RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/TPR/G/128 
4 February 2004  
 
(04-0330) 
Trade Policy Review Body Original:  English 
   
 
  
 
TRADE POLICY REVIEW 
 
SRI LANKA 
 
Report by the Government 
 
  
 
Pursuant to the Agreement Establishi ng the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), the policy statement by the Government of Sri Lanka is attached. 
 
 
Note: This report is subject to restricted circul ation and press embargo until the end of the meeting 
of the Trade Policy Review Body on Sri Lanka. Sri Lanka WT/TPR/G/128 
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CONTENTS 
    P a g e  
1. Introduction   7 
2. Macro Economic Performance  8 
 2.1 Economic Growth 8 
 2.2 Highlights of Sectoral Developments 10 
  (a) Agriculture 10   (b) Industrial Sector 12 
  (c) Services 13 
 2.3 Public Finance 14   (a) Fiscal deficit 14 
  (b) Revenue 15 
  (c) Expenditure 16   (d) Financing and External Debt 16 
 2.4 Investment and Savings 17 
  (a) Public Investment 17   (b) Foreign Direct Investment 18 
 2.5 Monetary & Exchange Rate Policy 19 
 2.6 Banking, Capital Markets and Insurance 20 
 2.7 Employment 20 
  (a) Performance 20  2.8 Inflation  21 
  (a) Performance 21 
  (b) Developments 21 
3. External Sector   22 
 3.1 Foreign Trade Performance During the Period Under Review 22 
  3.1.1 Balance of Payments 22   3.1.2 Export 23 
   (a) Overall Performance 23 
   (b) General Direction of Export Trade 24    (c) Sectoral Performance 24 
    • Industrial products 24 
    • Textiles and garments 25 
    • Direction of Trade 25 
    • Other Industrial products 25 
    • Agricultural Products 25 
    • Tea 26 
    • Direction of trade 26 
    • Rubber 26 
    • Other Products 26 
   (d) Impediments to the growth of Sri Lanka’s Export Sector 26    (e) Support Services in the Export sector 27 
  3.1.3 Imports 27    (a) Overall Performance 27 
   (b) Sectoral Performance 27 
   (c) Direction of Trade 27   3.1.4 Trade in Services 28 
  3.1.5 Exchange rate Regime 29 
   (a) Overall Performance 29   3.1.6 Foreign Exchange Reserves 29 WT/TPR/G/128 Trade Policy Review 
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    P a g e  
4. Economic Policy Developments  30 
 4.1 Macro Economic Policy Developments 30 
  4.1.1 Fiscal Policy Reforms 30    (a) Management of Fiscal Deficits 30 
  4.1.2 Recent Developments in Labour Market 32 
  4.1.3 Recent Developm ents in Tax Reforms 33 
  Changes in Direct Taxes 34 
   (a) Income Tax 34 
   (b) Save The Nation Contribution 35    (c) Economic Service Charge (ESC) 35 
   (d) Other Developments 35 
   (e) Deductions for Losses 36    (f) Partnership Income 36 
   (g) Turnover Levy 36 
  Changes in Indirect Taxes 36    (a) Customs Duty 36 
   (b) Surcharges 37 
   (c) Goods and Services Tax (GST) 37 
   (d) National Security Levy (NSL) 37 
   (e) Value Added Tax (VAT) 38    ( f )  E x c i s e  D u t y  3 9  
   (g) Luxury Motor Vehicle Tax 40 
   (h) Export Development Board CESS 40    (i) Other Taxes 41 
    Stamp Duty 41 
    Ports And Airport Development Levy (PAL) 41     D e b i t s  T a x  4 1  
    Betting and Gambling Levy 42 
    Recent Changes 42   4.1.4 Changes in Tax Incentives 42 
   (a) Tax Concessions & Incentives under the Board of Investment Law 42 
    Incentive Package 43    (b) Tax Concessions & Incentives under the Inland Revenue Act 43 
  4.1.5 Institutional Changes 44 
  4.1.6 Recent Changes under 2004 Budget 44   4.1.7 Monetary & Exchange Rate Policy Reforms 44 
   (a) Monetary Policy 44 
   (b) Exchange Rate Regime 45 
 4.2 Sectoral Policy Developments 46 
  4.2.1 Agriculture 46    The Policy Developments 46 
  4.2.2 Industry 48 
   (a) The Policy Developments 48    (b) Structural Impediments 49 
   (c) Measures taken to address structural impediments 50 
  4.2.3 Services 51    (a) Overall Pricing Policy 51 
   (b) Civil Aviation 51 
   (c) Transport 52    (d) Communication 52 
   (e) Energy – Electricity 52 
   (f) Energy – Petroleum 52    (g) Education 53 
   (h) Welfare 53 
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    P a g e  
   (i) Investment 53 
   (j) Institutional Changes 54 
 4.3 Industrial policy 54  4.4 Trade Facilitation 57 
  1 Sri Lanka Automated Cargo Clearance System (SLACCS) 58 
  2 Simplification and Harmonization of customs procedure 58   3 Other Trade Facilitation Exercise include 58 
 4.5 Privatization 60 
 4.6 Foreign Investment Regime 62  4.7 Reforms in Banking, Capital Markets and Insurance Sectors 63 
 4.8 New Economic Policy Objectives 64 
5. Trade Policy Developments  65 
 5.1 Tariff Policy 65 
 5.1.1 Import Tariffs and Levies 65 
  5.1.2 Export Tariffs and Levies 67  5.2 Prohibitions and Restrictions on Imports 68 
 • The Food Act No.26 of 1980 68 
 • The Plant Protection Act No.35 of 1999 68 
 • The Animal Diseases Act No.59 of 1992 68 
 5.3 Prohibitions and Restrictions on Exports 69   Export Licences 69 
  Minimum Export Price 69   Export Quotas  70 
6. Key Developments in Institutional and Legal Framework for Formulation and  
Implementation of Trade Policy  71 
 6.1 Constitutional Reforms 71 
 6.2 New Decision Making Process 72 
 6.3 Formulation of Law on Consumer Protection 72  6.4 Cooperate Governance 73 
 6.5 Trade Remedy Laws 74 
7. Conduct of Regional and Multilateral Trade Relations 74 
 7.1 Regional Trade Arrangements 74 
  Recent developments 75  7.2 Sri Lanka and the Multilateral Trading System 76 
  (a) Commitments in Tariffs 76 
  (b) Agriculture 76   (c)  Non-Agricultural Market Access 77 
  (d)  Services 78 
  (e)  Trade Related Aspects of Intellectual property Rights (TRIPS) 79    (i) Copyright and Related Rights 80 
   (ii) Industrial design 80 
   (iii) Patents 81    (iv) Marks and Trade Names 82 
   (v) Geographical indications 83 
   (vi) Layout Designs 84    (vii) Undisclosed Information or Trade Secrets 84 
   (viii) Other developments 85 
   (ix) Enforcement 85   (f) Implementation of the WTO Valuation Agreement 85 
8. Trade Policy Outlook  85 WT/TPR/G/128 Trade Policy Review 
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    P a g e  
TABLES 
Table - 1:  Economic & Social Indicators, 1996-2002 9 
Table - 2:  Agricultural Production [1996 And 2002] 10 Table - 3:  Industrial Production on Sub-Sector Wise (Current Prices) [1996 – 2002] 12 
Table - 4:  Industrial Production (Current Prices) [1996 and 2002] 13 
Table - 5:  Public Finance and Government Debt (As a Percentage of GDP) 14 Table - 6:  Composition of Government Revenue [1996 – 2004] 15 
Table - 7:  Investment as a Percentage of GDP 17 
Table - 8:  Foreign Direct Investment and Portfolio Investment (Percent of GDP) 19 Table - 9:  Foreign Investment Inflows In to Sri Lanka 19 
Table - 10:  Indicators on Employment  20 
Table - 11:  Sri Lanka’s Balance of Trade (US $ Million) 22 Table - 12:  External sector  (As a percentage of GDP) 23 
Table - 13:  Exchange Rate Fluctuations [1996 – 2003] 29 
Table - 14:  External Reserves [1996 – 2002] 30 Table - 15:  Other Tax Rates on Income  34 
Table - 16:  Withholding Tax (WHT) Rates 35 
Table - 17:  The Tariff Bands & Product Categories Applied from 01.01.2003 to 31.12.2003 36 
Table - 18:  Specific Duties of Major Agricultural Imports 37 
Table - 19:  Value Added Tax Rates  38 Table - 20:  Excise (Special Provisions) Tax Rates  39 
Table - 21:  Excise (Ordinance) Tax Rates 40 
Table - 22:  Luxury Motor Vehicle Tax Rate 40 Table - 23:  Industrial Licensing and Other Controls 55 
Table - 24:  Changes in Number of Tariff Bands during 1996 – 2004 Period 65 
 
BOXES 
 
Box 1 - Fiscal Consolidation 31 
Box 2 - Laws in the schedule B 42 
ANNEXES 
 
Annex – I Direction of Trade – Exports 89 
Annex – II Direction of Trade – Imports 90 
Annex – III Fiscal Management (Responsibility) Act No. 3 of 2003 – Reporting Procedure 91 
Annex – IV List of Specific Duties 92 
Annex – V Revised Bands of Customs Duties and List of Products under 2004 Budget 94 
Annex – VI The Conditions Stipulated in Exchange Control Regulation Regarding Foreign 
Investment 96 
Annex – VII Industry-wise Incentives at a Glance 97 
Annex – VIII Goods Exempted from Import Duties 100 
Annex – IX List of Items Importable under Concessional Rates 101 
Annex – X List of Items Importable under Concessional Rates 102 Annex – XI List of Fiscal Levies on Exports 103 
Annex – XII List of items that are Prohibited or Restricted when Imported into Sri Lanka 105 
Annex – XIII List of Products that are Restricted or Prohibited for Export 108 Annex – XIV The Scheme of Textile Quota Allocation 110
 
Annex – XV Trade Policy Making Processes 114 
 
 Sri Lanka WT/TPR/G/128 
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1. Introduction 
1. During the period following the last Trade Policy Review in 1995, the Sri Lankan economy 
has shown considerable resilience and has grown st ronger, mainly attributable to the cessation of 
hostilities and the ongoing Peace Process during the year 2003. However an unfavourable global 
economic environment, exacerbated by domestic uncertainties made 2001 a very difficult year for Sri 
Lanka’s economy.  The prolonged drought experi enced from 2000, continued through 2001 reducing 
domestic agricultural output, increased domestic food prices, and reduced hydro electricity 
generation.  Despite the fact that this period was characterized by adverse external as well as internal 
shocks, notable progress was made in all fronts in 2002 and 2003. 
2. The economic reforms commenced two and a half decades ago, have brought about 
significant changes in both the structure of the ec onomy and its economic environment. The structural 
changes were quite visible in several critical areas. The economy has progressed from being primary 
agricultural to having a much broader base of industrial production. The manufacturing sector has gained more significance in the economic activity, while service sector continued to provide more 
than half of Gross Domestic Product (GDP) in the country. The direction of trade has been 
broadening, with Asian region becoming Sri La nka’s major source of imports and developed 
countries in the west becoming Sri Lanka’s major destination of exports. 
3. The overall focus of Sri Lanka’s economic refo rms during the period under review has been 
on bringing about closer integration of the domestic  economy with the world market. With a view to 
achieving this, the focus on external  sector reforms has been to in crease exports and expand access to 
overseas markets through efficient customs administ ration.  The government was fully committed to 
actively pursue greater access to global markets through the ongoing WTO multilateral process, and 
to develop new markets through bilateral and regi onal trading agreements anywhere in the world. 
4. Since the last review, the Government of  Sri Lanka has carried out a far-reaching 
privatization programme and divested itself of mo st State Owned Enterprises. The economic activities 
of the state sector have undergone drastic cha nges. Government monopolies in provision and 
distribution of goods and services have been removed and almost all areas of economic activity are 
now open to the private sector.  
5. Substantial reforms also notably in areas such as labour markets, the fiscal system and the 
financial sector were introduced.  The fiscal defi cit was reduced significantly and legislation was 
introduced to strengthen transparency and accountability in the financial sector. 
6. However, policy makers faced major challe nges at the beginning of 2002. The main 
challenges were to find a lasting solution to the po litical conflict that had weakened economic growth 
for nearly two decades to accelerate economic reform s, optimize use of resources, encourage private 
sector-led growth, reduce fiscal deficits th ereby control inflation and public debt. 
7. Under the programme “Regaining Sri Lanka”, the government’s vision and strategy for 
accelerated development issued in 2002, was to liber alize trade, attract foreign investment and seek 
market opportunities for Goods & Services globally, reducing the barriers to productivity. The three 
main elements in this programme  are to accelerate privatization of commercial activities reforming 
the legal foundation of the economy and increasing efficiency in critical government functions. 
8. The economy is recovering from the setbacks of 2001. The improving macroeconomic 
situation in Sri Lanka continued to gather  momentum during 2002-2003. Economic growth 
accelerated with a broad-based recovery. Inflation d ecelerated at a faster rate. The fiscal deficit was 
contained and the external current account deficit was reduced. External reser ves rose with a surplus WT/TPR/G/128 Trade Policy Review 
Page 8 
 
 
in the balance of payments, reducing external sector  vulnerability. Financial market was more stable 
and interest rates declined, thereby encouraging investment. 
9. A host of factors contributed to these achievements:  
• the continuation of the ceasefire and the peace initiative;  
• improvement in macroeconomic management cen tred around fiscal consolidation efforts;  
• a cautious monetary policy stance;  
• deepening structural reforms albeit with delays in some areas;  
• increased market confidence;  
• an improved international ec onomic environment; endorsement  of the country’s economic 
policy framework by international financial institutions;  
• strong foreign donor support; and  
• Generally favourable weather conditions, despite th e adverse impact of the floods in May.  
 
10. These favourable developments in the economy are expected to continue in 2004, with added 
benefits from the recovery in export demand and improving market confidence. However, a slower 
than anticipated recovery in investment, a large shortfall in  government revenue, delays in 
implementing some critical structural reforms, inadequate consensus on economic reforms and the 
slow progress in peace talks, indicate downside risks which underscore the need for further 
perseverance with economic reforms,  as well as for the reform agenda.1 
2. Macro Economic Performance 
 2.1 Economic Growth 
11. The economy of Sri Lanka has experienced a slow  but stable growth since its last Trade 
Policy Review in 1995. Gross Domestic Product (GDP) growth in real terms has averaged 4 per cent 
per annum during the period under review. Remark ably, economic growth rose progressively during 
2002 and recorded an annual growth rate of 4% in 2002 in contrast to a contraction of 1.5% in 2001.  
At current market prices, GDP rose by 12.6 per cen t to Rs.1,585 billion (US dollars 16.6 billion) in 
2002, while GNP rose to Rs.1,560 billion (US dollars  16.3 billion).  These increases in nominal terms 
were a combined outcome of a 4 per cent growth in real terms and 8.3 per cent increase in prices 
12. Sri Lanka’s population growth activity, often c onsidered a model for developing countries, 
has enabled the stabilisation of population growth at around 1.2 per cent per annum, thus preventing erosion of welfare through unsustainable populatio n growth.  Mid-year population rose by 1.5 per 
cent to 19.0 million in 2002.  While GDP growth  remained somewhat st able, except in 2001, the 
population growth rate slightly increased from 1.1 per cent in 1996 to 1.5 per cent in 2002.
2 The 
growth in real GDP has contributed to a modest in crease in GDP per capita income, which went up to 
US $ 872 in 2002 from a figure of US $ 800 prevailed in 1996, recording a 9 per cent increase over 1996. The average per capita GDP in nominal terms rose by 11 per cent to Rs.83, 382 in 2002.   
13. Given the lower increase in the GDP deflator (b y 8.3 per cent) this indicates an improvement 
in the average income in real terms by about 3 pe r cent in 2002, reversing the drop observed in 2001.  
                                                           
