the 
largest telecom operator and Air Lanka, the national ai rline, were partially transferred to the private 
sector (Table AIII.5).146  Although the Government retains majority ownership in both companies, it 
ceded managerial control to the foreign partner.  PERC is currently in charge of other privatization programmes.
147  Other state-owned enterprises have been identified for privatization.148  Privatization 
receipts in 2003 (January-September) amounted to Rs  6.8 billion;  the authorities are expecting to 
collect a total of Rs 17 billion by the year end. 
128. Over the years, through the divestiture of st ate-owned enterprises, there has been some 
reduction in state control of the economy.  Neverthe less, state involvement remains strong.  In 2002, 
there were 75 public enterprises in operation.149  However, no information was supplied to the 
Secretariat regarding the contribution of these enterprises to GDP, investment or employment.  The 
operation of a large number of enterprises has b een a major burden on the budget;  annual current 
transfers to these enterprises increa sed from Rs 9.2 billion in 1996 to Rs 14.8 billion in 2002, and are 
estimated at Rs 15.6 billion for 2003.  Lending to public enterprises has al so increased during the 
period under review;  total loans to public enterpri ses amounted to Rs 8.3 billion in 1996, increasing 
to Rs 14.2 billion in 2002.  Loans appr oved for 2003 amount to Rs 13.3 billion.150  Moreover, some 
80% of the land in Sri Lanka is under state control;  two thirds is owned by the State but farmed by 
private farmers under various tenure arrangements.  Leases vary in the degree of restriction on land 
use and transfer.151   
129. State ownership remains especially significant in services and utilities (banking, ports, rail, 
petroleum, and electricity).  The Ceylon Petroleu m Corporation (CPC) was, until February 2003 the 
exclusive importing and marketing agency for pe troleum and petroleum products.  Some water 
distribution services are also to be privatized.  There are plans to separate the generation, 
                                                      
145 Public Enterprises Reform Commission of Sri Lanka (undated a). 
146 Public Enterprises Reform Commission of Sri Lanka (2001). 
147 These programmes include the restructuring of Ceylon Petroleum Corporation (CPC) (posted on 
7 April 2003);  the sale of 49% of the shares in Shell Gas Lanka Limited, the provider of liquefied petroleum 
gas (LPG);  the sale of 51% of shares in Elkaduwa Plantations Ltd (short-listed parties for Cabinet approval  
(updated on 7 February 2003);  the restructuring of the National Lotteries Board (updated on 5 February 2003);  the sale of prime land in Colombo 10;  request for propo sals for public/private-sector participation in Cluster 
Bus Companies (updated on 18 November 2002);  invitation to potential investors for expressions of interest in 
Sri Lanka Insurance Corporation Ltd (SLIC) (closing date 23 August 2002);  and the liberalization of Bunkering (RFP) (Public Enterprise Reform Commission, undated h). 
148 The Economic Policy Committee of the Cabinet has approved the privatization of some 
18 companies including the Ceylon Fertilizer Company, Lanka Mineral Sands Corporation,  Sri Lanka Cement Corporation, Ceylon Fisheries Corporation, State Phar maceuticals Manufacturing Co rporation, State Printing 
Corporation, Sri Lanka State Plantation Corporation, Rubber Manufacturing Corporation, Ceylon Shipping 
Corporation, the Regional Development Bank, and Ceylon Hotels Corporation Ltd.. 
149 IMF (2002b). 
150 Central Bank of Sri Lanka (2002a).  
151 World Bank (2000). WT/TPR/S/128 Trade Policy Review 
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 transmission, and distribution components of Ceylon Electricity Board (CEB);  each activity will be 
undertaken by a different entity (Chapter IV). 
130. The development and operation of the Queen Elizabeth Quay of the Colombo Port was 
handed over to a private consortium under a build-ope rate-transfer (BOT) arrangement.  The partial 
privatization of Sri Lanka Telecom (SLT) proved a success judging from the high growth rate of the sector in 1998-99.
152  Further privatization continued in 2 002 and further disinvestment is still 
envisaged;  however, plans have been revised gi ven the low level of dom estic and international 
interest in the company (Chapter IV(5)(iii)). 