1 Central Bank of  Sri Lanka, Annual Reports  (2002, 2003) 
2 Provisional figures recorded in Report of the Central bank of Sri Lanka - 2002 Sri Lanka WT/TPR/G/128 
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In US dollar terms, per capita GDP rose by 3.7 per cent to US dollars 872 from US dollars 847 in 
2001, but yet below the level of US dollars 899 in 2000. 
14. The economic growth was reflected in the Agricu lture and Service Sectors, and the Industrial 
Sector was constrained by weak export demand.  The Service sector grew by 6% reflected in the 
growth of telecommunication and financial sectors and recovery in trade, transport, port services and 
tourism.  Agriculture and allied activities grew by 2.5% and the industrial sector grew the slower of 
1% of due to lack of export demand. GDP/GNP gr owth rates and GDP sectoral shares since 1995 are 
reflected in Table - 1. 
15. Continuing with and confirming the recovery in economic activity since early 2002, GDP  
grew by 5.5 per cent during the first quarter of 20 03. All three sectors record ed positive growth during 
the first quarter of 2003. The services sector r ecorded the highest growth of 7.6 per cent and 
contributed 71 per cent to the overall economic growth  during the first quarter of 2003. The growth in 
Agriculture and Industry was 0.7 per cent and 5.4 per cent, respectively. 
Table - 1:  Economic & Social Indicators, 1996-2002 
 1996 1997 1998 1999 2000 2001 2002a 
GDP per capita (US$) 799.7 853.2 879.0 863.0 899.0 841.0 872.0 
GDP US$ million        
    Nominal (current prices) 13,949.7 15,104.2 15,761.0 15,755.1 16,548.0 15,622.2 16,412.3 
    Real (1998 prices) n.a. n.a. 15,761.0 15,093.9 14,853.7 12,412.5 12,057.4 
Population (million) 17.5 17. 7 17.9 18.2 18. 5 18.7 19.0 
Growth of population (percentage change) 1.1 1.1 1.3 1.5 1.4 14 1.5 
Share in real GDP at factor cost (per cent)        
Agriculture, livestock and fishing 22.4 21.9 21.1 20.7 19.9 20.1 20.1 
Industry 26.4 26.9 27. 5 27.3 27.2 26.8 26.3 
Mining and quarrying 2.0 2.1 1.9 1.8 1.9 1.9 1.8 
Manufacturing 16.2 16.4 16.5 16.4 16.8 16.0 15.9 
     Electricity, gas and water 1.3 1.4 1.5 1.5 1.2 1.3 1.4 
     Construction 6.9 7.0 7.6 7.6 7.3 7.6 7.2 
Services 51.2 51.2 51.3 52.0 52.9 53.2 53.6 
Wholesale, retail trade, restaurants and 
hotels 22.3 22.0 21.5 21.2 22.6 21.1 20.5 
Transport and communication 10.6 10.7 11.1 11.4 11.7 12.1 12.4 
Banking, insurance and real estate, etc 7.1 7.4 7.6 8.1 7.6 8.5 9.2 
Ownership of premises 2.0 2.0 1.9 1.8 1.8 1.8 1.7 
Government services 5.1 5.1 5.3 5.3 5.2 5.6 5.8 
Services n.e.s. 4.0 4.0 4.0 4.1 4.0 4.1 4.0 
UN Development index n.a. n.a. n.a. 0.735 0.741 0.730 n.a. 
Ranking n.a. n.a. n.a. 81st 89th 99th n.a. 
Category  Mhdc Mhdc Mhdc Mhdc Mhdc Mhdc n.a. 
Ranking within category n.a. n.a. n.a. 33rd 36th 49th n.a. 
a Provisional. 
b Combined tertiary, secondary and primary enrolment, gross.  
c Mhd is medium human development category. 
n. a.  Not available. Note: figures may not add due to rounding. 
Source:  Central Bank of Sri Lanka, Annual Report 2002 and 2000 ; Department of Census and Statistics 
[www.statistics.gov.lk];  and United Nations Human Developm ent Report, various issues. WT/TPR/G/128 Trade Policy Review 
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 2.2 Highlights of Sectoral Developments 
16. Production structure of the economy has remained  largely unaltered since the last review, 
with one exception. While service sector has gr own from 51.2 percent in 1996 to 53.62 per cent in 
2002, shares of the manufacturing and agriculture sect ors have somewhat declined, from 26.4 per cent  
in 1996 to 26.3 per cent in 2002 and from 22.4 per cent in 1996 to 20.1 per cent in 2002, respectively. 
This compared to 1996 was an increase of 6% of GDP in the services sector, decline of 10% of GDP in the agriculture sector and 1% change in the industrial sector. 
17. During the period under review, as shown in Ta ble – 1, the economy was dominated by the 
services sector followed by industrial sector and agriculture sector, amounting to 52 per cent, 27 per 
cent and 21 per cent respectively at average level. 
18. The strong recovery of the services sector ac counted for 80 per cent of overall growth in 
2002. On the other hand, production in agriculture  sector and allied activities recovered partially, 
benefiting from improved weather conditions and pr ogress in the peace process and contributed 12.6 
per cent to the overall growth, despite the tea pl antations in the South being damaged by the 
devastating storms and floods occurred in 2003. The industrial sector, which recorded a negative 
growth until the third quarter of 2002, largely due to weak export demand, contributed only 7.1 per 
cent to the overall growth.  
 (a) Agriculture 
19. The major agricultural produces continued to be  paddy, tea, rubber, sugar, coconut and 
rubber, which provide the bulk of agricultural output. The sectoral composition of agricultural 
production for 1996 and 2002 is given in Table - 2.  
Table - 2:  Agricultural Production [1996 and 2002] 
Product  Unit  1996 
Quantity  2002 
Quantity  % change in 
1996/2002  
Paddy MT’ 000 2061 2860 38.8 
Tea Kg Mn 258 310 20.2 
Rubber Kg Mn  113 91 -19.5 
Coconut Nuts Mn 2561 2392 -6.6 
Other Food Crops     
Chilies MT’ 000 18. 4 11.7 -36.4 
Onion MT’ 000 63.3 65.0 2.7 
Potatoes MT’ 000 100.8 88.7 -12.0 
Green gram MT’ 000 16.6 9.6 -42.2 
Maize MT’ 000 32.9 27.7 -15.8 
Other Export Crops     
Coffee MT’ 000 2.2 2.36 7.3 
Cocoa MT’ 000 1.6 1.1 -31.3 
Cinnamon MT’ 000 9.8 13.0 32.7 
Pepper MT’ 000 4.3 12.6 193.0 
Clove MT’ 000 1.4 4.1 192.9 
Cardamom MT’ 000 0.04 0.06 50.0 
Nutmeg & Mace MT’ 000 1.0 1.6 60.0 
Cashew MT’ 000 - 1.3 - 
Sugar MT’ 000 73.0 38.0 -48.0 
Vegetable MT’ 000 [  ] 530.0 [  ] 
   Table – 2 (cont'd) Sri Lanka WT/TPR/G/128 
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Product  Unit  1996 
Quantity  2002 
Quantity  % change in 
1996/2002  
Fish MT’ 000 229 301 31.4 
Livestock     
Milk production Mn Ltrs 249 266 6.8 
Poultry MT’ 000 40 88 120.0 
Eggs Nos. Mn 856 954 11.4 
Source:  Central bank of Sri Lanka, Annual reports. 
20. Compared to other two sectors, agriculture s till occupies an important place in the economy, 
contributing 20 per cent of GDP and providing 37  per cent employment. However, the relative 
importance of the agriculture sector continued to  decline from 22.4% in 1996 to 19.8% in 2002. 
21. The sector recorded an annual growth rate of  2.5 per cent and contributed 13 per cent to 
overall GDP growth reflecting the recovery in paddy, tea, rubber, other agricultural crops and fishing.  
The output of paddy, tea, rubber and a number of minor export crops and other field crops increased 
under favourable weather conditions . However, output in coconut and a few other field crops 
decreased.   
22. Reflecting these developments, the value added in  the Agriculture sector increased by 2.5 per 
cent in 2002 compared with a 3. 4 per cent decline in 2001. The Agriculture and allied activities  
expanded by 0.7 per cent during the first quarter of 2003 in comparison to 3.1 per cent growth in the 
corresponding quarter of the previous year.  
23. As shown in Table – 2, the sector was sustai ned by paddy production, the minor export crops 
and fisheries sub sector, while other sub sectors decl ined or grew marginally during the period under 
review.   
24. The other export crops sector, which consists of spices and other agricultural commodities 
such as un-manufactured tobacco, arecanut, cashew kern els, essential oils and foliage and cut-flowers, 
recorded mixed performance during the period under review. In rupee terms, earnings from this 
sector, as a whole, rose by 31 per cent to over Rs. 16 billion, much more than the total export earnings 
from rubber and coconut in 2002.  Cinnamon is the most  important crop in this sector. Sri Lanka is the 
world’s largest producer and exporter of cinnamon,  accounting for nearly two thirds of the global 
output. 
25. The increase in the marine sector is due to the increased fishing activities in the Northern and 
Eastern coastal areas with the cessation of hos tilities after the signing of the ceasefire agreement 
between the government and the LTTE.  
26. The livestock sector consists mainly of th e dairy and poultry sub sectors. Domestic 
production of dairy milk accounts for about 42 per cent of the national milk requirement. Production 
of buffalo milk is being mainly used for processing of curd. Though the price paid for milk during the 
period has increased, the incr ease in the prices of inputs and cattle feed have increased raising the cost 
of production significantly and adversely affec ting the profit margins of the dairy farmers. 
27. The poultry industry has made significant progress in recent years due to the active 
participation of the private sector. National poultr y meat production increased, that could be partly 
attributed to greater demand resulting from the revi val of the tourist industry, uninterrupted power 
supply and the incentives provided by the government.  WT/TPR/G/128 Trade Policy Review 
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 (b) Industrial Sector 
28. In the industrial sector, textiles and garments , rubber products, leather products, processed 
foods, petroleum products, ceramic products and ch emical products are the sub - sectors, which 
provide the bulk of industrial output. The industr ial production has been improving with the recovery 
in export demand in 2003. The private sector indus trial production volume index rose by 4.6 per cent 
during the first four months of 2003 over the corresponding period in 2002. Table – 3 provides the sectoral composition of total industria l production for 1996 – 2002 period. 
Table – 3 :  Industrial Production on Sub Sector Wise( Current Prices ) [1996–2002] 
Rs million  
Industrial Categories 1996 1997 1998 1999 2000 2001 2002a 
Food beverages & tobacco 
products 68,209 75,713 86,994 94,687 105,671 120,359 136,173 
Textile, wearing apparel & 
leather products 117,539  146,500 165,443 178,844 215,686 224,898 240,712 
Wood & wood products 2,171  2,299 2,511 2,715 3,084 3,272 3,529 
Paper & paper products 5,069 5,462 5,593 5,854 6,516 7,369 7,528 
Chemicals, petroleum, rubber 
and plastic products 46,936 50,682 59,724 62,590 74,670 78,553 90,250 
Non metallic minerals products 18,997 21,403 23,830 26, 830 28,198 31,892 35,108 
Basic metal products 2,248 2,439 2,841 3,046 3,378 3,888 4,323 
Fabricated metal products 8,807 11,327 13,241 14,305 15,678 17,638 19,358 
Products (n.e.s.) 6,183 7,324 8,137 9,002 9,839 10,361 11,450 
Total 276,159 323,149 368,314 397,873 462,720 498,230 548,431 
a Provisional . 
Source:  Central Bank of Sri Lanka, Annual Reports.  
29. As observed in Table – 4, during the period unde r review, the industrial output has increased 
by 98.6 per cent, in nominal terms. Though the share of industrial output as a percentage of GDP has declined in 2002, compared to 1996, the sector still remains as an important engine of the economy. 
The sector experienced a partial set back dur ing 2001–2002 owing to the unfavourable conditions 
prevailed in the domestic and international markets.  
30. Though the sector recorded a negative growth ra te until the third quarter of 2002 largely due 
to weak export demand, it grew at 1 per cent in 2002, contributing only 7.1 per cent to the overall growth.  However, when compared with other sector s of the economy, the industrial sector recorded 
the lowest growth among the major sectors, reduci ng its share from 27.4 in 2001 to 26.6 per cent of 
total GDP in 2002.
3 
31. Industrial output terms, measured as the output of  factory industries, grew by 2.8 per cent in 
2002 reflecting only a partial recovery from the 3.9 per cent decline in 2001. The output of factory 
industries, which continued to decline from th e second quarter of 2001, regained its growth 
momentum in the second half of 2002.  
32. Increased domestic demand with progress in the peace process, resumption of regular power 
supply in May 2002 and a moderate growth in ex port demand during the second half of the year 
contributed to the positive growth of 1 per cent in 2002 in contrast to a decline of 2.1 per cent in 2001.  
                                                           
3 The Industrial sector is defined to include mining and quarrying, manufacturing, construction and 
electricity, gas, water and sanitary services. Sri Lanka WT/TPR/G/128 
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However, the power cuts during the early part of the year, continued weak export demand and 
increased costs of production adversely affected the early recovery in industrial production.  
33. The output of the main export oriented industr ies such as apparel, textiles, rubber-based 
products and ceramic products grew at a relativel y higher rate in 2002. Performance in the first 
quarter of 2003 indicates that this sector is on the path to recovery.  
34. Labour productivity in the industrial sector had only a marginal growth in 2002. The growth 
of labour productivity in the industrial sector was co nstrained by stringent labour laws, poor working 
conditions, the lack of a proper transport network,  high labour turnover, insufficient investment in 
modern technology and strained  employer-employee relations. 
Table – 4:  Industrial Production ( Current Prices ) [1996-2002] 
 1996 1997 1998 1999 2000 2001 2002a 
Total (Rs million) 276,159 323,149 368,314 397,873 462,72 0 498,230 548,431 
% Annual change 16.9 17.0 13.9 8.0 16.3 7.6 10.1 
a Provisional. 
Source:  Central Bank of Sri Lanka, Annual Reports. 
 (c) Services  
35. The service sector still continues to provide ove r half of the national product with trade, 
tourism, transport, communication and financial sect or being large contributors. The continuation of 
the ceasefire has led to enhanced service sector activ ities particularly in the telecommunications, 
transport, hotel and related servi ces. Adequate rainfall has enabled the increased generation of 
hydropower, thereby increasing the cost efficiency of the Ceylon Electricity Board. Construction 
sector has recovered in the first quarter and was exp ected to grow further in the latter part of 2003. 
Tourist arrivals and earnings thereon have increased by approximately 28 per cent during the first four 
months of 2003. Operations in the Port of Colom bo indicate a 7 per cent increase in ship traffic. 
36. Services sector is the largest contributor to  GDP accounting for 54% of output in 2002, 
dominated by a high growth in telecommunication and financial services, tourism, ports services. The wholesale & retail trade too indicated a growth of 5.5% in 2002 from a decline of 6.7% in 2001. The 
peace process, recovery in imports and domestic tr ade enabled this achievement. Banking, insurance 
and real estate grew by 11% in 2002. The only sub sector in services whose output did not increase 
was Public Administration and defense. The country’s  Postal System has one of the largest networks 
of service delivery spreading even to remote are as of the island, which includes more than 4600 post 
officers, on average a post office for every 14.25 Sq. Km 
37. Overall performance in road and rail transpor tation improved marginally while air and sea 
transportation recovered strongly in 2002. The av erage number of busses operated daily declined in 
2002 due to reduced operations of busses under Regi onal Transport Companies. A weakness in the 
road passenger transportation system is the poor quality service provided.   
38. Civil Aviation made a gradual recovery followi ng the terrorist attack in July 2001. The 
number of passengers’ transit th rough Katunayake International Airport rose by 6% in 2002. 
39. Port activities recovered strongly in 2002 revers ing the Setback in 2001, with the removal of 
the War Risk Surcharge (WRS) in March 2002. Arriva l of ships at the Colombo Port increased by 6% 
while container handling expanded 2% to 1.8 m illion of TEUS, the highest level ever handled. WT/TPR/G/128 Trade Policy Review 
Page 14 
 
 
 2.3 Public Finance 
  (a) Fiscal deficit 
40. The country has been experiencing high fiscal deficit and growing p ublic debt during the 
period under review. The overall budget deficit during the review period has averaged 9% of GDP; it 
peaked at 10.8% in 2001 and fell to 8.9% in 2002 (Table - 5). 
41. Despite some additional corrective measures being undertaken, as Table - 5 highlights, a 
marked deterioration in the fiscal situation was witnessed during the period under review. These 
significant fiscal slippages were due to revenue  shortfalls, expenditu re overruns and lower 
privatization proceeds.  
42. As highlighted in Table – 5, the overall fiscal deficit has been on the rise, except in 1999, 
where fiscal performance improved slightly arresti ng the declining trend seen before the period. The 
budgetary measures introduced during 2000 – 2002 were  primarily expected to contain the overall 
deficits, by augmenting revenue efforts, controlli ng expenditure and improvi ng debt management. It 
was also expected to set more realistic fiscal targets and achieve them by closely monitoring and 
implementing policy measures effectively. 
43. In 2002, consolidated public sector deficit, comprising of general go vernment and public non-
financial corporations decreased by 9% of GDP reducing the fiscal drain.  Eased inflationary 
pressures and greater fiscal discipline in 2002 reduced the budget deficit to well under 10% of GDP. The improved financial performance  of Ceylon Petroleum Corporation (CPC) with the adoption of 
automatic pricing formula helped maintain perform ance of public corporations at the same level. 
Table – 5:  Public Finance and Government Debt (as a percentage of GDP) 
 1996 1997 1998 1999 2000 2001 2002a 
Revenue 19.0 18.5 17.2 17.7 16.8 16.7 16.8 
Tax revenue 17.0 16.0 14.5 15.0 14.5 14.6 14.5 
Expenditure and net lending 28.5 26.4 26.3 25.2 26.7 27.5 25.7 
    Current expenditure 22.8 20.7 19.6 18.7 20.2 21.6 20.8 
    Capital expenditure 5.7 5.7 6.7 6.5 6.5 5.9 4.6 
Current Account Balance (3.8) (2.2) (2 .4) (1.0) (3.4 ) (4.9) (4.4) 
Overall Budget Deficit  (b) 9.4 7.9 9.2 7.5 9.9 10.8 8.9 
Financing 9.4 7.9 9.2 7.5 9.9 10.8 8.9 
Foreign (loans + Grants) 2.3 1.9 1.7 0.7 0.4 1.4 0.5 
Domestic  
(Banks) 6.5 
(1.7) 3.4 
(-0.2) 7.1 
(1.9) 6.8 
(2.4) 9.4 
(4.5) 8.8 
(3.5) 8.0 
(-0.3) 
Public sector total debt 93.3 85.8 90.8 95.1 96.9 103.2 105.3 
Domestic debt 46.4 43.5 45.5 49.1 53.8 58.0 59.8 
Foreign Debt 46.8 43.3 45.3 45.7 43.1 45.3 45.3 
Total External debt as % of GDP 68.6 62.3 61.9 63.5 61.0 61.4 62.1 
Debt Service Ratio as % of Export of goods 
& services 15.3 13.3 13.3 15.2 14.7 13.2 13.2 
a Provisional. 
b Deficit before grants and ex cluding privatization proceeds. 
Source:  Central Bank of Sri Lanka, Annual Report 2002 and 2000 .  Sri Lanka WT/TPR/G/128 
 Page 15 
 
 
  (b) Revenue 
44. There has been a persistent decline in revenue mobilization, as indicated by the decline in the 
revenue to GDP ratio from 21 per cent of GDP in the early 1990s to below 17 per cent in recent years. 
As shown in Table – 5, total gove rnment revenue as a share of GD P has fallen from 19.0% in 1996 to 
16.8% in 2002. This was mainly due to collec tions from tax, as well as non-tax sources have been 
lower than expected. In 2002, tax collection as a percentage of GDP was 14.5%.  
45. Table – 6 provides the detailed compositi on of government revenue for 1996 – 2004. 
Decreases in revenue from indirect tax sources were mainly due to tax concessions granted and poor 
revenue collection. Noticeably, import duty revenue co llections were low due to reduced tariff rates 
and changes in the composition of imports towards lo wer tariff items.  Direct tax revenue shortfalls 
were registered in corporate income tax due to  reduced profits in major enterprises. These were 
instrumental in narrowing the tax base to 14.5% of GDP in 2002 from 17.0% in 1996.4 The GDP share 
of tax revenue is projected to rise to 16.6 per cent in 2005.5 
Table - 6:  Composition of Government Revenue [1996–2004] 
As a Percentage of Total Government Revenue SOURCE 
1996 1997 1998 1999 2000 2001 2002a 2003b 2004k 
Direct Tax 
 Income tax  
14  
13  
12  
14  
13  
15  
14  
16  
18 
Indirect Tax 
Goods & Services Tax 
(GST)c  
-  
-  
13  
18  
21  
20  
-  
-  
- 
 Turnover Tax  (TT)d 26 26 9 0.9 0.8 0.5 0.3 - - 
 GST/NSL/VATe - - - - - - 25 40 37 
 Import Duties 17 16 16 14 11 11 11 11 14 
 Excise Duties 15 15 17 18 20 19 20 16 17 
 National Security Levy 
(NSL)f 11 10.5 12 14 16 18 11 - - 
 Stamp Dutiesg 3.6 3.8 4 4 3.9 3.6 0.96 - - 
 Motor Vehicle Levy & other 
Licence feesh  - 1 0.5 0.5 0.7 0.2 1 - 
 Debit Taxi - - - - - - 0.5 1 - 
 Port & Airport Development 
Levy (PAL)j - - - - - - 1 2 - 
Other Taxesk 2.4 2.1 - 1.6 - 0.2 1.04 - 2 
Non Tax Revenue 11 13.6 16 15 14 12 15 13 12 
a Provisional. 
b Approved Estimates. 
c GST was introduced in 1998 and consolid ated into a single VAT in August 2002. 
d TT was replaced by GST in 1998 (TT: Jan. – March; GST : April – Dec.)  
e GST and NSL were consolidated into  a single VAT system in August 2002. 
f NSL was first introduced in  1991 and was consolidated into VAT in August 2002. g Stamp duty was abolished and replaced by PAL in April 2002. h Motor Vehicle Levy was first introduced on luxury motor vehicl es in April 1995. Motor Vehicle tax on diesel vehicles was 
abolished in October 2001. 
i Debit tax on current account transactions of banking system was first introduced in 2002. 
j This includes all other taxes not specified herein. 
k Projected figures. 
Source: Central bank of Sri Lanka, Annual reports 19996 - 2002 
                                                           
4 Central Bank of Sri Lanka, Annual Report 2002 , p. 30. 
5 Budget Speech 2003 Part I, Annex 9, Table 2.  WT/TPR/G/128 Trade Policy Review 
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  (c) Expenditure 
46. Despite continued high defence spending, current  expenditure in relation to GDP declined 
from 22.8 per cent in 1996 to 18.7 per cent in 1999. This was due to restraint on operational expenditure and a reduction in inte rest payments on public debt following the debt retirement of 1997 
under the Public Enterprises Reform programme. In 2000, the current expenditure overshot the 
original budget estimate significantly, because of security related expenditure, increased payments 
resulting from high interest rates and increased debt  shock and a higher wage bill, following the pay 
rise to government employees in August.  
47. Current expenditure continued to overshoot the original budget estimate in 2001 too, 
registering 7 per cent increase over year 2000, mainly due to overruns in defe nce expenditure, pension 
payments, interest costs and transfer payments to Samurdhi Programme. However, significant under 
expenditure in the capital expenditure offset the excess in current expenditure over the budgeted 
figure and reduce the overall expenditure to a considerable extent.  
48. Public Expenditure to GDP in 2002 was 25.4% , recording a 6.5 per cent decrease over 2001. 
New peace initiative has helped to contain defence expenditure to a certain extent. Expenditure 
controls were further tightened and other refo rms were made to rationalize current and capital 
spending.  The major reforms included the suspensi on on hiring of personnel in the public sector, 
streamlining the provision for defence services, strict  controls on provision of funds for rupee-funded 
non-priority investments, efforts to raise foreign concessional financing for investment projects, reforming the civil service, including the introductio n of a non-contributory pension scheme, a strong 
welfare targeting system through the Welfare Benefit Act and rationa lization of government 
institutions. The GDP share of expenditure is proj ected to fall to a level of 24.2 per cent in 2005.
6 
  (d) Financing and External Debt 
49. Due to this unsatisfactory situation, major emphasis was placed on reducing wasteful and 
non-priority expenditure, and accordingly measures in expenditure control and management were 
introduced during 2001- 2002 period. They were to  cut down the expenses on parliamentarians; to 
close down 35 public entities, which were econo mically not viable; establishment of a Food 
Procurement and Monitoring Unit; imposition of a mi nimum 10 per cent cut in all expenditure and 
further improvements in Treasury cash management. In addition, the public investment programme 
was also subjected to tight scrutiny. 
50. Until 2001, borrowing through various non-instru ments such as bank overdrafts and import 
bill financing was not accounted for under the norm al overall borrowing limit. At end of 2001, 
government borrowings from the two state banks th rough such facilities were as high as SL Rs. 50.5 
billion, consisting of Rs.38 billion as overdrafts a nd Rs.12.5 billion  as import bills. A proposal was 
made to extend the coverage of the overall governme nt borrowing limit to include all borrowing. It 
was further proposed to reduce government loans from state banks, particularly under overdraft 
facilities, from Rs. 38 billion to Rs. 8 billion during 2002, by securitizing the debt with marketable 
public debt instruments.   
51. Over 80% of Sri Lanka’s external debt is public , mainly with official multilateral and bilateral 
creditors. 
52. As shown in Table – 5, public, mainly domestic , debt was 105.3% of GDP in 2002, almost 
exceeding the GDP in 2002. Despite the fact that fo reign debt accounted for between 50% - 43% of 
                                                           
6 Budget Speech 2003 Part I, Annex 9, Table 2.  Sri Lanka WT/TPR/G/128 
 Page 17 
 
 
total debt during 1996 – 2002 period, interest burden on the debt was moderate (1.58% - 1.9%), due to 
highly concessional nature of such loans. However, av erage rate of interest on domestic debt was high 
at average rate of 10 per cent as compared to foreign debt during the same period.  
53. Increasingly unsustainable fiscal situation w as therefore compounded by escalating interest 
payments, which came to around 7% of GDP in 2 002, and the legacy of past expansionary fiscal 
policies. In financing the budget deficit 2002, it was proposed to rely on external financing and 
privatization with the objective of reducing domestic interest rates and avoid inflationary financing 
and reduce a “crowding out” impact on the private sector.   
54. Large deficits have been increasingly funded mainly by domestic borrowings, nearly 90% in 
2002, compared to 69 per cent in 1996. The contribut ion by the domestic borrowings has averaged at 
78 per cent during the period under review, except in 1997, which was at 43 per cent.  Especially the 
funds from the banking sector contracted at high in terest rates prevailing in the market in 2000 and 
2001. These high interest rates discouraged the private sector investment. Though bank sources became more significant up to 2001, this situa tion reversed especially since 2002 and accordingly 
non-bank sources have become very significant in the financing structure. 
55. As shown in Table – 5, Sri Lanka ’s net external debt as a share of GDP and debt/service ratio 
as a share of exports have remained relatively stable over the review period, at 62% and 13.% 
,respectively.   
 2.4 Investment and Savings 
56. As shown in Table – 7, Gross domestic inv estment and domestic savings have been on 
decrease during the period 2001 – 2002, compared to the previous review period. Both factors 
recorded increases during 1998 –2000 period, mainly due to acquisition of public ventures by the 
private sector. The increased investment has b een financed through higher national savings and 
increased foreign savings, reflecting higher private capital inflows in to the country. The savings-
investment gap as a ratio of GDP demonstrated  a gradual widening gap, during the period under 
review.  
Table – 7:  Investment as a  percentage of GDP 
 1996 1997 1998 1999 2000 2001 2002 (a) 
Resource balance        
Gross domestic savings 15.3 17.3 19.1 19.4 17.5 15.9 14.7 
Gross domestic investment 24.2 24.4 25.1 27.2 28.1 22.2 21.5 
Foreign Savings (c) - 9.7(b) 6.0 7.8 10.6 6.2 6.7 
Savings-investment gap 8.9 7.1 6.0 7.8 10.6 6.3 6.8 
 
a Provisional. 
b 1990-97 period. c Net Imports of Goods & Non-Factor services. 
Source:  Central Bank of Sri Lanka, Annual Report 2002 and 2000 .  
 (a) Public Investment 
57. In terms of the Government investment strategy , increased attention in public investment has 
been drawn towards education, health, environment,  roads, irrigation, rural infrastructure and poverty 
alleviation while encouraging private sector invest ment in commercial infrastructure development on 
BOO/BOT basis. WT/TPR/G/128 Trade Policy Review 
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58. Public investment improved from 5.8 per cent of GDP in 1997 to 6.7 per cent of GDP in 
1998. Progressive decline in public investment ther eafter was noted, as the government grappled with 
deteriorating fiscal situation. The major concen tration in public investment activities was on 
infrastructure development in transport and co mmunication, energy, water supply, irrigation, 
education and health. 
 (b) Foreign Direct Investment 
59. National saving falls well shor t of domestic investment and so Sri Lanka has traditionally 
relied on private remittances and foreign direct invest ment (FDI) to fill the gap.  However, inward 
FDI since the last trade policy review was adversel y affected by the civil war.  FDI (net) shares of 
GDP rose substantially in 1997 from 0.9% to 2.8% , but fell to 1.1% in 1999 where it remained until 
rising to 1.4% in 2002 after peace (Table - 8).7   
60. FDI fell continuously from US$430 million in 1997 (US$120 million in 1996) to US$172 
million in 2001, but increased to US$235 million in 2002 (T able - 9).  Sri Lanka was classified as an 
"under-performer" in attracting FDI over the period 1998/00 (unchanged from 1988/90).8 
61. Foreign Investment inflows to Sri Lanka, whic h showed a declining trend during 2000 - 01, 
have risen in 2002, with the peace initiative. This fu rther encouraged foreign investors to come into 
Sri Lanka in 2003.  
62. The performance during 2002 alone has been exce ptional, due the peace initiative. The BOI 
approved over 400 projects during 2002 alone. Invest ment Missions from Malaysia, Japan, Singapore, 
Pakistan, Maldives, USA, China, Taiwan, EU and Isr ael are expected to generate more capital inflows 
in the coming years.  
63. Under Section.17, BOI approved 300 projects in  2002 of which 76 are fully foreign owned, 
77 are joint ventures between foreign investors and Sri Lankan investors the rest are fully owned by 
Sri Lankan investors.  Foreign investment approve d projects declined to 49.5% in 2002 from 55.2% in 
2001. However, the share of foreign investment in total contracted projects in value increased from 
16.2% in 2001 to 50.5% in 2002.    
64. Sixty per cent of the projects approved are from the industrial sector while others were from 
the services and agricultural sect ors. These sectors include textile, wearing apparel leather products, 
fabricated metal, machinery and transport equi pment, food beverages a nd tobacco products, and 
chemicals, petroleum, rubber and plastic categories. 
65. Of the total contracted investment in 2002 th e industrial sector absorbed about 51.1% and the 
services sector absorbed around 48.9%. 
                                                           
7 This fall was largely compensated for by increased remittances (from 5.5% of GDP in 1997 to 6.8% 
in 2002). 
8 UNCTAD, World Investment Report 2002: Transnational Corporations and Export Competitiveness , 
Chapter II, p. 31.  This classification is based on two constructed indexes, and indicates that it is ranked below 
the mid-point of all countries on both indexes.  These indexes are the inward FDI performance Index (the ratio 
of a country’s share of global FDI flows to its share of global GDP) an d the Inward FDI Potential Index (an 
unweighted average of the scores of eight normalized economic and social variables).  Between 1988/90 and 
1998/2000, Sri Lanka’s country ranking on the FDI performance index slipped from 85th to 103rd and improved 
from 113th to 111th on the FDI potential index. Sri Lanka WT/TPR/G/128 
 Page 19 
 
 
66. Foreign direct investment in the first six months of 2003 rose to 170 million dollars from 50 
million dollars in the corresponding period in 2002.  The foreign investment inflows are mainly 
attracted by food and beverage sectors, textile & appa rel sectors, transport, manufacturing of electrical 
and electronic components and the services sectors. 
Table - 8:  Foreign Direct Investment and Portfolio Investment (Per Cent of GDP)  
 1996 1997 1998 1999 2000 2001 2002a 
Capital and financial account balance (net) 3.3 4.0 2.6 2.4 2.7 3.6 3.1 
     Official financial fl ows 1.9 1.6 1.3 0.4 0.3 1.6 1.0 
      Private financial fl ows 0.8 1.8 0.8 1.5 2.1 0.7 1.7 
Foreign direct investment, net b 0.9 2.8 1.2 1.1 1.1 1.1 1.4 
Portfolio investment, net h h -0.2 h -0.3 h 0.1 
Other (e.g. trade credit), net -0.1 -1.1 -0.2 0.4 1.3 -0.4 0.2 
a Provisional. 
b Includes privatization proceeds. 
Source:  Central Bank of Sri Lanka, Annual Report 2002 and 2000 .  
Table – 9:  Foreign Investment Inflows into Sri Lanka 
(US$ million) 
 1996 1997 1998 1999 2000 2001 2002a 
Capital and financial account balance  459 602 413 373 443 562 506 
Capital account, net 96 87 80 80 50 198 55 
Financial account 363 515 334 293 393 364 451 
Long-term 381 716 398 435 304 164 398 
Direct investment, netb 120 430 193 177 176 172 235 
Private, net  2 47 2 196 82 -257 1 
Government, net 259 239 203 62 47 249 162 
Short-term -18 -201 -64 -142 88 201 53 
Portfolio, net 7 13 -24 -13 -45 -11 25 
Private, net  -44 -20 8 -10 100 -42 68 
Commercial banks, net 19 -194 -48 -120 33 254 -41 
Note: Figures may not add due to rounding. 
a Provisional. 
b Includes privatization proceeds.  
Source:  Central Bank of Sri Lanka, Annual Report 2002 .  
 2.5 Monetary & Exchange Rate Policy 
67. The floating exchange rate regime strengthens the stability of the foreign exchange market 
and improved external competitiveness. Due to the declining trend in infl ation and improved fiscal 
consolidation, the Central Bank was able to re duce its policy rates.  Improved domestic rupee 
liquidity, mainly on purchases of foreign currency by  the Central Bank together with reduced public 
sector overdraft facilitated the shifting of the interest rate downward. 
68. The declining trend in market interest rates experienced from second half of 2001 continued 
during 2002, following the reduction in policy rat es.  Both deposit and lending rates of banks 
decreased. The Interest rate in the call money ma rket followed the movements of the Central Bank’s 
Repo rate.  Average call market rates decreased by a bout 225 basis points (bps) in 2002. Central Bank WT/TPR/G/128 Trade Policy Review 
Page 20 
 
 
plans to issue treasury bonds with longer maturity  in 2003, which would serve two purposes that is 
extending the yield curve and giving the Government greater flexibility in managing its debt.  
 2.6 Banking, Capital Markets and Insurance 
69. The financial sector has expanded substantially as a result of the liberalisation, both in terms 
of institutions  and in terms of activities.  Total assets of the financial se ctor have increased from 
around 75 per cent of GDP in 1977 to over 132.5 per cent in 2002.  The number of commercial banks operating in the country has increased from 11 to 26 in the same period, while the number of foreign 
banks in this total increased from 7 to 18.   
 2.7 Employment 
(a) Performance 
70. Unemployment fell from 11.3% in 1996 to 7.6% in 2000, but rose in 2001 and 2002 to 7.9% 
and 8.8% respectively. The decline in economic grow th and investment activities resulted in increased 
unemployment from 2000 – 2001 by 2%.   
71. In 2002, the labour market showed a mixed pe rformance, reflecting the lagged impact of the 
economic contraction experienced in the previous year.  Unemployment rate was lower during the 
fourth quarter of 2002. The share of employed pe rsons in the labour force declined from 92.2% in 
2001 to 90.9% in 2002 indicating that the number of new jobs created in the economy was less than 
the number of net additions to the labour force. 
72. A notable factor is that unemployment was high among youth with higher education. Rise of 
unemployment was due to the low investment e xpansion in relation to the supply of labour. 
73. Sectors adversely affected, such as tourism rela ted services and garment exports resorted to 
temporary employment retrenchment.  The marginal rise in unemployment rate was due to low expansion in investment.   
Table - 10: Indicators on Employment 
 1996 1997 1998 1999 2000 2001 2002a 
Labour Force (‘000 persons) 6,001 6,266 6,660 6,673 6,827 6,773 7,145 
Labour Force Participation (%) 48.7 48.7 51.7 50.7 50.3 48.8 50.3 
Unemployment Rate (% of Labour Force) 11.3 10.5 9.2 8.9 7.6 7.9 8.8 
Sectoral share of employment (per cent of 
Labour force        
Agriculture, livestock and fishing 37.4 36.2 40.6 36.2 36.0 32.4 33.1 
Mining and quarrying 1.6 1.6 1.2 1.2 1.1 1.9 n. a. 
Manufacturing 14.6 16.4 14.3 14.8 16.6 17.5 17.0 
Services 41.1 40.5 39 47.8 46.3 48.2 44.8 
Electricity, gas and water n. a. n. a. n. a. 0.5 0.5 n. a. n. a. 
Construction 5.4 5.6 4.9 5.3 5.5 5.6 4.1 
Trade and hotels n. a. n. a. n. a. 12.1 12.7 11.9 15.8 
Transport, storage and communication n. a. n. a. n. a. 5.1 4.9 6.5 4.6 
      Table – 10 (cont'd) Sri Lanka WT/TPR/G/128 
 Page 21 
 
 
 1996 1997 1998 1999 2000 2001 2002a 
Finance, insurance and real estate n. a. n. a. n. a. 1.6 2.1 1.9 2.9 
Personal services n. a. n. a. n. a. 23.0 20.7 22.2 22.4 
Other n. a. n. a. n. a. 0.2 0.2 n. a. n. a. 
n. a. Data not available. 
a Provisional. 
Source:  Central Bank of Sri Lanka, Annual Report 2002 and 2000.  
 2.8 Inflation 
 (a) Performance 
74. A matter of concern to the Government has been  the relatively high inflation in the past. The 
inflation generally remained high during the peri od under review. Inflation jumped in 2001 from 1.5% 
to 12.1% 9, but declined to 10.2% in 2002, despite in creased utility and other administered prices. 
Decline in inflation in 2002 was attributable to  tight monetary policy stance on the demand side, 
deceleration in exchange rate depreciation a nd declines in import prices on the supply side. 
75. The tight demand management policies pursued by the Central bank of Sri Lanka since the 
second half of 2000, resulting in high positive real in terest rates, were successful in checking the 
excess growth in the nominal demand and hence containing upward pressures on the general price 
level. 
76. The anticipated drop in the inflation rate did not, however, take place mainly due to increases 
in administered prices of certain consumer goods, the removal of certain subsidies on consumer goods 
and low productivity in domestic pr oduction. The temporary inflationary pressures caused mainly by 
the spiral upward effect of imposition of Value Added Tax (VAT) on certain consumer goods. This 
prompted the government to exclude the imposition of VAT on a selected list of consumer items and 
on pharmaceutical products. Such other measures also  included a reversal of pricing policy with 
regard to the loss recovery charges on petroleum products. 
(b) Developments 
77. The government focused its attention on the reduction of inflationary pressures in the 
economy and inflation was expected to be containe d at a single digit level. Consequent to the 
measures taken, there has been a steady decline in in flation in 2003. The point-to-point change in the 
Colombo Consumers’ Price Index (CCPI) has decreased  from 13.6 per cent in January 2003 to 6.0 per 
cent in May, while the annual average has decrea sed from 10 per cent to 9.5 per cent over the same 
period. 
78. This downward trend in inflation is expected to  continue during the balance part of the year. 
The decline in inflation has led to a reduction in ma rket interest rates. The Central Bank has also 
reduced its interest rates. These reductions have been  reflected in the yields on government securities, 
                                                           
9 Based on new official index.  A national consumer price index replaced the Colombo Consumers’ 
Price Index as the official measure of consumer inflation in April 2003.  Based on 1995 to 1997 weights, it has much broader geographical and income group coverage than the former index, which covered a consumption 
basket of low-income households in the Colombo Munici pal area. The Colombo Consum ers’ Price Index is still 
the official consumer price index. The Department of Census and Statistics plans to adopt the Sri Lanka Consumers’ Price Index as th e official index in 2004.
 WT/TPR/G/128 Trade Policy Review 
Page 22 
 
 
and the interest rates of financial instituti ons. Following discussions with the Government, 
commercial banks have taken steps to pass on the benefits  of the reductions in official interest rates to 
their customers by reducing their lending rates. 
3. External Sector 
3.1 Foreign Trade Performance During the Period Under Review 
3.1.1 Balance of Payments  
79. As the outlays on imports were in excess of export earnings, balance of trade has been in 
deficit for nearly two and a half decades after 1977.  As shown in Table - 11, the trade account registered surpluses (in US dollar terms only on ce in 1977), during the tea boom in 1976 and 1977.  
This deficit, which exceeded US dollars 1,559 Mn. in 1994, narrowed dow n gradually during 1995-
1998 due to relatively lower growth in imports than in exports.  However, it reached its highest level 
in 2000, but has remained lower than US dollars 1,500 Mn in recent years. 
80. Export earnings declined by 2 per cent while  imports increased by 2 per cent in 2002 
widening the trade deficit to US dollars 1,406 m illion in comparison to US dollars 1,157 million in 
2001. The large merchandise trade deficit, which p eaked at 10.8% of GDP in 2000, rose again from 
7.4% in 2001 to 8.5% in 2002. 
81. Despite the slow recovery of export demand, th e external sector benefited from the recovery 
in the services account and substantial improvement s in inward private transfers and remittances from 
Sri Lankans living abroad and capital inflows, which cushioned the impact on the balance of 
payments.  These  have risen continuously since 1996 from 5.5% of GDP to 6.8% in 2002, and are the 
second largest foreign exchange  earner after garments.   
82. Sri Lanka’s widening current account deficit reach ed 6.4% of GDP in 2000.  It has since 
narrowed to 1.5% and 1.6% of GDP in 2001 and 2002, respectively (Tables - 12).  The current account deficit declined and the overall balance of payments was in surplus for the second 
consecutive year. 
83. This was due to increased net outflows.  The de ficit was offset mainly by increased foreign 
direct investment, net long term borrowing by th e private sector and portf olio investments. The 
current account deficit reflects the low level of pr ivate domestic savings, requiring remittances and net 
capital inflows to fill the gap.  Sri Lanka’s domest ic savings-investment gap rose from 6.3% to 6.8% 
of GDP in 2002 (10.6% in 2000).  
84. The declining trend in current account deficit demonstrated during 2001 – 2002, has raised 
the country’s external reserves and reduced pressure on the exchange rate.  The floating exchange rate 
regime continued to serve well, further strengthe ning stability in the foreign exchange market and 
improving the external competitiveness. 
Table - 11:  Sri Lanka’s Balance of Trade 
(US$ Mn.) 
Item 1977 1987 1997 1998 1999 2000 2001 2002 2003 
Ist Half 
Exports 767 1,396 4,639 4,798 4,610 5,522 4,817 4,699 2,378 
Imports 726 2,075 5,863 5,889 5,979 7,320 5,974 6,106 3,078 
Balance of Trade 41 -679 -1,225 -1,092 -1,369 -1,798 -1,157 -1,406 -700 
Source:  Central Bank of Sri Lanka. Sri Lanka WT/TPR/G/128 
 Page 23 
 
 
Table - 12 - External sector (Per cent of GDP) 
 1996 1997 1998 1999 2000 2001 2002a 
Trade balance -9.7 -8.1 -6.9 -8.7 -10.8 -7.4 -8.5 
Exports 29.5 30.7 30.3 29.2 33.4 30.8 28.6 
Imports 39.2 38.8 37.4 37.9 44.2 38.2 37.2 
Services and income (net) -0.7 h -0.2 -0.7 -1.6 -0.6 0.1 
Current transfers (private and official, net)b 5.5 5.5 5.7 5.8 6.0 6.4 6.8 
Current account balance -4.9 -2.6 -1.4 -3.6 -6.4 -1.5 -1.6 
Capital and financial account balance (net) 3.3 4.0 2.6 2.4 2.7 3.6 3.1 
Official financial flows 1. 9 1.6 1.3 0.4 0.3 1.6 1.0 
Private financial flows 0.8 1.8 0.8 1.5 2.1 0.7 1.7 
Foreign direct investment, netc 0.9 2.8 1.2 1.1 1.1 1.1 1.4 
Portfolio investment, net h h -0.2 H -0.3 h 0.1 
Other (e.g. trade credit), net -0.1 -1.1 -0.2 0.4 1.3 -0.4 0.2 
Overall balanced -0.5 1.1 0.2 -1.7 -3.1 1.4 2.1 
Merchandise trade (average of imports and 
exports)  34.4 34.8 33.9 33.6 38.8 34.5 32.9 
Merchandise export growth (% change in 
US$, end period) 7.6 13.3 3.4 -3.9 19.8 -12.8 -2.4 
Merchandise import growth (% change in 
US$, end period) 2.4 7.8 0.4 1.5 22.4 -18.4 2.2 
a Provisional. 
b Includes remittances. 
c Includes privatization proceeds. d Includes valuation adjustment s and errors and omissions. 
Source: Central Bank of Sri Lanka, Annual Report 2002 and 2000 .  
 3.1.2 Export  
  (a) Overall performance 
 