131. State ownership in the financial subsector remain s extensive.  This especially true in banking, 
despite the opening of new private banks and of foreign bank branches.  The two state-owned 
commercial banks (the People's Bank and the Bank of Ceylon) continue to dominate the sector, 
accounting for 55% of the banking system's assets and liabilities;  however, the banks do not operate 
on a fully commercial basis.153  Moreover, the People's Bank is insolv ent and is being restructured.  It 
will be converted into a public company and then  separated into a comme rcial bank, a savings 
division, and a debt recovery unit.  Privatization of state banks is no t considered feasible in the short 
term due to political constraints.  However, restru cturing is taking place, and the introduction of new 
management, drawn from the private sector, is being considered.  Privatization is also taking place in 
insurance;  in 2001 the Government sold 51% of  the National Insurance Corporation Limited to a 
local insurer, and in 2003 the Sri Lanka Insu rance Corporation Limited was fully privatized. 
132. In the agriculture sector, government-owned plan tations have been priv atized under long-term 
lease arrangements, and shares have been offered to th e public.  The privatization of tea estates helped 
Sri Lanka recapture first place among world tea exporters.154  Several sugar companies have been 
privatized, and in June 2001, the Government sold  the country's only flour mill.  In 2002, two sugar 
companies (Pelwatte Sugar Industries Limited and Se vanagala Sugar Industries)  were privatized and 
two other sugar processing plants (Hingurana Sugar Industries Limited and Kantale Sugar Industries) 
are undergoing privatization.155  The monopoly held by the Cooperative Wholesale Establishment 
(CWE) on the importation and distributi on of wheat was eliminated in 2001.156  According to the 
authorities, CWE will be restructured;  the institution is to be broken up into several companies.157 
(vii) Intellectual property rights158 
(a) Overview 
133. Sri Lanka is party to the Convention Es tablishing the World Intellectual Property 
Organization (WIPO) and to other interna tional conventions on intellectual property.159  I n  2 0 0 1  
Sri Lanka signed a bilateral agreement with the Un ited States to protect intellectual property rights.160   
                                                      
152 World Bank (2000). 
153 IMF (1998). 
154 World Bank (2000).  In 2001, Sri Lanka was the number one tea (HS 0902) exporter in the world 
(UNSD, Comtrade database). 
155 Public Enterprises Reform Commission of Sri Lanka (undated b). 
156 Other information also provided by the authorities indicates that imports of wheat by CWE were 
discontinued by Government directive as of 25 June 2002. 
157 No further details were provided by the authorities on this issue.  
158 This section is based on WTO documents IP/N/1/L KA/C/1 - IP/N/1/LKA/I/1, 12 November 2001;  
IP/N/1/LKA/C/1/Add.1 - IP/N/1/LKA/I/1/Add.1, 26 Nove mber 2001, and IP/N/1/LKA/L/1, 26 November 2001. Sri Lanka WT/TPR/S/128 
 Page 67 
 
 
 134. Since 1996, Sri Lanka has proposed the introduction of important changes to its intellectual 
property regime.  These were aimed,  in particular, at ensuring compliance with the WTO Agreement 
on Trade-Related Aspects of Intellectual Property Ri ghts (TRIPS).  The proposed statutes are:  the 
Act to Amend Act No. 52;  and the Act to Provide for Protection of the Layout-Designs of Integrated 
Circuits and to Provide for Matters Connected or In cidental Thereto.  However, this legislation was 
not enacted, and the Code of Intellectual Property Act No. 52 of 1979 continues to govern Sri Lanka’s 
protection of intellectual property.  This Act revi sed, consolidated, and am ended laws relating to 
copyright, industrial designs, patents, ma rks, trade names and unfair competition.161  More recently, in 
July 2003, Parliament approved a new Intellectual Property Act of 2003.  This bill has not yet come 
into force as the Speaker has not certified it, as required by Article 80(1) of the Sri Lankan 
Constitution. 
135. Sri Lanka's proposed intellectual property legi slation was notified to the WTO, and was 
reviewed by the Council for TRIPS on 27 November 2001.162  The new laws, once enacted, would 
give Sri Lanka a comprehensive legal framework for protecting intellectual property rights.  No 
information has been provided to the Secretariat re garding the enforcement of the IPR laws in Sri 
Lanka. 