85. Sri Lanka, being a small country with a rela tively small population and a low resources base 
placed high priority on export –led economic growth since late 1970s.   Sri Lanka, which remained an exporter of primary products for nearly three decad es since the independence, experienced significant 
changes after the economic liberalisation in 1977.  Subsequent to the initial phase of reforms, trade 
reforms were instituted in the late 1980’s and in the 1990s.  
86. Sri Lanka’s exports grew by 8.8 per cent annually during the period 1978-2002.  Sri Lanka’s 
imports grew annually by 10.3 per cent during 1978- 2002. International trade became a dynamic force 
in the economy, contributing to the growth of in come and employment opportunities.   However, 
during the last 5 years, both export and import sectors grew at a slower rate than in the previous two decades.  
87. Export growth during the last four years has been positive except in 2001 where export 
volume declined by 8%. In 1999 export earning declined by 4% in US Dollar value.  This decline was 
due to the fact of lower export value, which was o ff set by higher volume of exports. In 2000, export 
earnings in US Dollar value grew by 20%. This was due  to the expansion in textiles and garments, tea, 
machinery, mechanical and electrical equipm ent, rubber based products, gems, diamonds and WT/TPR/G/128 Trade Policy Review 
Page 24 
 
 
jewellery exports. Total exports earnings grew by 3% during the first four months of 2001, which 
began to decline after May 2001 due to economic sl ow down in major export markets and the unstable 
domestic environment due to the attack on the Kat unayake International Airport. However, in 2002 
export volume increased by 2%, but with a decrease in export prices by 4.3%. 
 (b) General Direction of Export Trade 
88. The economic expansion and the change in the structure of exports have also led to a 
corresponding change in the structure and origin of exports. The direction of trade in Sri Lanka 
changed dramatically over the last 25 years although it has not changed significantly over the last 5 years.  The 1977 policy reforms opened a new chapte r in a move towards open free trade with all 
countries.  
89. With the rapid expansion in industrial activities and the diversification of the export structure, 
USA became the largest single buyer of Sri Lanka’s exports after 1979.  
90. In 2002, USA, which imported garments, tea, rubber and rubber products, coconut and other 
industrial products, accounted for 38 per cent of th e total exports from Sri Lanka. It is the most 
important market for garments, receiving almost one half of Sri Lanka’s exports.   
91. The UK, the second largest buyer, and Germany, the third largest buyer, accounted for 14 per 
cent and 4 per cent of Sri Lanka’s exports, respec tively. Garments accounted for 79 per cent of goods 
exported to the UK.   
92. Japan is one of Sri Lanka's major markets fo r crustaceans, machinery parts and accessories, 
tea, fish products and precious stones. Out of th e total exports to Germ any, garments and tea 
accounted for 43 per cent and 29 per cent, respectivel y. As a result, the industrialised countries taken 
together as a group, which had lost importance since the early 1970’s, re-gained their position as the major export partner. These countries accounted for 74 per cent of the total exports in 2002. The 
heavy concentration of Sri Lanka’s exports to West ern industrial countries made them, as a group, Sri 
Lanka’s largest trading partner. 
93. The relative importance of Middle East countries fo r exports has declined in recent years due 
to the emergence of CIS countries as major importers of Sri Lankan tea. Since 1993, the CIS countries 
as importers of Sri Lanka’s tea have re-captured the position held  by the former USSR. The CIS 
countries, the major buyer of Sri Lankan tea, acc ounted for 4 per cent of total exports in 2002. 
94. Amongst developing countries, As ia accounted for 10 per cent of total exports, while the 
SAARC region received approximately 5 per cent. Direction of Sri Lanka’s exports for 1996 and 
2002 period is given in Annex – I. 
 (c) Sectoral Performance 
95. Following the introduction of liberalisation policies in 1977, the export structure of the 
economy changed drastically from an agricultural b ase to an industrial base by 1995, but it has 
remained relatively stable since then. The export structure has become diversified with industrial 
exports, led by textiles and garm ents, becoming the largest contributor to export earnings.  
Industrial products 
96. Industrial exports have become more significan t since the early 1980’s and as a result, the 
share of agricultural exports declined from 79 pe r cent in 1977 to 20 per cent in 2002.  Industrial Sri Lanka WT/TPR/G/128 
 Page 25 
 
 
exports are the major contributor to exports, its share increasing from 14 per cent in 1977 to 77 per 
cent in 2002. This ratio has remained around 75 per cent during the last 10 years.  
97. During the decade from 1992 to 2002 share of industrial exports c ontinued to grow. 
Compared with 2001 export structure in 2002 indicat es a marginal change. Earnings from industrial 
exports declined by 2.1% in 2002, compared to decline of 13% in 2001 is an improvement in the 
export performance sector. The volume of textiles garment exports increased by 1.4% while unit 
prices dropped by 6%. More than 92% of textile and garment exports came from BOI enterprises. 
  Textiles and garments 
98. Textiles and garments, which became Sri Lanka ’s largest single item of exports in 1986, 
continue to maintain its position, increasing its sh are from 28 per cent in 1986 to 52 per cent in 2002. 
This is partly attributable  to  a  shift  from  low value added garments to high value added garments 
and the rapid expansion of this sector as a whole. The total value of export earnings in the sector was 
at US dollars 2,424 million accounting for 52 per cent of the total export earnings in 2002.  The contribution to the Gross Domestic Product (GDP) from garment industry was 5.3 per cent in 2002. 
The garment industry provides more than 330,000 di rect employment opportunities or 5 per cent of 
the country's total employment through more than 1,060 garment factories.  
Direction of Trade 
99. Sri Lanka's textile and garment exports have concentrated on a few export markets. The USA 
accounted for 63 per cent of Sri Lanka’s imports tota l garment exports while the share of the EU was 
31 per cent in 2002. Canada, accounted   for 2 per cent of   total   garment exports.   
Other Industrial products  
100. Several industrial sectors showed a significan t improvement in the last decade, further 
diversifying the export composition and hence stre ngthening the resilience in the economy.  Those 
were machinery, mechanical and electrical appliance including spar e parts and electronics, diamonds, 
rubber based products, crustaceans and molluscs, le ather products such as footwear and travel goods, 
jewellery, petroleum products, canned food, fruit s and fish products, chemical products and   
handicrafts.   Exports of minera l products, dominated by gems, also improved after 1977.  The 
contribution by all those products taken together increased from 14 per cent in 1977 to 26 per cent in 2002 surpassing the relative position held by plantation sector products.   
  Agricultural Products 
101. Although agricultural exports continue to be im portant, with the traditional exports of world-
renowned Sri Lanka tea occupying a prominent pos ition, they are no longer the primary source of 
trade inflows.  Although the gross earnings from the textile and garment sector are high, tea remained 
the country’s largest net foreign exchange earner till 1991. 
102. Although the relative contribution of agricultural exports has declined over the years, 
diversification of products from pl antation crops to other agricultural products has been evident in the 
recent past.  Within the agricultural product cate gory non-plantation agricultural products, dominated 
by cinnamon, un-manufactured tobacco and peppe r, took the place of rubber and coconut. Export 
earnings from agricultural products declined by 2 per cent during last 5 years.   WT/TPR/G/128 Trade Policy Review 
Page 26 
 
 
  Tea 
103. Tea, the largest plantation commodity contribut ed 70 per cent to total agricultural product 
exports. Earnings from tea declined by about 1 per cent during the last 5 years. Out of Sri Lanka’s 
total tea exports, 64 per cent is still in bulk form, while 29 per cent was in packed form.  The rest was 
in higher value added forms such as tea bags, tea blended with foreign teas, instant and green teas. 
Orthodox tea accounted for more than 99 per cent of Sri Lankan tea exports, while Cut, Tear and Curl 
(CTC) tea was produced in small quantities.    
  Direction of trade 
104. Russia continued to be the largest buyer ( 19 per cent) in 2002. UAE became the second 
largest buyer (11 per cent), while Syria (10 per cent) continued to hold the third position.  Other major 
buyers were Iraq and Turkey (6 per cent each), Iran  (4 per cent), Jordan and Saudi Arabia (3 per cent 
each).  However as a group, the Middle East countri es were on top, accounting for 44 per cent of total 
tea exports while the CIS countries were second (24 pe r cent) followed by the EU (10 per cent) in 
2001. Egypt, which was a popular destination for Sri Lanka’s tea in the late 1990’s declined gradually 
with the formation of COMESA10 in 1994.  Tea exports to Pakistan too declined gradually over the 
years due to competition from Kenya and India.  Sri Lanka is now nego tiating with Egypt and 
Pakistan to enter into free trade agreements. Such  developments may help Sri Lanka to regain its 
export market for tea in these countries.  
  Rubber 
105. Export of natural rubber has declined both in ab solute and relative terms over the years. In the 
recent past, except in 2002, international rubber prices  have been declining and therefore, total export 
earnings declined significantly.  This decline was partly attributable to improvements in domestic 
rubber based product industries which resulted in an increase in rubber based product exports. Sri 
Lanka now produces large varieties of rubber based pr oducts such as tyres and tubes, surgical and 
industrial gloves, pharmaceutical articles, apparel and floor covering articles etc., these are exported 
to USA, Belgium, UK, German and France.  
  Other Products 
106. Contribution from coconut products to total e xports has declined over the years but this 
industry too showed product diversification over the years.  
(d) Impediments to the growth of Sri Lanka’s Export Sector 
107. Starting from 2001 demand for exports has b een rather weak, compared to 1996 – 2000 
period, although the adoption of floating exchange ra te in early 2001 was expected to generate spill 
over effects on the export demand through changes in the real effective exchanges rates. This was 
mainly due to unrealised benefits that could have otherwise derived from changes in the real effective 
exchange rates.  
108. Poor export performance was  also due to numbe r of other factors, prominent factors being 
lack of international competitiveness and domestic su pply problems. Sri Lanka has been on the verge 
of loosing its international competitiveness  to a cer tain extent as it has to face increasing competition 
from other low cost suppliers and as well as the s uppliers from Sub-Saharan and Caribbean Exporters 
                                                           
10 The  Common Market for Eastern and Southern Africa (COMESA)  with 21 members    signed on 5 
November 1993 and ratif ied on 8 December 1994. Sri Lanka WT/TPR/G/128 
 Page 27 
 
 
and certain LDC countries that receive special trade preferences in major developed markets. 
Domestic supply constraints are mainly attribut able to the producers’ inability to meet the 
international standards and norms required by th e importing countries, due to lack of financial, 
technical and human resources.  
(e) Support Services in the Export sector 
109. Exports continue to receive institutional supp ort from Ministry of Enterprise Development, 
Industrial Polices & Industrial Promotion, Sri La nka Export Development Board (EDB), Sri Lanka 
Export Credit Insurance Corporation. (SLECIC), Ministry of Agriculture and Livestock and 
Department of export agriculture. 
 3.1.3 Imports  (a) Overall Performance 
110. Imports registered a positive growth during the last four years. The import expenditure 
growth, in US Dollar term was 0.2% in 1999, 22% in 2000, decline of 18.4% in 2001 and again increase of 2.2% in 2002.  
111. In 2000 the notable increase in expenditure wa s due to the price increase of petroleum 
products. Other sectors of import growth during the four year period include fertilizer, chemicals, 
building material, transport material. An increase of  imports relating to textile and clothing, diamonds, 
are on account of an expansion of exports in ge ms and clothing for branded product labels.  
112. The import growth in 2001 was sluggish owing to the slow economic growth, the surcharge 
imposed on imports and lower petroleum prices. Furt her, the reduction of surcharge on import duties 
from 40% to 20% with effect from April 2002 resulted in an increase of importation of consumer 
goods.  
 (b) Sectoral Performance 
113. A significant change in the import structure in favour of intermediate and investment goods 
has been observed following the economic liberalisati on.   The share of intermediate goods increased 
from 42 per cent in 1977 to 57 per cent in 2002. The share of investment goods increased from 12 per 
cent in 1977 to 19 per cent in 2002. The share of consumer goods in total imports declined from 42 
per cent in 1977 to 22 per cent in 2002.  
114. The major items in the import basket during th is period includes importation of air planes 
under the re-fleeting programme of Sri Lankan Ai rlines in 2000 & 2001, petroleum products demand 
for intermediary products from export manufactures.  
115. Intermediate goods imports, especially textiles and chemicals required as raw materials for 
the export industries, have grow n and in 2002, accounted for over one half of imports. The 
investments necessary for economic growth have be en supported by the inflows of investment goods 
and such imports accounted for one fifth of imports  in 2002.  Thus, consumer goods amounted to for 
over one   fifth of total imports.   
 (c) Direction of Trade 
116. Industrialised countries together as a group, which dominated Sri Lanka’s import markets 
until 1990, have since then fallen into   second place behind Asian countries (excluding Japan).   WT/TPR/G/128 Trade Policy Review 
Page 28 
 
 
117. In contrast to exports, developing countries are the more important source of Sri Lanka’s 
imports and provided 69 per cent of imports in  1997.  Amongst these, Asian countries hold an 
important place, accounting for 53 per cent of im ports, while SAARC countries provided 15 per cent. 
118. The emergence of India as the largest exporter to Sri Lanka was due to heavy imports of 
transport equipment, vehicles and parts, cotton, ir on and steel, cement, machinery, pharmaceutical 
products and food items such as rice, onion, red len tils etc. The relatively low cost of these items in 
relation to those imported from industrialised countries due to the devaluation of the Indian rupee in 
March 1993 led to a growth in imports  further incr easing its share of 4.5 per cent in 1990 to 10 per 
cent in 2000. Benefiting from the Free Trade Agreement with India, imports from India  increased to 
14 per cent in 2002. Accordingly, Asian countries, as a group, continued to be the major origin of Sri 
Lanka’s imports. 
119. This shift is directly related to the heav y inflow of foreign capital into Sri Lanka’s 
manufacturing sector from the East Asian industr ialised countries such as Korea, Hong Kong and 
Singapore in recent years.  Consequently, raw materi al imports to such industries from these countries 
have grown significantly in recent years.  Directi on of Sri Lanka’s imports for 1996 and 2002 period 
is given in Annex – II. 
 3.1.4 Trade in Services 
 
120. The services account showed marked improve ment owing to increases in receipts from 
foreign tourists and receipts from non-resident Sri Lankans, which was notable during the year with 
progress in the peace process. 
121. The services account registered a surplus of US dollars 271million in 2002, an increase of 55 
per cent over 2001, due to higher receipts from travel and transportation services.  
122. Earnings from tourism increased by 17 per cent to US dollars 248 million. Receipts from non-
resident Sri Lankans who travelled to Sri Lanka are estimated at US dollars 115 million in 2002. As a 
result, travel related net receipts increased from a negative US dollars 38 million to a positive US 
dollars 100 million in 2002.  
123. The increase in receipts from passenger fares, reflecting the recovery in tourism and port-
related services receipts, raised net receipts from tr ansportation services by 139 per cent to US dollars 
184 million in 2002.  
124. Net receipts from telecommunications services increased by 79 per cent to US dollars 61 
million. However, net receipts to Sri Lanka from the telecommunications sector was far below its 
potential due to heavy traffic in the External Gate way System, as there was only a single operator in 
the market in 2002. The lack of adequate gatewa y capacity in the international telecommunications 
services has compelled foreign investors to request their local counterparts to initiate communications 
from Sri Lanka.  
125. Under the National Communications Policy, the government took steps in early 2003 to 
liberalise the international gateway. However, it is important that the market operates in a competitive 
environment under an efficient regulatory mechanis m, to maximise benefits from a liberalized 
telecommunications market. 
126. Receipts from computer and information services (information technology exports) decreased 
by 24 per cent to US dollars 50 million. Market for these services was slack because of slow global 
economic recovery, particularly in the United States.  Sri Lanka WT/TPR/G/128 
 Page 29 
 
 
127. Foreign exchange receipts from construction ser vices, at US dollars 34 million, dropped 17 
per cent during the year.  
128. Net receipts from insurance ser vices declined by 83 per cent to US dollars 18 million during 
the year. However, net receipts from insurance ser vices, excluding the extraordinary receipt of US 
dollars 90 million to Sri Lankan Airlines as insuran ce payments for the aircraft destroyed in the LTTE 
attack on the Katunayake International Air port in 2001, grew by 12 per cent in 2002. 
 3.1.5 Exchange rate Regime 
 (a) Overall Performance 
129. As shown in Table - 13, during the period unde r review, Sri Lanka Rupee at annual average 
level, depreciated from Rs. 55.27 / US $ in 1996 to Rs. 97.00 / US $ in 2003, recording 75.5 per cent 
depreciation. However, the exchange rate of the r upee in terms of the major currencies of the world 
remained relatively stable despite fluctuations of  foreign currencies till 2000.  The rupee depreciated 
by 3.7 per cent against the US dollar during 2002.  Starting from end of 2002, Sri Lanka’s domestic 
foreign exchange market was relatively stable due  to a weakening dollar, increasing capital inflows 
and attractive real interest rates in the domestic market.  
130. However, other noticeable development was the cross exchange rate, which effected between 
the US dollar and other major currencies and resulte d in a larger depreciation of the rupee against 
other currencies in 2002. The rupee depreciated by 18.8 per cent against the euro, 13.1 per cent against the Japanese yen, and 12.9 per cent against the pound sterling.  
Table - 13 :Exchange Rate Fluctuations [1996 – 2003] 
 1996 1997 1998 1999 2000 2001 2002a 2003a 
Exchange rate (Rs)  at the end of the year 
(equivalent in US$) 56.71 61.29 67.78 72.12 80.06 93.16 96.73 97.14 
Average Exchange Rate 55.27 58.99 64.59 70.39 75.78 89.36 95.66 97.00 
a Provisional.  
Source: Central Bank of Sri Lanka, Annual Reports.  
 3.1.6 Foreign Exchange Reserves 
131. Total external assets of the country and gross official reserves increased significantly for the 
second consecutive year, after a severe drain in  2000. Despite higher import demand, reserves 
increased on account of large capital flows to the count ry in the form of private remittances, foreign 
direct investments, public and private sector long term borrowing and short te rm capital flows to the 
share market with the improved political stability  and the commencement of peace negotiations.  
132. External reserves were further boosted by the use of IMF resources under the Stand-By 
Arrangement (SBA), purchase of foreign exchange in  the domestic forex market by the Central Bank 
and the issue of dollar denominated SLDBs. 
133. As a result of these developments, total gross external reserves of the country increased by 
11.0 per cent to US dollars 2,495 million, sufficient to finance 4.9 months of imports in 2002. The 
increase in total reserves was the outcome of an in crease in gross official reserves by US dollars 
362 million (27 per cent) to US dollars 1,700 million,  a level sufficient to cover 3.3 months of 
imports, and a drop in gross external assets of commercial banks by US dollars 105 million to 
US dollars 795 million.  WT/TPR/G/128 Trade Policy Review 
Page 30 
 