136. Sri Lanka's contact point for intellectual propert y purposes is the Registry of Patents and Trade 
Marks of Sri Lanka.163  There is a National Intellectual Propert y Office of Sri Lanka, where industrial 
designs, patents and marks are registered and administered.  The Ministry of Commerce and Consumer Affairs is in charge of intellectual prope rty right matters.  The institutions in charge of 
enforcing intellectual property rights in Sri Lanka are the National Intellectual Property Office, the 
Customs Department, the police, and th e Attorney General’s Department.  
(b) Copyright and related rights  
137. Copyright and related rights are protected by the Code of Intellectual Property Act No. 52 of 
1979.  Copyright protection is provided for origin al literary, artistic and scientific works, which 
include, inter alia,  dramatic, musical, and audiovisual wo rks, computer programs, drawings, and 
photography;  translations and other adaptations of the work are also protected.   
138. Copyrights do not need to be registered to be protected.  However, protection is granted only 
if the work is first published in Sri Lanka or if the author is a Sri Lankan citizen or resident of 
Sri Lanka.  Works first published in another country  and also published in Sri Lanka, irrespective of 
the nationality or residency of the author, are also protected.  Sound recordings are protected if 
produced by a national, first fixed or published in  Sri Lanka.  Foreigners who perform in Sri Lanka 
are also protected by this statute.  According to the authorities, under the new Intellectual Property Act of 2003, work not published, performed, produc ed or fixed in Sri Lanka by non-nationals would 
be granted protection by virtue of and in acco rdance with any international convention or any 
international agreement to which Sr i Lanka is a party.  Similar pr ovisions apply to related rights. 
                                                                                                                                                                    
 
159 Patent Cooperation Treaty,  the Berne Convention for the Protection of Literary and Artistic Work, 
the Paris Convention for the Protection of Industrial Pr operty;  the Madrid Agreement for the Repression of 
False or Deceptive Indications of Source on Goods;  and the International Convention for the Protection of Performers (WIPO, undated).  
160 Government of the United States (2002). 
161 See WTO documents IP/N/1/LKA/C/1 - IP/N/1/LKA/I/1, 12 November 2001;  
IP/N/1/LKA/C/1/Add.1 - IP/N/1/LKA/I/1/Add.1, 26 Nove mber 2001, and IP/N/1/LKA/L/1, 26 November 2001. 
162 WTO document JOB(01)/156/Rev.1, 21 November 2001. 
163 WTO document IP/N/3/Rev.6, 1 March 2002. WT/TPR/S/128 Trade Policy Review 
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 139. Protection is granted during the life of the author or authors plus 50 years.  The original 
owner of the economic right is the author;  these ri ghts may be transferred through a licence.  The fair 
use of a piece of work, including making copies for news reporting, teaching, or research, is not considered an infringement of copyright under Sri Lankan law.
164 
140. Performances and sound recordings are protected  from the time that the performance takes 
place/or the sound recording is published until the e nd of the fiftieth calendar year following the 
performance.  A producer of sound recordings has th e exclusive right to reproduce it, import and rent 
copies, and to adapt or transform the work .  The producer may transfer these rights. 
(c) Industrial designs 
141. Industrial designs may be protected as a copyri ght and also under Part III of the Code.  No 
registration is required to obtain copyright protec tion for an industrial design and the design would be 
protected for life plus 70 years.  The Code provides protection to all new industrial designs165, with 
the exception of anything in the industrial design th at serves only to obtain a technical result.  The 
latter could be protected under the law as a patent.  An  industrial design is new if it has not been made 
available to the public (through description, use or in any other way) prior to the date of application 
for registration or before the priority date validly claimed.  The creator (i.e. the person who makes the 
first application for registration or who first claims the earliest priority for registration), owns the right 
to protection (Section 29).  Certain exceptions to this  rule are fully set out in the Act including the 
right to obtain protection when two or more persons  jointly created the design, or when the creation 
happened during the performance of a contract of employment (Sections 30 and 31). 
142. To be protected under  Part III of the Code an industrial design must be registered 
(Section 33).  Applications for registration are made  with Director General of Intellectual Property 
(DG), who examines them only to ensure certain formal requirements.  The DG might refuse to 
register the design if the application is not in conf ormity with the application procedure laid down, if 
the design does not meet the criteria for a registerab le industrial design, or on grounds of morality and 
public order.  A design application is not published for opposition before being granted registration.  
It is published only after registra tion, and any person is entitled to apply to the District Court of 
Colombo to have the registration declared null and void on grounds specified in the Code.  No limitation period for such an application is provide d.  The registration of an industrial design will 
expire five years after the date of receipt of th e application, and may be renewed for two consecutive 
periods of five years each, on payment of the required fees.  The maximum life of an industrial design 
registration is 15 years from date of application.  Re gistration grants the creator the right to reproduce, 
import, sell, stock or use a product that embodies the design.  These rights may be transferred (Section 44). 
(d) Patents 
143. In Sri Lanka patents are granted if an invention is new
166, involves an inventive step, and is 
industrially applicable.  The Code defines an inve ntion as "an idea of an inventor which permits in 
practice the solution to a specific problem in the field of technology";  inventions  may be or relate to a 
                                                      
164 Section 13 of the legislation give s examples of acts of fair use. 
165 An industrial design is any composition of lines or colours or any three dimensional form that gives 
a special appearance to an industrial  product or handicraft and may be used as pattern (Part III, Industrial 
Designs, Chapter III, Section 26). 
166 An invention is considered new if it has not been anticipated by prior art, which is defined in the 
Code (Section 60). Sri Lanka WT/TPR/S/128 
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 product or a process (Section 59).  Patent applica tions must be accompanied by a novelty search 
report (Section 70).  Some inventions  are not patentable in Sri Lanka.167 
144. The right to the patent belongs to the inventor .  The owner of a patent may exploit, assign or 
transmit the patent, and conclude contracts to transfer rights.168  Patents are valid for 20 years after the 
date of application for its registration (Section 80) , but they must be renewed annually.  The term 
cannot be extended beyond 20 years. 
145. Once the Director General of Intellectual Property considers that the necessary conditions for 
granting a patent have been satisfied, the patent is  recorded in the Register and published in the 
Gazette;  these conditions seem to be purely administ rative (Section 75).  An application for 
invalidation or declaration for nullity of a patent can be made in the court if, for instance, the 
invention is not considered to be new, the inventi on is not patentable, or if there are doubts about the 
creator's identity (Section 95).169  However, the grant of a patent sh all not be refused and a patent shall 
not be invalidated even if its commercial explo itation is prohibited by a law or regulation.  
Commercial exploitation of a patent might be pr evented in order to protect the public order 
(Section 76). 
146. According to the authorities, obtaining a patent in Sri Lanka takes a few weeks;  a longer 
period might be needed if the application is not properly prepared.  Some 600 patents have been 
granted since 1996. 
(e) Trade marks 
147. Part V of the existing Code protects trade mark s, service marks, trade names, collective trade 
marks, and geographical indications.  The Code does not protect undisclosed information and trade 
secrets.  However, according to th e authorities, these would be prot ected under the new Intellectual 
Property Act of 2003.  The exclusive right to a mark  is acquired by registration.  Registration of a 
mark is granted to the person who has first provided a valid application or who is the first to claim 
priority for his application.  A mark may consist of words, slogans, designs, etc.170  Protection is also 
available to well known marks not registered in Sri Lanka (Section 100(1)(d)).  Protection is afforded 
to a well-known mark mainly by providing for protection against unfair competition;  the illegal use 
of a well known mark may be considered as unfair competition.  In addition, a mark resembling a 
well-known mark may not be registered as a trade mark .  Registered trade marks are valid initially for 
ten years, but can be renewed for consecu tive periods of ten-years indefinitely.171  The owner of the 
mark has the exclusive right to u se the mark, to assign or to transmit the registration of the mark, and 
to conclude licence contracts.   
                                                      
167 These include:  discoveries, scientific theories, and mathematical methods;  plant or animal varieties 
other than micro-organisms, and essentially biological processes for the production of plants or animals, other 
than micro-biological processes and the products of such processes;  schemes, rules, or methods for doing business, performing purely mental acts or playing games;  methods for the treatment of the human or animal 
body by surgery or therapy, and diagnostic methods practiced on the human or animal body (Section 59(3)). 