 
Table - 14:  External Reserves [1996 – 2002] 
Import Coverage of Foreign Assets 
(in months) 1990-97 1998 1999 2000 2001 2002a 
(1) Gross Foreign Assets n.a. 5.9 5.2 3.5 4.5 4.9 
(2) Gross official reserves 3.9 4.0 3.3 1.7 2.7 3.3 
a Provisional. 
Source:  Central Bank of Sri Lanka, Annual reports.  
4. Economic Policy Developments 
4.1 Macro Economic Policy Developments 
 4.1.1 Fiscal Policy Reforms 
  (a) Management of Fiscal Deficits 
134. The government’s fiscal policy was to strengt hen economic growth by 2002 encouraging 
private sector initiatives, while government played the role of a facilitator in the development process. 
135. However, as shown in Table – 5, high fiscal defic its continue to be a major factor causing Sri 
Lanka’s economic problems.11  Large fiscal deficits and associated escalating public debt levels that 
exceed GDP are no longer sustainable12 ; debt service payments (interest and amortized loan 
repayments) exceed total government revenue.  Accord ing to the Central Bank, a prudent fiscal policy 
is needed without further delay to turn around the rising debt/GDP ratio and to ensure medium term 
fiscal and debt sustainability.13   
136. Measures to enhance revenue and improve expendi ture management have been implemented.  
With these recent improvements in the fiscal  sector since 2002, government borrowing from the 
domestic market substantially reduced in line with  the reduction in the overall budget deficit. As a 
consequence, the Budget deficit ha s been reduced from the high levels in the past to around 8 per cent 
in 2002.  Further fiscal consolidation is  expected in the next few years.   
137. On financing of the budget deficit,  Budget 2002 proposed to rely more on external 
financing and privatization proceeds, limiting the us e of domestic resources. Accordingly government 
borrowing from the banking system turned to nega tive in comparison to the substantial borrowing 
from the banking sector before 2002. As a result the cr owding out impact of deficit financing, due to 
the government borrowing, is not a main issue unde r the present fiscal situation. Other objectives 
were to avoid inflationary financing and to  reduce pressure on domestic interest rates. 
138. Budget proposals in 2002 also laid much emphasis on improving the deficit financing and 
debt management  by establishing transparency and account ability.  Until 2001, borrowing through 
various non-instruments such as bank overdrafts and import financing was not accounted for under 
                                                           
11 Central Bank of Sri Lanka, Annual Report 2002 , p. 3. 
12 According to the IMF, while Sri Lanka’s fiscal policy with high budget deficits may have been 
sustainable in the past due to robu st growth and low debt  service costs from having access to substantial 
concessional borrowings, high fiscal de ficits are no longer sustainable (IMF, Sri Lanka: Selected Issues and 
Statistical Appendix , Country Report No. 02/208, September 2002, p.4). 
13 Central Bank of Sri Lanka, Annual Report 2002 , p. 175.  The IMF also concluded that fiscal 
sustainability necessitated a strong me dium term policy adjustment to cont rol the rising deficit and escalating 
debt service payments (IMF, Sri Lanka: Selected Issues and Statistical Appendix , Country Report No. 02/208, 
September 2002, p. 12). Sri Lanka WT/TPR/G/128 
 Page 31 
 
 
the formal overall borrowing limit. A proposal wa s made to extend the coverage of the overall 
government annual borrowing limit to cover all bo rrowing including the bank overdrafts and unpaid 
import bills.  
139. The determination to push ahead with the fiscal consolidation process  was clearly shown by 
the enactment of a Fiscal Management (Responsibi lity) Law in December 2002. It was passed in 
December 2002 and became effec tive from 2003. Objective of FMR is to improve discipline and 
credibility of the government’s fiscal activities. It  mandated fiscal consolidation and spelled out the 
accountability of the Finance Minister to Parliament and fiscal targets to be achieved in the medium 
term. The Law accordingly improved accountability and transparency in the budgetary process by 
requiring obligatory reporting to Parliame nt to help meet budgetary targets14.   
140. In accordance with obligatory reporting in resp ect of the fiscal performance during the first 
four months of the year, Hon. Minister of Fina nce introduced in June 2003 the Mid-Year Fiscal 
Position Report for 2003.  
Box 1 - Fiscal Consolidation  
This framework was first applied in the 2003 Budget.  Three-year medium term fi scal projections, including 
of key fiscal indicators such as government debt, have been incorporated in the budget for 2003. As per medium term fiscal targets specified the Budget for 2003, it is projected - 
• the overall fiscal deficit to fall from 7.5% of GDP in 2003 to 5.6% in 2005 and to 5% of GDP by 
2006 and maintained below that level thereafter; 
• the debt/GDP ratio to drop from 101.5% in 2003 to 89.6% in 2005.   
• Outstanding public debt must also be lowered to 85% of GDP by end 2006 and further to 60% by 
end 2013. 
• The  Government guarantees have also been capped at 4.5% of GDP for consecutive three-year 
periods to contain contingent liabilities 
• a reduction of the current account and primary deficits to 2.3 per cent and 0.2 per cent of GDP, 
respectively in 2003; 
• an increase in revenue by 0.3 percentage points, to 17.1 per cent of GDP by increasing tax revenue 
by 0.4 percentage points from 14.5 to 14.9 per cent of GDP in 2003; 
• a reduction in current expenditure by 1.8 percentage points to 19.3 per cent of GDP in 2003; 
• An increase in public investments by 0.7 percentage points to 5.3 per cent of GDP; a repayment to 
the banking sector of 0.8 per cent of GDP (Rs.14 billion) in 2003. 
The increased tax revenue was expected to be through new revenue measures such as the Value Added Tax, 
broadening the tax base through rationalizing tax exemptions and incentives, and strengthening tax 
administration through the establishment of a Revenue Authority. 
Expenditure was to be reduced through strict controls and reduction of recurrent expenditure, to be achieved 
by containing the size of the public service, better ta rgeting of welfare benefits, curtailing non-priority 
expenditure, reducing interest expenses by improving public debt management, and containing defence 
expenditure to appropriate levels. 
141. The Government has decided to create an indepe ndent Public Debt Management Office and to 
enact a comprehensive Public Debt Management Law to improve public debt management15 in 
                                                           
14 Flow Chart describing the Reporting procedure is given in Annex – III. 
15 Budget Speech 2003 Part II, p. 1. WT/TPR/G/128 Trade Policy Review 
Page 32 
 
 
2003. In pursuant to this decision, on 6th March 2003, the government appointed a steering committee 
to take initiative to set up an independent Public  Debt Management Office.  Further, on 1st August 
2003 a project office was setup and a project team was appointed to study and make recommendations 
on the setting up of an independent Public Debt Management Office 
142. Efforts to improve public sector efficiency  included introduction of zero-based budgeting 
systems.16  The government introduced a Zero Based Budgeting system, which is a budgeting and 
financial management strategy to help policy makers achieve more cost- effective delivery of public 
services. It is a systematic logical approach to a llocating limited resources where they will do the most 
good. In Zero based budgeting system when a govern ment department claims from the treasury for 
the coming year expenditure that department has to explain the programs identified to be implemented 
in the coming year and the importance (cost benefit analysis) of the program.  
143. Initially, it has been decided to introduce cert ain elements of Zero- base approach in the 
preparation of Budgets for Ministries, Provincial Co uncils, and Departments in Sri Lanka in order to 
ensure rational allocation of scarce public resource s. The Treasury issued circular on 11th March 2002 
to all the secretaries of the mi nistries, chief secretaries of provincial councils and heads of 
departments to provide the necessary information for the implementation of the zero-based budgeting 
system. 
 4.1.2 Recent Developments in Labour Market 
 
144. Improvement in macroeconomic management , centered around a medium-term sustainable 
fiscal strategy and acceleration of structural reforms aimed at unleashing the growth potential of the 
economy by raising productivity a nd expanding investment, is essen tial to increase economic growth 
on a more sustainable basis, as the growth momentum driven by consumer demand alone is not sustainable.   
145. With a view to creating a flexible labour mark et, the government of Sri Lanka made progress 
by completing a number of important am endments to existing labour laws.  
146. The labour force participation ra te and available job opportunities increased with the progress 
in the peace process over the year but unemploym ent rose as the recovery in the economy and 
investment expansion were lower than required to fu lly absorb the new additions to the labour force. 
147. Labour market reforms in 2002 have enhanced  the anticipated labour market flexibility.
17  
List of Laws that were subject to amendments: 
- The Factory Ordinance Act of 1942 , (FO). It was amended to reduce overtime limit for 
female employees from 100 hrs per year to 60 hrs per month 
- The Termination of Employment of Workmen Act of 1971  (TEWA). The amendments to 
the TEWA  allow employers (with over 15 employ ees) greater flexibility in retrenching staff 
subject to payment of a formula-determined  compensation package.  The compensation 
package is expected to be finalised and published in December 2003. Termination of 
                                                           
16 Central Bank of Sri Lanka, Annual Report 2002 , p. 169.  Cut backs to public service recruitment 
were also made and a contributory pension scheme introduced for new civil servants from 2003.  The unfunded liability under the non-contributory pension scheme is Rs. 550 billion ( Budget Speech 2003 Part I , p. 9).  The 
new Welfare Benefit Act (No. 24 of 2002) also provided for more targeted welfare payments, improved 
transparency and accountability.   
17 Central Bank of Sri Lanka, Annual Report 2002,  p. 159. Sri Lanka WT/TPR/G/128 
 Page 33 
 
 
Employment Workmen Act was passed in 2003 granting an employee a right to be heard 
before a determination is made by the Commissioner in the case of termination. 
- The Industrial Disputes Act of 1950 . It was amended to include reduction of time allowed 
for application to the labour tribunals and c ourts. Labour tribunal cases to be completed in 
four months, arbitration cases to be completed in three months termination of applications 
before the Commissioner to be processed in tw o months thereby revising the formula to 4-3-
2. 
- The Employment of Women ,  
- The Young Persons and Children Act of 1956 .   
- Shop and Office Employees Act of 1954 
148. Any delays in implementation of the approve d amendments would act as a constraint in 
deriving full benefit of the amendments. Regarding wa ges, it is important to ensure that base wage 
adjustments reflect productivity increases so  as to minimise cost-push inflation.18 In the past public 
sector wages have been adjusted on policy decisions  at irregular intervals with no continuous link 
established between inflation and such wage adjustments.  
149. The Budget presented in November 2003 for year 2004 proposed a Voluntary Retirement 
Scheme (VRS)  for public sector employees, which will be introduced from January 1, 2004 on a 
staggered basis. The compensation package will in clude an upfront payment equal to 1 year’s 
remuneration and monthly payments equal to the sal ary at retirement plus the interim allowances 
granted in 2000 and 2001, until the re tirement age of 55 years is reach ed. In addition, the applicable 
pension will be paid thereafter. Employees accep ting VRS will also benefit by the write off of 
outstanding distress loans amounting to Rs.24,000 at the time of retirement. The VRS will aim at reducing 100,000 public sector employees from lowe r and middle grades by 2004 and a further 
200,000 by 2006. 
150. The Budget of 2004 proposed an Unemployment Benefit Insurance Scheme , a much 
awaited programme for the labour force in Sri Lanka.   This scheme will be esta blished in 2004 with 
an initial budgetary allocation of  Rs.1,000 million. The fully operational scheme will be funded by 
contributions from employers and employees. 
 4.1.3 Recent Developments in Tax Reforms 
 
151. Major fiscal consolidation also requires substa ntial tax, expenditure and debt management 
reforms.  Among them, tax reforms appear to be  a high government priority. They include the 
simplification of the tax structure, eliminating ad  hoc tax concessions, broadening of the tax base and 
strengthening of tax administration thereby improving tax collection.
19   
152. The taxation strategy of the Government is designed to achieve a simple, broad based and 
transparent tax structure with a view to improving tax administration and creating an environment 
conducive to promote socio-economic development in the country.  
                                                           
18 Central Bank of Sri Lanka, Annual Report 2002 , p. 26.   
19 Central Bank of Sri Lanka, Annual Report 2002 , p. 168. WT/TPR/G/128 Trade Policy Review 
Page 34 
 
 
Changes in Direct Taxes20 
 (a) Income Tax 
- Simplified income taxation on a wider base to improve savings, investment as well as general 
compliance and to keep concessions to the minimum. Other major change was moving more 
towards strengthening direct taxation. 
- Tax structure has been simplified.  Accordi ngly the income tax on capital gains, advance 
company tax (ACT) and 100 per cent tax on the transfer of immovable properties to non-residents, were abolished in April 2002.  
- Fiscal policies have been directed towards streamlining the tax system and encouraging 
economic activity.   
- The maximum income tax rate for both individuals and corporate
21  entities has progressively 
been reduced to 35 per cent during 1996 – 2002 period. This rate was further reduced to 30 
per cent in 2003. 
- Income from other activities [Exports, Tourism, C onstruction and Agricultu re (any person)] is 
taxed at 15 per cent per annum. 
Table – 15:  Other Tax Rates on Income 
Sector Tax Rate Effective Date 
Specialised Housing Banks 20% w.e.f. 1.4.2002 
Provident Funds, Charities (all) 10% - 
Clubs and Associations (all) 20% - 
Remittance Tax on Non-Resident companies 10% w.e.f. 1.4.2003 
On dividends 10% w.e.f. 1.4.2003 
New Venture Capital Companies 5 year tax w.e.f. 1.4.2003 
Unit Trusts and Mutual Funds 10% / 20% w.e.f. 1.4.2003 
Quoted Company (with 300 shareholders or more) 5% tax credit until 31.03.2003 
Source:  Department of Fiscal Policy and Econom ic Affairs, Ministry of Finance. 
                                                           
20 Date of Payment: Any income tax shall be paid in four installments on or before the 15th day 
respectively of August, November, February, in the year of assessment and 15th May of the next year of 
assessment. 
21 A Company for purposes of this Act means any company incorporated or registered under any law in 
force in Sri Lanka or elsewhere and includes a public co rporation. Residence Rule- a company is deemed to be 
resident if its registered or principal office is in Sri Lanka or if it is controlled and managed from Sri Lanka. Sri Lanka WT/TPR/G/128 
 Page 35 
 
 
Table  –  16:  Withholding Tax22 (WHT) Rates 
Income type Tax Rate Effective Date  
On interest, royalties paid outside Sri Lanka 20%  
Interest paid in Sri Lanka (on deposits) 10%  
Interest paid in S.L. in excess of Rs. 108,000 p.a. per deposit 10% w.e.f. 1.1.2003 
All dividends 10% w.e.f. 1.4.2002 
Interest on specified corporate de bt securities 10%  w.e.f. 1.11.2002 
On specified fees paid to  specified persons 5%  
On non - residence rent > SL Rs. 50,000 per month or SL Rs. 500,000 
per  annum  10% (1.4.2002) 
Government rewards 10% (w.e.f.  1.4.2003) 
Lottery prizes >Rs. 500,000 10% (w.e.f. 1.4.2003) 
Treasury Bills at source 10% (w.e.f. 1.4.2002) 
Interest paid to Charitabl e Institutions in excess of 
Rs.12,000p.m/Rs.144,000p.a. 10% (1.4.2002) 
Source: Department of Fiscal policy and Econo mic Affairs, Ministry of Finance. 
 (b) Save The Nation Contribution  
- Save the Nation Contribution, which was intr oduced by Act No. 5 of 1996 and amended from 
time to time, was abolished with effect from 20th October 2001.  
 (c) Economic Service Charge (ESC) 
- Economic Service Charge, a new tax has been proposed in the Budget for 2004. This charge, 
when become effective will be at 1% of the turnover or total assets of any person or partnership   carrying on any trade, business, profession or vocation with a turnover in excess 
of Rs.30 million or total assets in excess of Rs.10 million and which has been in commercial 
operation for more than 2 years, is proposed to be imposed w.e.f. April 1, 2004.  
- The ESC can be set off against income tax paya ble for the year, limited to the full amount of 
tax payable and without any carry forward provision. The minimum ESC payable by an entity will be Rs.100,000 and the maximum am ount payable will be Rs.20 million. 
(d) Other Developments 
- Under 2001 budget the tax free threshold of persona l income tax for residents was increased 
to SL Rs.240,000/- per annum and it will remain at the same level until 30
th March 2004. 
Under the new budget proposals for 2004, the tax free allowance will be increased to SL Rs.300, 000 per annum and the subsequent tax slabs will be broadened to SL Rs.240, 000. 
 
− The exemption limit has been proposed to increase to SL Rs. 3.5 Mn. under the budget for 
2004. The tax slabs for terminal be nefits has also been expanded. 
 
− Retiring gratuity in excess of SL Rs. 1.8 million was taxed as normal income; 
                                                           
22 The threshold for withholding tax on interest income of Rs.9,000 per month and Rs.108,000 per 
annum, which was previously applicable to any one deposit will now apply to the total interest income of any 
person from a bank or financial institution, under new Budget proposal for 2004. Any person, whose sole or 
main source of income is derived from interest from deposits, would be entitled to a tax free limit of Rs.25, 000 per month or Rs.300, 000 per year provided a direction is obtained from the relevant authority. WT/TPR/G/128 Trade Policy Review 
Page 36 
 
 
 
− Compensation under approved voluntary retirement schemes or retrenchment was made 
exempt from income taxes; 
 
(e) Deductions for Losses 
- Businesses can set off losses, incurred during th e year or brought forward from previous 
years, against the current year’s total statut ory income only up to maximum of 35% of such 
income w.e.f. April 1, 2004. 
 (f) Partnership Income 
− An up front tax of 10% will be imposed on the divisible profits and other income of all 
partnerships for any year of assessment commencing on or after. The tax can be set off against the 
proportionate individual tax liability of each partne r up to maximum of the tax payable, with no 
carry forward provisions. 
 
(g) Turnover Levy 
- The new budget for 2004 has proposed that Genera l Sales Agents of airlines will be exempt 
from the turnover levy of 1%, imposed on Tourist Board Registered Organisations, if they are 
registered with the Sri Lanka Tourist Bo ard, with effect from January 1, 2004. 
Changes in Indirect Taxes 
 (a) Customs Duty 
- Long-term aim is to create a consolidated tw o-band tariff structure with the primary focus 
being placed on effective protection to local industries on a uniform basis. 
- Customs Duty is levied on the CIF value of all goods, consumer ware and merchandise 
imported into Sri Lanka.23 
- Tariff Bands 
Table – 17:  The Tariff Bands & Product Ca tegories Applied from 01.01.2003 to 31.12.2003 
Ad Volarem Tariff Bands Products 
Zero duty crude oil, pharmaceuticals, yarn, sewing thread, fabrics, pearls, wheat; 
2% On previously exempt items other than above zero duty items 
5% Machinery, infant milk powder 
10% Intermediate goods, milk powder 
25% Finished products, Vegetable (frozen) 
Source: Department of Fiscal policy and Econom ic Affairs, Ministry of Finance. 
- A complete list of specific duties that are in force is provided in Annex - IV, given below are 
specific duties that are relevant to main agricultural imports. 
                                                           
23 Computation of duty - Duty rate is applied on CIF value or quantity of imports. 
 CD  =  value of CIF  X  Rate or Customs Duty or  = Quantity X unit rate of duty Sri Lanka WT/TPR/G/128 
 Page 37 
 
 
Table – 18:  Specific Duties of Major Agricultural Imports 
Hs Number Product Rate 
0701.90 Potatoes Rs. 20.00 / kg  
0703.10.01 Red onion Rs. 5.00 / kg  
0703.10.02 Big onion Rs. 8.00 / kg  
0713.31.01 Green gram Rs. 5.00/ kg  
0713.39.02 Cowpea Rs. 5.00/ kg 
0713.39.03 T/dhal Rs. 5.00/ kg  
0904.20.01 Chilies Rs. 30.00 / kg  
10.06 Rice Rs. 9.00 / kg  
1701.11 Sugar Rs. 4.50 / kg  
Source: Department of Fiscal policy and Econom ic Affairs, Ministry of Finance. 
- The product categories and tariff bands that w ill be applicable from 01.01.2004 are provided 
in Annex – V. 
- Under the budget of 2004,  depreciation for calculation of fiscal levies, the maximum age of 
used motor cars that can be imported, has been  increased from three years to three and half 
years. Accordingly, depreciation values for determining VAT and import duty on motor cars and commercial vehicles will be changed to enc ourage the import of newer vehicles and to 
reduce malpractices in classifications. 
- Under the budget of 2004, duties on imported cons umer electronic goods have been reduced 
to 3%. 
 (b) Surcharges 
- The present surcharge on customs duty has been reduced from 20% to 10% by the Budget for 
2004 
 (c) Goods and Services Tax (GST) 
- A major change was the shift to GST in 1998 at a 'non-neutral rate', which has led to 
progressive deterioration in revenue collection. 
- In 1998, GST was introduced at a low rate of 12.5 per cent, on import, manufacture and 
service, replacing the existing turnover tax system , which had multiple tax bands of 8%, 12% 
and 18% (TT was in operation since 1964). Th e GST avoided the disadvantages in the 
turnover tax, improve the efficiency of the ta x system and broaden the tax base.  During the 
first year of GST implementation, the comb ined revenue from TT and GST was low. The 
GST was incorporated into the VAT in August 2002. 
 (d) National Security Levy (NSL) 
- The NSL
24 was imposed under the National Secur ity Levy Act No. 52 of 1991 as amended 
from time to time. The Implementing Agency is Department of Inland Revenue. The liability 
is on Manufacture & imports & selected servi ces such as insurance, banking, finance & 
                                                           
24 Computation of Duty – Domestic - Wholesale pri ce (WSP) excluding Excise  (Special Provisions) 
duty, multiplied by the NSL rate. Imports -the aggregate of CIF, Customs Duty (CD), and 25% mark-up of CIF 
& CD to be multiplied by the NSL rate. [(CIF + CD) 1.25] x NSL Rate.  WT/TPR/G/128 Trade Policy Review 
Page 38 
 
 
telecommunication. The Items that were exem pted were- exports, re-exports, imports & 
manufacture of gems & jewellery & electricity.  The NSL was incorporated into the VAT in August 2002. 
- Duty structure 
Standard rate 5.5% 
Concessionary rate for plant & machinery 0.5%  
 
 (e) Value Added Tax (VAT)
25   
- However, GST and National Security Levy (NSL) was consolidated into a single Value 
Added Tax (VAT) . The Legislation - Value Added Tax Ac t No 14 of 2002 was introduced and the 
system was made effective from August 2002 by amalgamating the GST and the NSL. The replacement of the NSL, a cascading turnover tax, by  a value added type tax was a long felt need to 
improve the tax system. The Implementing Agency is  the Department of Inland Revenue. The tax is 
payable on or before the last day of the month following the end of the taxable period (month or 
quarter). Supply of goods and services made in Sri Lanka and the importation of  goods into Sri Lanka 
are liable to be taxed
26.  
- VAT Threshold  
(a) Taxable supply exceeding Rs. 500,000 in any quart er ending on the m onth of March, June, 
September, December. The threshold of Rs.500,00 0 per quarter has been raised to Rs.750,000 
in 2004 Budget; or 
(b) Taxable supply exceeding SL Rs. 1,800,000 in an y four successive quarters. The threshold of 
Rs.1,800,000 per annum has been raised to Rs.3,000,000 in 2004 Budget. 
(c) However, such registration is not require d to import of goods, unless such person does a 
business of import and sale in Sri Lanka, which exceeds the threshold. 
 
Table - 19:  Value Added Tax Rates  
Sector Duty Changes Proposed in 2004 
Budget 
Lower rate  10% 
Standard rate 20% 
Zero rate27 
[Export of goods; 
International transportation; 
Services directly connected with any moveable or immovable property 
outside Sri Lanka.] 0% 
Specific Sectors 
Banks & other specified fina ncial sector organizations 10% 
(w.e.f. 1.1.2003)  
A single Unified rate of 
15%  
Exemptions    
Source:  Department of Fiscal policy and Economic Affa irs, Ministry of Finance, Budget Speech 2004 
                                                           
25 A new tax regime to commence 1 April 2003 was under consideration (Budget Speech Part I, p.7).  
[Please update as required, providing details of any changes made or envisaged]   
26 Computation of VAT –  
 On manufacturing : Sale price excluding VAT  X  the VAT rate less input tax 
 On services : Final consumer price excluding VAT  X  the VAT rate less input tax 
 On imports:  CIF with the addition of duty, any surcharge, Cess and any excise duty payable and 
multiplied by the VAT rate. 
27 VAT, on inputs for zero rated and taxable goods and services is refundable . Sri Lanka WT/TPR/G/128 
 Page 39 
 
 
- Shift towards a uniform VAT of 15 per cent from 01.01.2004 is an improvement on two band 
system introduced in 2001. 
- Calculation of tax – Output ta x and input tax. Inputs can be claimed on expenses, which are 
connected to the taxable supply subject to certain restrictions. 
- In developing Sri Lanka as a Regional Shopping Centre, the new Budget for 2004 has 
proposed that foreign visitors, who purchase consumer goods from VAT registered retailers, will be entitled to a refund on the VAT paid on such goods, at the airport. 
(f) Excise Duty 
- Excise (Special Provisions) Duty has been in force under the Domestic Legislation  - Excise 
(Special Provisions) Act No: 13 of 1989 and am endments Act No. 40 of 1990 and Act No. 8 
of 1994 and has been implemented by Excise (S pecial Provisions) Unit of Department of 
Customs. The duties are levied on the articles, covering Cigarettes & Petroleum products provided in the following schedule manufactured locally or imported. They are targeted to 
protect government revenue needs.
28  
Table – 20:  Excise (Special Provisions) Tax Rates 
Product/Service Specifications Duty rates29 
Cigarettes < 60 mm in length Rs. 1,555 per 1000 sticks 
 60 mm – 67 mm Rs. 2,970 per 1000 sticks 
 67 mm – 72 mm Rs. 4,256 per 1000 sticks 
 72 mm – 84 mm Rs. 5,022 per 1000 sticks 
 >84 mm Rs. 5,228 per 1000 sticks 
Pipe tobacco  Rs. 250/- per Kg 
Diesel  Rs. 3/- per liter 
Petrol  Rs.21/- per liter 
Kerosene  Rs. 1.25 per liter 
Motor vehicle Petrol cars 15% 
 Diesel cars 65% 
 Vans 35% 
Aerated and mineral water  Rs. 4/- per liter (w.e.f. 22.03.2002 
Publications on Horse racing  Rs.2/-per publication 
Source: Department of Fiscal policy and Econom ic Affairs, Ministry of Finance. 
- Excise (Ordinance) Duty has been in force under the Domestic Legislation  - Excise 
Ordinance No. 8 of 1912 and subsequent amen dments and has been implemented by the 
Department of Excise. The duties are levied  on hard & soft liquor manufactured locally. 
- The tax administration on liquor was simplified.   
                                                           
28Computation of Duty - Domestic: Wholesale price excluding Excise  (Special Provisions) Duty 
multiplied by the Excise (Special Provisions) Duty rate; Imports: 105% of CIF with all fiscal levies excluding 
Excise (Special Provisions) Duty, multiplied by the Excise (Special Provisions) Duty rates. 
29 Under the budget of 2004, Excise duties on some items have been adjusted. WT/TPR/G/128 Trade Policy Review 
Page 40 
 
 
Table – 21:  Excise (Ordinance) Tax Rates   
Product Duty rate 
Coconut and processed Arr ack Rs. 299.00 per proof litre 
Country Made Foreign Liquor  Rs. 399.00 per proof litre 
Molasses and Palmyrah Arr ack Rs. 299.00 per proof litre 
Malt liquor above 5% in strength Rs. 25 per litre 
Wine containing more than 4% in  Strength per proof liter Rs.149  
Source: Department of Fiscal policy and Econom ic Affairs, Ministry of Finance. 
Changes under 2004 Budget  
- Excise duty on beer will be raised by Rs.5 per litre on beer with an alcohol strength of less 
than 5% and by Rs. 10 per litre where the alcohol  strength is 5% or higher, with immediate 
effect.  
- Excise duty on rectified spirits will be increased  to Rs. 200 per litre from Rs.36 per litre, with 
immediate effect. 
- Excise tax on kitul palms will be reduced to  Rs.50 per tree, with immediate effect. 
 (g) Luxury Motor Vehicle Tax 
- Luxury Motor Vehicle Tax has been in force under the Domestic Legislation  - the Finance 
Act No. 16 of 1995, implemented from 1st April 1995 by the Department of Motor Traffic. This motor vehicle levy was introduced in Sri Lanka on luxury motor vehicles as classified below and is imposed on an annual de preciation over a period of 7 years. 
Table – 22 : Luxury Motor Vehicle Tax Rate 
Vehicle Type Capacity Levy in the first year in SL Rs. 
Luxury  Diesel-exceeding 2500cc  50,000/-  
 Petrol-exceeding 2000cc 50,000/- 
Semi luxury Diesel-2200cc-2500cc 25,000/- 
 Petrol-1800cc-2000cc  25,000/- 
Diesel-exceeding 2500cc 10,000/- Semi luxury - 
dual purpose Excluding vans Petrol-exceeding 2000cc 10,000/- 
Source:  Department of Fiscal policy and Econom ic Affairs, Ministry of Finance. 
• All Diesel vehicles other than public passenge r and goods transport are liable for Rs.5000 per 
year.  
• Another tax levied on Diesel Motor Ve hicles was abolished on 12.10.2001. 
 
 (h) Export Development Board CESS30 
- Under Section 14(1) of the EBB Act, the EDB has imposed cess on imports. A 10% of duty is 
payable on all goods, other than exempted, where the customs duty payable is more than or equal to 45% of the value for duty.  Over th e years, the revenue collected from import CESS 
has gradually come down, along with  the reduction in applied tariffs.  
                                                           
30 EDB CESS = 10%   x  Customs Duty payable Sri Lanka WT/TPR/G/128 
 Page 41 
 
 
 (i) Other Taxes 
- Two new taxes (a) debit tax on current account transactions of banking system and (b) Ports 
and Airports Development Levy (PAL) on imports  was introduced in 2002.  This has helped 
to expand the tax base and made admini stration of tax collection easier.   
- Stamp Duty  was in operation since 1982 under the Dom estic Legislation - Stamp Duty Act 
No. 43 of 1982 as amended from time to time. The liability was that Section 2 of the Stamp 
Duty Act imposes the duty to be paid and speci fies the documents and instruments in respect 
of which the duty is chargeable. Under the ta x simplification process, stamp duty collected by 
the Central Government was abolished in May 2002.  
- Following were the main instruments liable for Stamp Duty 
 (a) Debt acknowledgments.  (b) Letters of credit, bills of exchange, promissory notes.  (c) Bonds, pledges, mortgages, share certificates, bank guarantees.  (d) Deed or instruments for the exchange of any property, lease or hire agreements. 
 (e) Documents filed in civil proceedi ngs & other court documents affidavits, 
affirmations. 
 - Rates of duty as fixed by Regulations made under Section 69 of this Act. 
        For every Rs. 1,000 or part thereof 
 Letter of Credit          Imports       Rs. 20.00 
  Re-exports & sale in Duty Free Shops   Rs. 0.50  Agreements relating to mortgages, tr ansfers, pawning, pledges  Rs. 2.00 
 - Ports And Airports Development Levy (PAL)  – In place of Stamp Duty abolished in 
April 2002, PAL was made effective from 01.05. 2002 by the Domestic Legislation - Finance 
Act No 11 of 2002. The imposition is implemente d by the Department of Customs.  PAL is 
levied on all imported articles subject to certain exceptions. 
- A levy at the rate of one per centum on CIF value of imported article. At the inception a 
concessionary rate of 0.75% (which was reduc ed to 0.50% w.e.f. 01.01.2003) on those 
articles imported for processing and re-export. 
- Exemptions -  (a) Imports by any diplomatic mission or any other organization within the 
provisions of Diplomatic Privileges Act No. 9 of 1996. (b) Imports of diamonds, gems, gold, 
Jewellery and any electronic items or components import for processing and re-export. 
- Debit Tax : This was made effective from 01.06.2002 by the Domestic Legislation - Debits 
Tax Act No. 16 of 2002. The imposition is im plemented by the Department of Inland 
Revenue.  The Debits Tax at the rate of one te nth of one per centum (0.1%) will be charged 
on all debits transactions, proceeds realised by the encashment of certificates of deposits and travellers cheques. 
- Exemptions 
 (i) If tax liability of all debit transactions durin g a particular month is not more than Rs. 20 
 (ii) Debits made on tax payments and loan/interest payments to the government. 
 (iii) Payments made from any special account in relation to  
 (a) pension fund benefits  WT/TPR/G/128 Trade Policy Review 
Page 42 
 
 
 (b) settlement of transactions for licensed produce brokers  
 (c) trading in government securities for primary dealers.  
  (d) Outright and repurchase and reverse repurchase transactions of government and 
corporate debt securities in the secondary market.  
  (e) Settlement of transactions in the Colombo Stock Exchange. 
 (iv) Debits in relation to:  
 (a) inter- and intra-bank transactions   (b) collection accounts   (c) any exempt account  
 (d) dishonored cheques and error corrections. 
 - Betting and Gambling Levy was made effective by the Domestic Legislation - Betting and 
Gaming Levy Act No. 40 of 1980. The imposition is implemented by the Department of 
Inland Revenue.   
- The activities that are subject to this levy are Gaming (other than Rudjino), Playing Rudjino, 
and Bookmaking (with and without live telecast ) and all places of business will be liable to 
the specific levies in each area. 
- Recent Changes – Levy on Mobile Phones 
- 2004 Budget has proposed a new levy on Cellular M obile Subscribers. It is an annual levy of 
Rs.300 per mobile phone subscriber, which will be  imposed w.e.f January 1, 2004. This levy 
will replace the VAT on the purchase of mobile phones. 
 4.1.4 Changes in Tax Incentives 
(a) Tax Concessions & Incentives und er the Board of Investment Law 
153. BOI Law No.4 of 1978 and its amendments introduced in 1980, 1983, 1992 and 2002 are the 
principle laws applicable for investment in Sri Lanka. Under section 17 of the BOI Act, the BOI has the power to enter into agreements with any enterprise in/or outside the area of authority and to grant 
exceptions from any law referred to in schedule B, or to modify or vary the application of any such 
laws to such enterprises in acco rdance with such regulations as may be made by the Minister.  
154. The current regulation available in this re gard is Regulation No.3 of 2003 published on 
6.3.2003. The incentives offered under this regu lation grants general permission  for foreign 
investments in Sri Lanka subjected to the conditio ns stipulated in Exchange Control Regulation 
No.1232/4 of 19.04.2002 amende d by 1248/19 dated 8.8.2002. It s tipulates the condition regarding 
foreign investment. The conditions that stipulated are given in Annex – VI. 
Box 2:  Laws in the schedule B are:  
• The Inland Revenue Act, No. 4 of 1963 
• The Inland Revenue Act, No. 28 of 1978 
• The Customs ordinance (Chapter 235) 
• The Exchange Control Act (Chapter 423) 
• The Companies Ordinance (Chapter 145) 
• The Merchant Shipping Act, No. 52 of 1971 
• The Finance Act , No. 65 of 1961 
• Part XII of the Finance Act, No. 11 of 1963 
• The Air Navigation Act (Chapter 365).  Sri Lanka WT/TPR/G/128 
 Page 43 
 
 
  Incentive Package  
155. BOI regulation No.3 of 2003 has been published on 06.03.2002 stipulating specific tax 
incentives to new and existing BOI enterprises whic h fulfills eligibility criteria. This incentive 
package consists of combination of exemptions c overing Income Tax in respect of profit and income, 
Import duty on capital goods and raw materials, Foreign Exchange Controls and Concessionary Tax 
Rates. 
156. Under this package fourteen (14) categories of  incentives have been offered for different 
sectors with different eligibility criteria. These incentiv es can be categorized in different basis such as 
based on minimum investment, minimum export requi rements, and tax holiday period, import duty 
exemptions on capital goods etc. Industry-wise in centives that are made available to the foreign 
investors are enumerated in Annex – VII. 
 (b) Tax Concessions & Incenti ves under the Inland Revenue Act 
Exemptions 
1. Exemptions 
 i. Capital gains were exempt on the sale of (prior to 01.04.2002) 
  a. quoted shares 
  b. quoted bonds, debentures or debt instruments   c. rights to shares under a rights issue or a bonus issue of a quoted public company   d. treasury bills, treasury bonds etc., in the secondary market   e. quoted debt instruments        
          ( S e c t i o n  1 4 )  
   Capital gains for the period commencing on or after 1.4.2002, it is not a source of 
income, which is taxable. 
  ii. Trade profits 
  a. from the sale of gold, gems, or jewellery 
  b. from dealing in the secondary market in treasury bills, registered stock or other 
security, by any primary dealer 
  c. from entrepot trade in certain specified articles   d. of unit trusts, if 70% of such profits are distributed within one year  
          ( S e c t i o n  1 5  &  8 0 )  
   However, the budget for the year 2004 includes a proposal for exempting items 
referred to in c and d.  
 
2. Time Bound Exemptions 
 i. Income from residential properties for    – 7 years if floor area is between 2000 and 1500 sq. ft,   – 10 years if floor area does not exceed 1500 sq. ft             ( S e c t i o n  1 2 )   
  However, for any year of assessment co mmencing on or after 1.4.2003, the period of 
exemption was reduced to five years. 
 WT/TPR/G/128 Trade Policy Review 
Page 44 
 
 
 ii. Five year tax holiday for profits of new and incremental profits of existing companies for 
manufacture or for provision of any service utilizing advanced technology, if the investment is not less than Rs. 4 million and the employment generation is not less than 50. 
        (Section 17 JJ) & (Section 17 KK) 
 
 4.1.5 Institutional Changes 
- It has been proposed to form a Revenue Authority to improve tax administration.
31  A steering 
committee was appointed to form the Revenue Authority on 1st January 2003. The draft 
Revenue Authority bill was submitted to the ca binet and the plan is to submit it to the 
parliament in January 2004. 
 4.1.6 Recent Changes under 2004 Budget 
157. The tax exemptions under the Inland Revenue Act will be rationalized with the elimination of 
those that are no longer relevant w.e.f April 1, 2004.The relief available under the Act will also be 
harmonized with the BOI law.  
4.1.7 Monetary & Exchange Rate Policy Reforms 
 (a) Monetary Policy 158. During the period under review, the Government  of Sri Lanka (GSL) continued with major 
initiatives to reform the financial sector. They included an increased reliance on market based 
instruments to conduct monetary policy, gr eater surveillance on domestic credit expansion 
particularly in the public sector, establishment of legal and regulatory framework, strengthening 
banking and financial institutions, improving s upervision of banking and financial institutions, 
removal of interest rate and exchange rate rest rictions, opening of financial markets to greater 
competition and the development of new financial instruments. These reforms aim at promoting financial stability, improving efficiency, reduci ng intermediation cost and promoting domestic 
resource mobilisation for a high level of investment. 
- The GSL amended the Monetary Law Act (M LA) No. 58 of 1949, which established the 
Central Bank, in 1998 and 2002 to make price stability the main objective of the Central Bank 
of Sri Lanka; to revise the definition of money supply to take into account “broad money”; to 
remove the maximum and minimum limits on statutory reserve ratios; to provide more flexibility to the Monetary Board to decide the basis for computation of the required reserves; 
to pay interest on statutory reserve and to enable imposition of reserve requirements on a 
broader spectrum of financial ins titutions and financial liabilities.  
- In order to increase domestic resource mobili sation,  amendments were introduced to the 
Monetary Law Act, the Registered Stocks and Securities Ordinance and the Local Treasury Bills Ordinance in 1995 to promote a trading system for government securities in scripless 
form.  
- Amendments to the National Savings Bank Act to  enable the National Savings Bank (NSB) to 
convert dormant accounts into capital and payment of interest on reactivated accounts in the 
unclaimed deposit reserve have been cleared. These amendments would enable the NSB to 
                                                           
31 It will bring the functions of Inland Revenue Department, the Customs Department and the Excise 
Department under the scrutiny of one entity.  Under the proposed Revenue Authority these three agencies will function as an independent agency. Sri Lanka WT/TPR/G/128 
 Page 45 
 
 
invest in the equity market and undertak e wider banking activities and to operate on a 
commercial basis.  
- Banking supervision - The 1995 amendments  to the Banking Act strengthened the 
supervisory powers of the Central Bank of  Sri Lanka and extended supervision to 
development banks and savings banks and incorporated all pr udential requirements based on 
international standards. 
- Prudential Regulations for Foreign Currency Banking Units (FCBUs). A scheme has been 
formulated under the Banking Act for operations of FCBUs. 
- Governance for Banking - The draft amendments  to the Banking Act relating to licensing 
procedures, revocation of licences, qualifications , appointment and removal of bank directors 
and senior management, merger of banks, cease and desist orders, liquidation and closure of banks are expected to be presented to th e Cabinet of Ministers by end of 1999. 
- Amendments are being drafted to the Secur ities and Exchange Commission Act to provide 
wider supervisory powers to SEC over listed companies, Unit Trusts, Stock Brokers and 
Stock Dealers. 
- Sri Lanka Accounting and Auditing Standard s Monitoring Board was established as the 
regulatory authority for the monitoring of co mpliance of Accounting and Auditing Standards 
by business enterprises as specified in the Act. 
- Consequent to the change of the exchange ra te regime from the “Crawling Peg” to floating 
exchange rate system in 2001, rigid obligati ons on the Central Bank are not applied, thus 
improving the flexibility and effectiveness of monetary and exchange rate policy. The 
amendments improved payment and settlement system.  
- The Central Bank provides settlement facilities fo r the transfer of funds among Commercial 
Banks and primary dealers through current acc ount maintain with CBSL. Automatic systems 
are now being introduced for such high value tr ansferred and settlements on a real time basis. 
- The Central Bank with a view to encourage co mpetition in financial markets published bank 
wise interest rates, commissions and charg es thereby providing more information to the 
public.  
 (b) Exchange Rate Regime  
159. The major change in government exchange rate policy was shift to floating rate on 
January 23, 2001, as Sri Lanka's external reserves contracted. The independently floating exchange 
rate regime has served well since  its inception. It  has helped enhance external reserves, strengthen 
stability in the exchange rate, and wide n and deepen forex market activity.  
160. Despite the relatively high, though declining, inflation in the country, the real effective 
exchange rate (REER) depreciated during the firs t nine months in 2003, by about 4 per cent, 
improving the country’s external competitiveness.  
161. The volume and tenor of forward market tr ansactions have increased, facilitating risk 
management by foreign exchange users. The fo rward market premium has remained below the 
interest rate differential, reflecting market expectati ons of declining inflation and adjusting in interest 
rates as well as improved market confidence in the rupee. WT/TPR/G/128 Trade Policy Review 
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162. Intervention in the foreign exch ange market by the Central Bank was confined to dampening 
short- term excess volatility, while building up offici al external reserves. Accordingly, the Central 
Bank purchased US dollars 333 million on a net basis from the market during the first three quarters in 2003, compared with US dollars 177 million in 2002.  
163. The independently floating, market determin ed exchange rate policy reduced speculative 
elements to a large extent and helped to stabilise the exchange rate, while maintaining 
competitiveness. 
4.2 Sectoral Policy Developments 
 4.2.1 Agriculture 
 The Policy Developments 164. Unlike the policies on other sectors of the economy,  agricultural policy is much more diverse. 
It spans a vast area covering environmental protec tion and management, bio-diversity, sustainability 
of the sector, infrastructure development, wast eland and watershed management, agricultural 
research, agricultural technology and technology  transfer, input management, agricultural 
diversification, extent of liberalisation of both  domestic and international trade in agricultural 
products, intervention in pricing, intervention in production, protecting intellectual property rights, 
developing policies on new developments such as  genetically modified products, developing an 
incentive system that does not lead to distortions in resource allocation and moral hazard in the long 
run, extension services, and welfare of farmers and consumers. 
165. Over the years, the process of policy maki ng has become even more complex since the 
agriculture sector is strategically important in the political process.  
1. Agricultural policy has been aided by a hea lthy environmental policy being adopted by the 
Ministry of Environment and Natural Resour ces.  The Ministry was actively engaged in 
introducing proper land use systems and soil c onservation measures to ensure a balance 
between production and protection in a sustainable manner in the critical watershed areas. 
 