168 Exploitation of a patent granted in respect of a product means making, importing, stocking, selling, 
and using the product.  Exploitation of a process means using it;  and importing, stocking, selling, and using a 
product manufactured by use of the patented process (Section 81). 
169 According to the authorities no patents have been nullified. 
170 The Code in Sections 99 and 100 provide a list of marks, that cannot be registered. 
171 Renewal of registration will not be subject to furt her examination by the Registrar or opposition by 
any person. WT/TPR/S/128 Trade Policy Review 
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 148. The Registrar examines the application for re gistration and if the mark is considered 
admissible the applicant is notified.  The applican t must, within two months, pay the prescribed fees 
for publication of the mark by the Registrar in the Gazette .  Any person may oppose the registration of 
the mark within three months (or within the period allowed by the Registrar) of its publication in the 
Gazette .  If no notice of opposition is received by the Regi strar, the Registrar will register the mark. 
149. Once the mark is registered it cannot be removed from the Register except under the 
provisions of Sections 130,  132 and 172 of the Code.172  Under Section 132 the mark may be removed 
if the owner has failed to use the mark within Sr i Lanka without valid grounds, for five consecutive 
years, or if the owner has transformed the mark into  a generic name so that in the eyes of the public 
the significance of the mark has been lost.  No ma rks have been removed from the Register during the 
period under review. 
150. Regarding geographical indications, the law prev ents the use of a misleading indication that 
suggest that a good (including an agricultural product, food, wine, or spirit) originates in a geographical area other than the true place of orig in.  Expressions such as "kind", "type", "style", 
"imitation" or the like may not be used in geographical indications identifying wines or spirits 
(Section 142A).  In addition, a false declaration in respect of geographical indications including of 
Ceylon Tea, is considered an offence, liable to  a Rs 500,000 fine.  Sri Lanka is an advocate of 
extending the protection of geographical indications  to products other than wines and spirits.
173  
(f) Layout designs 
151. Layout designs are protected under the Layout Designs of Integrated Circuits Act.  They are 
protected for a non-renewable period of ten years from the date of the first commercial exploitation in 
or outside Sri Lanka.   Layout designs that have been commercia lly exploited in or outside of Sri 
Lanka for more that two years prior to the enactment  of this Act may not be protected.  Protection is 
provided for original designs subject to registration.   The owner of a design has the exclusive right to 
authorize its reproduction, importation, sale, and distribution.  However, layout designs may be reproduced to be used for evaluations, analysis, research or teaching.  The owner may assign or 
transfer his rights to someone else.  In addition, anyone interested in a layout design may ask the 
Court for its cancellation;  cancellation is possible on  several grounds.  No layout designs have been 
cancelled during the period under review. 
(g) Enforcement 
152. Despite the passage of new statutes it seems that enforcement remains a problem in Sri 
Lanka.  Infringement of IPR is a punishable offe nce under both criminal and civil law.  Relief 
available to owners includes seizure and dest ruction of infringing goods, and prohibition of 
importation.  However, enforcement is a crucial problem, as is public awareness of intellectual property rights.  Domestic legislation is allegedly weak and the Government appears to be unable to 
enforce IPR laws.  At present, aggrieved parties must seek redress of any IPR violation through the 
courts, on their own;  this is a time-consuming process.  Although th e legal system is well-established 
and non-discriminatory, it is fraught with long dela ys.  Recording companies, software development 
companies and motion picture companies continue to complain that lack of IPR protection is damaging their businesses.  The International Intell ectual Property Alliance reported that the piracy 
rate in Sri Lanka for sound recordings was very hi gh.  A small percentage of  CDs are legally imported 
                                                     
 
172 Section 130 relates to nullity proceedings and sec tion 172 deals with correction and rectification of 
the Register. 
173 WTO document IP/C/W/353, 24 June 2002. Sri Lanka WT/TPR/S/128 
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 into Sri Lanka;  the piracy rate for optical di scs totalled 35% for Sinhalese repertoire, 99% for 
international repertoire, and 100% fo r the Tamil and Hindi repertoire.174  The Intellectual Property 
Office apparently has no data regarding the infringeme nt of intellectual property rights and its related 
losses. 
                                                      
174 International Intellectual Property Alliance (2003).