2. The Ministry of Irrigation and Water Manage ment has been managing and developing major 
irrigation systems, and implementing the gove rnment policy of participatory irrigation 
management of major and medium schemes under its ‘Wap Haula’ Programme. This 
programme aims at facilitating an efficient, e ffective and sustainable joint management of 
water resources for improved wate r and land productivity with beneficiary participation. The 
programme is expected to enhance farmer in comes and transfer environmentally favoured 
improved agricultural technology to obtain hi gh yields with better water management 
practices. 
 3. Irrigation infrastructure was further develope d by the Mahaweli Authority of Sri Lanka. The 
‘one-area-one-product programme’ attempted to  concentrate on producing more profitable 
agricultural and animal products in one area, to  increase agricultural productivity to improve 
market links and exercise optimal utilisation of irrigation water.  
 4. Marketing infrastructure was improved with the action taken to establish Dedicated Economic 
Centres (DECs) in the main fruit and vegetable growing areas. These centres provide a 
convenient trading floor for farmers to sell their products to the retail and wholesale dealers 
directly and obtain a better price for their produce. It is expected that the two DECs at Sri Lanka WT/TPR/G/128 
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Meegoda and Embilipitiya, established in 2002, would continue to pr ovide opportunities for 
the rural community in those areas. 
 5. The marketing infrastructure was further e nhanced with the promotion campaign of the 
Forward Sales Contract System, introduced in  1999, among farmers, buyers, bankers, policy 
makers and the general public. In 2002, the pr ogramme was vigorously promoted by the prize 
money received under the World Bank’s Development Market Place competition. The question of supplying quality seeds to farmers in  order to raise their productivity and through 
it, farmer incomes, has been an important  issue in agricultural policy in Sri Lanka. 
 
6. Though a seed policy, which relies basically  on the private sector for seed production was 
approved by the government in 1997, and an  action plan for its implementation was 
developed, no sustainable solu tion has been found for the non- availability of quality seeds for 
field crop cultivation. It is necessary to remodel both the Plant Protection Act and the Seed Act to allow greater flexibility for private sector participation in this vital area. A satisfactory 
development has been the increased participation of the organised private sector, co-
operatives, farmer organisations and farmer companies in the production of quality seed. 
 7. The fertiliser subsidy scheme continued with  revisions made in October 2002. Under the 
revised scheme, the subsidy was fixed at Rs. 6, 000 per metric ton of urea, irrespective of the 
international prices. The new scheme is expect ed to encourage imports when international 
prices are low. This could be considered a major improvement as the previous scheme resulted in a perverse outcome of urea being impor ted when the international price was at its 
highest, as the subsidy was linked to import prices. In 2004 budget , it has been proposed to 
increase the Fertilizer Subsidy to Rs.3,000 m illion from Rs.2,000 million, from January 1, 
2004. This increase will in effect mean that the subsidy on a bag of Urea will increase from 
Rs.300 to Rs.450. 
 8. In line with government’s policy of deregul ating the main sectors of the economy to 
accelerate economic growth, a Regulatory Review  Task Force (RRTF) was appointed to 
review regulations in the tea sector. Its recommendations are presently under implementation. 
Accordingly, a Tea Industry Federation has been  established in October 2002 as an apex body 
with the representation of all stakeholders in the industry. The aim is to address the problems 
associated with the tea sector, including existing government regulations and procedures affecting the marketing of tea.  
 
9. The Ministry of Plantation Industries has also appointed two other task forces on quality 
certification and process improvement during the year.  
 10. To avoid plummeting farm gate paddy prices, the governme nt intervened through the 
marketing arms of the Cooperative Wholesal e Establishment (CWE) and cooperatives to 
purchase paddy of acceptable quality during the harvesting periods of 200, 2002 and 
2003.This method has not yielded much results as  the institutions were not well equipped to 
intervene in private marketing activities. Duri ng the peak harvesting season, the inability to 
store purchases and marketing problems, have undermined the objectives of the exercise. The government is required to provide  a consistent policy regime and an efficient infrastructure, 
and supply other essential public goods and services,  which the private sector fails to supply. 
11. The performance of other field crops was not satisfactory, due to persisting problems – a 
gradual reduction in the area cultivated and lo w level of average yield achieved during the 
period. There is an urgent need to uplift this sector, as the crops that are classified under this 
provide the main income source fro small scale farmers.  WT/TPR/G/128 Trade Policy Review 
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12. There is a big demand for export crops with value addition, therefore assisting cultivation of 
the high value agricultural products by provi ding necessary inputs would generate a good 
income for rural farmers. A Task Force has b een set up to make recommendations to develop 
spices and allied products and to come up with a long-term plan to expand this sector. 
13. Due to a reduction in the availability of funds, the issue of crafts and fishing gear to fishing 
community by the Ministry of Fisheries and Ocean Resource Development was curtailed 
during 2002. Subsidies disbursed to the marine fisheries sector under various subsidy schemes 
too declined, by 42 per cent, during 2002. 
14. To support the livestock industry, maize im ports were made duty free from March 2002 to 
bring down prices of cattle feed. Even though the milk production has increased in recent 
years, the collection was poor due to various factors such as low farm gate prices received, compared to the increase in cost of production and poor marketing systems, which resulted in a decline in the milk products during the year.  There is an urgent need to uplift the livestock 
industry to make available an adequate supply of liquid milk, especially among rural children, 
to curb malnutrition.  
 15. As the dairy sector has a tremendous poten tial to increase its contribution to economic 
growth, particularly the development of th e rural economy, it is necessary to encourage 
private sector participation to invest in the livestock industry. 
 16. The new budget for 2004 has proposed a new Agricultural Loan Relief scheme for 
farmers . This scheme is to reschedule farmers’ loans by the two state banks. Under the 
scheme, farmers will be able to reschedule th eir loans for repayment over six seasons at an 
interest rate of 4% per annum. 
 
17. The new budget has also proposed establishment of an Agri-Business Development Fund. A 
sum of Rs.100 million has been allocated to the Fund, which was set up in 2003 to provide grants to the private sector entities for the development of new technologies and practices in agriculture. 
 
18. With a view developing  the Milk Industry the recent budget or 2004 has proposed 
incentive payments of Rs.2 per litre and higher to be provided to milk processing companies 
that collect a minimum of 5 million litres of milk per year. The tariff adjustment will provide an additional incentive.  
 
19. A Milk Feeding Programme for needy pre- school age children will also be introduced. 
 
 4.2.2 Industry 
 (a) The Policy Developments  
166. The private sector led, export oriented industr ial policy was continued in 2002. The focus of 
the government’s role in industrial sector deve lopment continued to change from regulator to 
facilitator. Accordingly, the industrial policy of  the government was directed towards removing 
impediments and unnecessary controls in conductin g business, improving the business environment, 
facilitating global trade, enhancing competitiv eness and improving corporate governance. 
167. Industrial policies of the government also fo cused on diversifying and widening Sri Lanka’s 
industrial base, as the current narrow base is  too vulnerable to external shocks.   Sri Lanka WT/TPR/G/128 
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168. Issues that need to be addressed to achieve a su stained high growth included distortions in the 
tariff structure and labour market, inadequate and poor quality industrial infrastructure, problems in 
the development of small and medium scale indus tries, inefficiencies in the legal system, 
unfavourable terms and conditions in intern ational trade, excessive and unnecessary 
controls/regulations and unfair trade practices. 
169. The main contributory factor for the recovery during 2002 and 2003 were the relatively 
higher export orders received supported by a gradua l improvement in global markets, growth in 
domestic demand reflecting an impr oved consumer confidence, and th e ending of the power cuts by 
mid 2002. In addition, various measure s taken by manufacturers to restru cture their enterprises to face 
the difficult market environment, adoption of mode rn management techniques and higher investment 
in advanced technology helped achieve the moderate growth in the industrial sector.  
170. Competition in the apparel market was intensif ied with increased trading under preferential 
trade agreements in Europe and North America, special concessions granted to some African and 
Caribbean countries and higher volumes supplied by lo w cost manufacturing countries, such as China, 
Vietnam and Bangladesh.   
171. The ability of major textile manufacturers to create an up-market image in international 
markets through design, price, on-time delivery and reputation of the country as a supplier of higher 
quality products helped mitigate the unfavourab le developments to a certain degree. 
172. Export oriented manufacturers of other industr ial products also paid greater attention to 
quality improvement, better order plac ement, efficient material sourcing, effective marketing, low 
cost trade financing and other logistical arrange ments to face global competition for their products. 
Marketing strategies such as market segmentation,  effective advertising focused on targeted 
consumers and improved distribution methods  also helped expand domestic demand.  
173. The industrial sector activities continued to bene fit from intensive utilisation of information 
technology, which ensured consistency in outp ut and product quality. The use of information 
technology also helped improve marketing and s upply chain management, strategic decision-making 
and the achievement of greater cost efficiency. 
 (b) Structural Impediments 
 
174. However, manufacturers were prevented from reaping the full benefits in favourable 
developments in the domestic market due to several  impediments that were present. The increase in 
energy, telephone and other utility prices caused an escalation in the cost of production beyond 
budgeted amounts. The inability to absorb such costs in the short run resulted in higher prices, which 
in turn reduced the compet itiveness of manufacturers.  
- Rigidities in the labour market prevented flexib ility in labour movement and even in difficult 
circumstances prevented manuf acturers from adopting much needed restructuring methods 
such as reducing excess labour, Sub- contracting or outsourcing for cost efficiency. In 
addition to the rigidities in the labour market, manufacturers faced difficulties relating to high 
labour turnover, skills deficiency and labour union action.  
- Insufficient development of infrastructure such  as roads, transportation, communications, 
power and in certain cases, unnecessary regul atory impediments, increased business 
transactions costs. WT/TPR/G/128 Trade Policy Review 
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- Stagnant international prices and in some cases, declining prices for exports forced 
manufacturers to bring down the cost of production to retain existing markets and profit margins. In this environment, cost reduction initiatives launched in the previous years were 
pursued with added vigour in 2002. 
  (c) Measures taken to address structural impediments 
 
- Manufacturers used various measures such as cost-effective production, rationalising 
administrative procedures, minimising waste,  out-sourcing production, merging similar 
activities and closing down non-profitable business units to bring down the costs of 
production. In the face of growing energy prices, energy intensive manufacturers made an 
extra effort to reduce energy costs by utilising energy saving methods and equipment and installing waste energy recovery processes. 
- In addition to the effect of falling interest rate s, short- term borrowing costs of the industrial 
sector were brought down further through redu ced inventory levels, maximum utilisation of 
trade credit and reduction of production time and consumer credit.  
- In order to avoid labour unrest and im prove employer-employee relations, major 
manufacturers signed collective wage agreements with labour unions.  
- In order to promote regional growth, a new BOI Act was passed in 2002 to create five 
Economic Zones (EZ) in the country.  
- To enhance the capabilities and competitiven ess of SMEs, the government launched the 
‘Sahanya’ credit scheme in 2002 with funding  assistance from the Asian Development Bank 
(ADB). This scheme is expected to provide  for capital needs for start-up, expansion, 
modernisation and relocation at concessional in terest rates and flexib le repayment periods 
with technical assistance.  
- The Factory Ordinance was amended in 2002, extending overtime hours of female employees 
from 100 hours per year to 720 hours. This amendment helped manufacturers to employ 
female labour for long-overtime hour s without violating labour laws.  
- In order to facilitate future growth and re move impediments, the government set up 15 
Sectoral Task Forces in 2002 with private sector participation to recommend short and medium-term development plans for selected industrial sectors.  
- A permanent Tariff Advisory Council was appointed  to identify anomalies and distortions in 
the current tariff structure that impede the economic growth.  
- The government also brought down the surcha rge on import duty from 40 per cent to 20 per 
cent with effect from 15 April 2002, which reduc ed costs of imported raw materials. 20% 
surcharge has further been reduced to 10% under 2004 budget. 
- The recent budget of 2004 has proposed a project for the Garment Sector Productivity 
Improvement. This will be implemented throu gh the Joint Apparel Association Forum in 
2004. This includes a grant for an international campaign to promote the industry and a loan for training and development of production staff. 
- The budget for 2004 has also proposed a new project targeting Technology Improvement for 
Small and Medium Industry. This project to  improve technology in small and medium Sri Lanka WT/TPR/G/128 
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enterprises will be implemented. A sum of Rs .1,000 million has been allocated for this 
project. 
4.2.3 Services 
175. Vital institutional and market reforms were in troduced in 2002 to rem ove supply bottlenecks, 
raise operational efficiency, create markets for h ealthy competition, rationalise pricing policies and 
promote private investment. 
176. Reforms specifically covered electricity, pe troleum, bunker fuel supply, civil aviation, 
telecommunications and passenger transportation, as well as regulatory aspects of utility services. 
These reforms are expected to eliminate prolonged structural rigidities in these sectors and generate 
significant long-term economic benefits. 
 (a) Overall Pricing Policy 
177. Lack of a rational pricing policy has been a major impediment to the development of 
infrastructure services. This system discourages the private sector’s entry, forcing the government to 
shoulder the full burden eventually, inhibiting further investments in the needed  infrastructure in the 
country. GSL undertook several measures to introdu ce a rational, flexible and transparent pricing 
policy, which carries benefits to both suppliers a nd consumers and to the economy as a whole through 
reduced uncertainty, price decreases in case of reducti ons in input cost, neutra lity on the budget and 
on the macro economy and through reducing price distortions in the Market. 
- In 2002, the government introduced an automatic  price adjustment m echanism for petroleum 
products and a flexible bus fare policy for ro ad passenger transportation. Flexible pricing 
policy was also extended to cover other utility servi ces, particularly electricity, water and rail 
services. 
 (b) Civil Aviation 
178. The long awaited reforms in the civil avia tion sector were realised in 2002 with the 
transformation of the Department of Civil Aviati on to an Authority, with more flexibility for 
policymaking and implementation.  
179. Most urgent reforms in the civil aviation sector were addressed in 2002 by passing the Civil 
Aviation Authority of Sri Lanka Act. Accordingl y, the Civil Aviation Authority of Sri Lanka 
(CAASL)32 was established by transforming the Departme nt of Civil Aviation (DCA), enabling the 
CAASL to take more indepe ndent commercial decisions.  
180. More importantly, with the ceasefire agreement and improved prospects of peace, the DCA 
allowed private domestic flight operations a nd several new licenses were issued in 2002. 
                                                           
32 CAASL became functional with effect from 27 December 2002. All the functions and 
responsibilities of DCA were vested with CAASL Acco rding to the Act,  CAASL will be the principal 
regulatory authority in civil aviation operations in the country. Further, CAASL will formulate a national 
aviation policy, prepare aviation development plans, pr ovide aviation safety, issue licences, certificates and 
permits and monitor commercial air services. WT/TPR/G/128 Trade Policy Review 
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 (c) Transport 
181. Meanwhile, attempts were made to introduce pu blic sector – private sector partnerships for 
the operation of road passenger tr ansportation managed by Regional Bus Companies (Cluster Bus 
Companies). A final decision on the manner of divestiture was to be taken in 2003.  
 (d) Communication 
182. A new communication policy was announced in 2 002, facilitating further liberalization of 
telecommunication services, including operation of in ternational gateways. In  terms of subscriber 
network, modernisation, private sector participa tion and institutional reforms, the telecommunication 
sector has demonstrated major changes during the last decade. A range of value added services have 
also been introduced with the par ticipation of the private sector.  
183. With the new communication policy, the entire telecommunication sector is now open to 
competition. In August 2002, the monopoly status enjoyed by Sri Lanka Telecom Ltd. (SLT) for 
international voice services and wire line operation was over.  
184. Concurrently, the Telecommunication Regul atory Commission of Sri Lanka (TRCSL) 
brought forward a new telecommunications po licy to increase competition and strengthen the 
regulations.  
- Fixed line telephone services are presently being provided only by SLT,  
- While two private sector operators are li censed to provide fixed wireless telephone 
services.  
- There are four private sector companies li censed to provide cellular mobile telephone 
services.  
 185. Action has already been taken to license additional external gateway operators.  
186. At the same time, with the objective of establishing a fair tariff system, a decision was taken 
to move for a Calling Party Pays (CPP) system fr om July 2003.With expanding competition, the 
quality of the telecommunications network is improving.  
 (e) Energy – Electricity 
187. In 2002, reforms were also initiated in the co mmercial energy sector to address inefficiency, 
supply shortages, irrational pricing policies and to create a competitive market for energy.  
188. A new Electricity Reform Act was passed in  Parliament in 2002, providing the legal 
framework necessary to effect refo rms in the electricity sector. Unde r the reforms, the main activities 
of the Ceylon Electricity Board (CEB) will be unbundled paving the way for a greater level of private 
sector participation, particularly in the areas of power generation and distri bution and a broad based 
electricity generation and distribution system will be established.  
189. An Energy Supply Committee (ESC) was set up during the early part of 2002 with a two- 
year mandate to find immediate solutions to the existing problems of power shortages.  
 (f) Energy – Petroleum 
190. The government also initiated action to creat e competitive markets for petroleum products, 
bunker fuel supply and electricity generation and distribution. The local market for petroleum Sri Lanka WT/TPR/G/128 
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products was opened to competition in 2002 after ov er 40 years of monopoly held by the Ceylon 
Petroleum Corporation (CPC) since its establishment in 1961. Concerted efforts were made to re-
structure the petroleum sector and to open it to  competition. The government reached an agreement 
with the Indian Oil Corporation (IOC), under which the oil tank farm at Trin comalee has been leased 
out to IOC, which has been allowed to retail petr oleum products in the local market. The government 
also intends to license a third player in the domestic petroleum market.  
191. Further, with a view to creating an efficien t market for bunker fuel supply, Lanka Marine 
Services (pvt.) Ltd (LMS) was privatised in August 2002. 
192. The introduction of a flexible pricing polic y for petroleum products, starting from January 
2002, has been a stimulating development. In the wake of continuing increases in international oil 
prices from April 2002, the continuation of the flexible pricing policy was a challenging task as increasing oil prices exerted severe pressure on the domestic prices of goods and services. However, 
with some side steps and certain adjustments to the formula, the pricing policy was implemented in 
2002.With the formula based pricing policy in place, CPC was able to prevent further accumulation of losses, but the planned reduction in CPC’s debt stoc k could not be achieved, as the debt recovery 
component was withdrawn from the pricing formula from July 2002. It is important that the flexible 
pricing policy for petroleum produc ts be implemented without ad hoc interference to ensure the 
credibility of the formula based pricing policy.  
 (g) Education 
193. Meanwhile, government continued to implemen t educational reforms introduced in 1998 and 
health reforms introduced in 1997. 
 (h) Welfare 
194. The long-standing and highly debated issue of targeting Samurdhi beneficiaries was 
addressed by the enactment of the Welfare Benefit Act (WBA) in 2002. The disputed system of identifying eligible beneficiaries, lack of a prope r entry and exit mechanism and political interference, 
caused the Samurdhi programme
33 to expand excessively beyond its long-term sustainability. Yet, a 
large number of eligible poor households remained outside the programme, while there were a large 
number of ineligible households in the programme . WBA clearly specifies the selection procedure, 
according to given criteria by an independent panel.  With the implementation of WBA, it is expected 
that the number of Samurdhi beneficiaries would come down to a realistic number enabling 
authorities to provide increased benefits to eligible households. 
 (i) Investment 
195. GSL encourages private investment in infrastru cture services. The private sector has shown 
particular interest in investing in telecommunica tions, power generation, h ealth and education in 
recent years. In addition to direct involvement, pr ivate sector investments was also facilitated through 
build, own and operate BOO)/ build, own and tran sfer (BOT) arrangements, service contracts, 
management contracts, strategic partne rships and direct privatisation.  
                                                           
33 The main objective of the Samurdhi Programme is to improve the living standards of the poor with 
direct assistance to vulnerable grou ps and to assist in various other programmes such as small scale 
infrastructure development, raining and financial and social  security to raise the income levels of the poor.  WT/TPR/G/128 Trade Policy Review 
Page 54 
 
 
 (j) Institutional Changes 
196. Action taken towards the establishment of the Public Utility Services Commission of   Sri 
Lanka (PUSCSL) was an important step forward in  building consumer and investor confidence in a 
market-based, competitive utility services system. It  is essential to implement appropriate reforms 
with respect to the remaining areas, particularly railways and postal services.  
4.3 Industrial policy 
197. Sri Lanka's industrial policy aims in particular  at promoting and developing export oriented 
industries and industrialization in specific regions in the provinces.34  This is to be attained through 
the provision of incentives, infrastructure, and through ensuring a conducive macro economic 
environment characterised by a low budget deficit tight inflation control and the competitive real 
exchange rate for the growth of industrial sector . An open trade policy coupled with the dismantling 
of the import controls and excessively high and indefin ite tariff barriers are the other elements that are 
needed for the sector to sustain its growth. 
  Institutional Arrangements  
198. The policy making mechanism of the Ministry of Enterprise Development, Industrial Policy 
& Investment Promotion (MOEDIP&IP) consists of three institutions, namely Industrialisation 
Commission, Advisory Council for Industry and regional Industry Service Commission. 
199. The Industrialisation Commission (IC) was established by the Industrial promotion Act No. 
46 of 1990 and it’s  functions include, inter alia,  to advice the Government on policies and 
programmes to promote industrial development;  ensu re the provision of institutional mechanisms for 
industrialization;  prepare plans for the provision of industrial infrastructure and services;  and provide 
product and market information to industries.   
200. The relevant minister and the President may issue directions to IC for ensuring effective 
implementation of schemes and progr ams approved by the Governing Board of IC.  IC can issue any 
directives to any government institution in order to  implement any direction that IC issued.   
201. The policies decided at the Governing Board of IC are submitted to the relevant ministers 
upon clearance by the Minister of MOEDIP&IP and fi nalized at the parliame nt.  The implementation 
of the relevant project is subject to the respective ministries.  
202. Advisory Council for Industry (ACI) w as established under PART III of the Industrial 
Promotion Act No. 46 of 1990.  ACI consists of th e members of IC, plus two members nominated by 
a chamber or federation with the recognition by th e MOEDIP&IP Minister, industrialists appointed by 
the minister and not more than 15 persons appointed by the minister with wide experience in the field 
of industry. 
203. The Advisory Council for Industry plays a vital role in promoting manufacturing sector 
activities in the country.  More specifically with the introduction of pro-private sector led-growth 
strategy, the ACI expected to function as a form a nd a focal point for policy dialogue.  As a forum it 
comprises of different interest groups, which could articulate views, influence policy formulation, and 
advise the Minister.   
                                                           
34 Industrial Promotion Act 1990 Sri Lanka WT/TPR/G/128 
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204. As a focal point the Business Committee of the ACI and the ACI Secretariat is intended to 
provide key lines of communication and establish linkages with other Ministries and agencies 
associated with industrial development.  Thus it is a representative statutory body, which provides a forum for a dialogue and interaction between state of ficials and representatives of the private sector to 
discuss issues and recommend positive solutions to problems confronting the manufacturing sector.   
205. Regional Industry Service Commission (RISC) has been established under the Industrial 
Promotion Act No.46 1990 to serve as the Focal Po int for industrial development activities in the 
provinces.  This enhances public private partnership.   The key task of this committee is to attract 
provincial and private sector leadership and invest ments towards the development of industry in the 
respective provinces.  It also serves as a planni ng and advisory body to the Hon. Minister. 
206. As per the industrial regulations No. 4 of 199 1 three members should be appointed from the 
private sector to the RISC to represent textile industr ies, other industries in the relevant province and 
another members to represent overall industries in the country.  The Chairmanship of this RISC is also 
given to a prominent member of the private sector who heads a committee which consists of government officials of all infrastructure providing institutions and the organizations connected to 
industries.  The Secretary of the Provincial Ministry of Industries is represented in this committee. 
207. Main responsibilities of this committee are to a dvise the Hon. Minister on the development of 
industry in the respective regions Prepare plans a nd programmes for the development of industry and 
Promote and facilitate industrial deve lopment in the region. One of the prime tasks of the RISCs is the 
identification of lands for individual industries and also for the establishment of industrial estates.  
The selection of industrialists in two industrial estates  is also basically done through this committee.   
Accordingly through this mechan ism the members of the private sector are involved in policy 
formulation, decision making, and industry facilita ting and promotional activities of the respective 
regions.  
  The Licensing and Controls 
208. The First, Second and Third Schedules of the Industrial Promotion Act No. 46 of 1990  
indicates industrial licensing and controls   on indu stries on grounds of public interest. The controls 
specified in the First Schedule have been declared to be expedient in the public interest and, no person 
is able to carry on an industry specified in the S econd Schedule being an industry specified in the First 
Schedule except under the authority of and otherwi se than in accordance with the conditions of a 
licence issued by the Relevant Ministry. The Li cences issued shall be subject to the terms and 
conditions set out in the Third Schedule to the IP Act.  
209. Where licence are required, these will be issu ed subject to specific terms and conditions 
including safety and hygiene standards, procedures used to store inputs and to dispose of unused 
inputs and other waste;  and distribution of products to customers. 
Table – 23  : Industrial Licensing and Other Controls 
Industry Type of Control 
First Schedule   
1.  Industries with foreign investment  Licensing/approved (same for both 
local & foreign investors)  
2.  Industries employing high technology  Licensing/approved (same for both 
local & foreign investors)  
3.  Industries producing goods for export  Licensing/approved (same for both 
local & foreign investors)  
 Table – 23 (cont'd) WT/TPR/G/128 Trade Policy Review 
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Industry Type of Control 
4.  Industries exploring, extracting or proce ssing minerals or non-renewable  natural resource  Licensing  
5.  Industries manufacturing arms and amm unition, explosives, military vehicles and 
equipment, aircraft and any other military hardware  Licensing  
6.  Industries manufacturing poisons, narcotic s, alcohol, dangerous drugs, and   toxic 
hazardous and carcinogenic materials  Licensing  
7.  Industries producing currency, coins and security documents Licensing  
8.  Industries where;  
(a) the value of capital investment in plan t and equipment exceeds Rs.4 million; and Licensing 
(b) the number of permanent employees is higher than 50.  
9.  Industries owned by the Government or by  a company in which the Government holds a 
majority of the shares Licensing 
Second Schedule    
(1)  Industries manufacturing arms and amm unition, explosives, military vehicles and 
equipment, aircraft and any other military hardware   
(2)  Industries manufacturing poisons, narco tics, alcohol, dangerous drugs, and   toxic 
hazardous and carcinogenic materials   
(3)  Industries producing currency, coins and security documents  
Third Schedule   
(1)  The standards of safety to be maintained in any such industry  
(2)  The security measures to be taken by any such industry including the storing of inputs, use 
of the inputs and the disposals of unused  inputs, waste material and rejects.  
(3)  the manner in which the products of the industry are to be delivered to customers  
(4)  the standards of hy giene to be maintained   
(5)  the inputs to be used by any such industry   
Source:  Ministry of Enterprise Development, Industrial Policy & Investment Promotion. 
 The Policy Changes 
210. Since the Industrial Promotion Act No. 46 of 1990 was enacted in 1990, several measures 
have been taken to facilitate liberalization of tr ade & Industry. As per the articles 25 and 26 of the 
Industrial Promotion Act No. 46 of 1990, the items provided in the following table have been placed 
under licence control due the specific reasons provide d therein. Though the Act covers an array of  
controls the table provides  the cont rols that are exercised at present. 
HS Sub-
Heading Description of Heading HS Code Description of H.S. Code Reasons for 
brought under 
control 
25.24 25.30 Asbestos  
Mineral substances not 
elsewhere specified or included. 2524.00.01 
2530.90 
2530.90.01 Blue Asbestos 
Other: 
Natural arsenic sulphides  
Health hazard 
26.12 Uranium or Thorium ores and 
concentrates 2612.10 
2612.20 Uranium ores and concentrates 
Thorium ores and concentrates  
Radio Active 
40.12 Retreaded or used pneumatic 
tyres of rubber; solid or cushion 
tyres, tyre treads and tyre flaps, 
of rubber.  
4012.11 
 
4012.12 4012.13 
4012.19 
4012.20 Retreaded tyres; 
Of a kind used on motor cars (including 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 & 
Health Hazard 
   Table (cont'd) Sri Lanka WT/TPR/G/128 
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HS Sub-
Heading Description of Heading HS Code Description of H.S. Code Reasons for 
brought under 
control 
68.10 Articles of cement, of concrete 
or of artificial stone, either or not reinforced.  
 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, Indus trial Promotion and In vestment Promotion. 
211. The Deregulation Committee, which was set up in 2001 to look into the problems in the 
industrial sector, under the Industrial Promoti on Act No. 46 of 1990 issued a number of 
recommendations, covering an array of areas, su ch as customs, land laws, Labour laws, taxation, 
energy and tea sector. As a follow up measure, the government has re-appointed a committee to 
examine other areas of deregulation and follow up the implementation of the areas identified for 
deregulating. It has been observed that most of  the recommendations made at the De-regulation on 
Tea Sector have already been implemented.  
212. On the labour reforms, deregul ation committee has proposed to introduce a safety net to cover 
the employees who will be unemployed under the prov isions of Termination of Employment Act.  
213. The customs department has already taken numbe r of steps towards simplification of Customs 
Procedures as a part of its reform and modernisation efforts.  This work is mainly related with the 
proposed EDI Project and the implementation of th e WTO Valuation Agreement.  The main objective 
is to strike a balance between the trade fac ilitation and controls. (Section on Trade Facilitation) 
214. The Government has also encouraged regional industrialization through the provision of fiscal 
incentives, and through the provision of infrastruct ure facilities in the remoter districts, under the 
Industrial Parks/Estates Development Programme, the Dedicated Economic Centre Programme, the 
Industrial Township Programme and the Mini-EPZ Programme.   
 4.4 Trade Facilitation 
215. As a small country, Sri Lanka is heavily depe ndent on external trade and remains convinced 
of the important role played by trade facilitation measures. Effective trade facilitation measures often succeed in attracting foreign investment to a c ountry than granting investor incentives. Moreover 
effective trade facilitation measures reduce trans action costs and make the Goods sector more 
competitive. Sri Lanka emphasis its broad acceptance of some of the trade facilitation principles and 
potential benefits identified by members throug h adhering to the trade facilitation process. The 
challenges of implementation of any proposed multilatera l rules in this area in the future would also 
need to be met by technical assistance and capacity  building in an integrated manner taking in to 
account the Special and Differential Treatmen t to be accorded to developing countries. 
216. Major reforms of Sri Lanka Customs towards Trade facilitation – 
 1 Sri Lanka Automated Cargo Clearance Systems (SLACCS) 
 2 Implementation of the WTO / GATT Valuation Agreement  3 Simplication and Harmonization of Customs Procedures 
 WT/TPR/G/128 Trade Policy Review 
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 1. Sri Lanka Automated Car go Clearance System (SLACCS) 
217. With the initiation of the Ministry of Comme rce and Consumer Affairs, a study had been 
carried out, and consequently a decision has been taken to implement an Electronic Data Interchange 
(EDI) Project. The service provider, eService Lanka Limited, has been selected for this purpose and 
the EDI project was to be implemented by D ecember 2003.This would be named as Sri Lanka 
Automated Cargo Clearance System (SLACCS) 
 New Import Clearance Procedure under EDI environment  
 
218. A new import clearance procedure was to be implemented by December 2003, with the 
introduction of the EDI project. The revised dated for the implementation of the project is now 
scheduled for mid February 2004. The importers c ould submit their Customs Declarations (Cusdecs) 
electronically through the EDI switch to the Cust oms ASYCUDA system. The shipping agents should 
submit the cargo manifest in the same manner. Th e electronic Cusdecs will thereafter be assessed by 
customs using an intelligent b ased risk management system. 
219. The ASYCUDA selectively module could be u sed for automatic selectivity of low risk 
(green), medium risk (yellow), and high risk (red) declarations. 
220. Consignments of Gold Card Holders ( A programme to provide incentive for good 
Compliance by providing “fast Track” procedure )and of low risk should be released without calling 
for documents and cargo examination (green).Those consignments which require only the documents 
to be examined , should be released  with out car go examination (yellow). Third category, where high 
risk is considered, both documen ts and cargo should be examined. 
Zero time clearance  
 
221. With regard to green and yellow consignments, it is expected that Customs clearance to be 
given prior to the arrival of the vessel. This would require reporting of the manifest by the shipping 
agents at least two days prior to the arrival of th e vessel. This type of customs clearance would result 
in “zero time clearance “as far as the customs clearance procedure is concerned. 
2. Simplification and Harmonization of customs Procedures 
 
222. Sri Lanka is a contracting party of the Inte rnational Convention on the Simplification and 
Harmonization of Customs Procedures (Kyoto Conv ention) since March 1985. Having realized the 
importance of acceding to the Revised Kyoto Conven tion (RKC), Sri Lanka signed the Convention in 
June 1999 subject to ratification. 
223. SL Customs is presently working on: 
a) to take necessary steps for ratifi cation of accession to the RKA in 2004.  
b) to identify standards and Recommendations which could be implem ented early and propose 
necessary provisions to the law and regulations.  
 
 3. Other trade facilitation exercises include 
 
 a) Transparency in border procedures  
 (i) Customs Website  - Needed Information, including tariff changes and license requirements are 
made available in the Customs Website from y ear 2000.Sri Lanka Customs is in a process of Sri Lanka WT/TPR/G/128 
 Page 59 
 
 
expanding and improving this, on the basis of the guidelines prepared by the World Customs 
Organization (WCO) on this subject. 
 (ii) Advance ruling   
 
Advance ruling on classification are obtained from “D”  Branch of Customs submitting relevant particulars including samples where needed .These advance ruling are valid for a 
period of six months and the period is extendabl e on request. A standard format is used for 
this purpose.  
 
(iii) Technical Committee  
In addition, representations can be made to the Technical committees such as Nomenclature 
Committee (NC) with regard to classifica tion disputes and to the newly setup Customs 
Valuation Committee with rega rd to valuation disputes. 
 
Further, two Technical committees have been established to address issues of enforcement 
and facilitation areas namely Customs Enforc ement Committee and Customs Facilitation 
Committee. 
 
(iv) Appeal procedures 
 
Technical committee assists Director General of Customs (DGC) in handling appeals under respective areas. 
 
 (b) Simplification of Broader procedures
 
 
  (i) New Working Group 
 
224. The Government has taken steps to appoint a “Working group to improve existing import and 
export procedures” with involvement of both public and private sector involved in the International 
Trade. 
  (ii) Simplifying and standardizing documents 
 
225. Standarized Customs declarations for  imports  and exports (Cusdecs) were introduced along 
with the implementation of the Customs Computer ization project in January 1994. New standard 
formats for Valuation Declaration Form (introduced  in Jan .2003) enabled simplified procedure in 
Valuation with the implementation of the WTO Valuation Agreement. 
  (iii)  Automation of Customs Procedures through use of IT 
 
226. Since 1994 entry lodgment and assessment is done by ASYCUDA (Application System fro 
Customs Data). Customs migrated to ASYCUDA+ + with effective from 1998 and presently version 
1.17 is used .This has enabled the entire accoun ting and statistics of th e customs recoveries done 
through the computerization process. 
227. Selectivity module of the ASYCUDA is in testing stage at the at Bonds/INFAC divisions of 
the Customs since March 2003 with the view to s timulate intelligent based ri sk management enabling 
the selection of Green, Yellow and Red channels. WT/TPR/G/128 Trade Policy Review 
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228. Automation of Bonded Warehouse Stock Cont rol through “Thinneth” (a programme 
developed by Sri Lanka Customs Automated Da ta Processing Division)  using ASYCUDA++ as its 
base, is in the process of second level upgrading af ter successfully in operation for nearly one year. 
229. Establishment and constant update  of valuation database as a tool fro risk management for the 
front line officers which is in progress and would be in full use from the beginning of next year. 
 4.5 Privatisation 
230. Loss-making public corporations and institutions remain an increasing fiscal drain.35  
Divesting inefficient state-owned enterprises is also  planned to help ease the national debt crisis.36  
The government has clearly stated that its goal is to completely move out of all commercial activities 
that can be more efficiently carried on by the pr ivate sector and to address inefficient operations of 
public enterprises through comprehensive restructuring programmes.   
231. To achieve these objectives the government reite rated its commitment to the privatisation 
process, the restructuring of inefficient public enterprises and the liquidation of redundant public 
enterprises.  A permanent institutional structure w as established with the creation of the Public 
Enterprise Reform Commission (PERC) by Act No. 1 of 1996. The objectives of PERC is to improve 
efficiency and competitiveness of the economy through motivating the private sector, increasing the government revenue, developing capita l market and mobilize long term  private savings and acquiring 
new technology and expertise. 
232. Though such divestment has been slow, as comp ared to initial projections, the Government 
has reiterated its continued commitment to priva tize and restructure public enterprises in order to 
increase the efficiency of those enterprises.  Th e public enterprise reform programme in 2002 was, 
therefore designed to increase private sector activity in  several strategic sectors in the economy.  This 
was to be achieved by the dives titure of the government’s equity stake in several public enterprises 
and the liberalisation of sectors that had previously been the monopoly of the state.   
233. The government identified several public enterprises that needed to be restructured.  Several 
public enterprises have already been restructured during the period under review.  Due to lack of 
investor interest and various administrative delays, the privatisation of several key institutions that 
were planned was not concluded du ring the period under review.   
234. Major Divestitures: 
- Colombo Gas Company Limited 
- Ceylon Steel Corporation 
- Sri Lanka Telecom Limited.  
- A 35 per cent stake in Sri Lanka Telecom was sold to NTT of Japan in 1997 while 
simultaneously handling over the management of the company to NTT.   
                                                           
35 Budgetary transfers increased si gnificantly in 2002.  The Region al Transport Companies and Sri 
Lanka Railways, for example, incurred large losses of Rs 2.2 billion and Rs. 2.8 billion, respectively (Central 
Bank of Sri Lanka, Annual Report 2002 , p. 190).  Total debt of three state-owned enterprises (Ceylon Petroleum 
Corporation, Ceylon Electricity Board and CWE) amounted to about 13.25% of GDP at end-2002 (IMF (2003), 
Sri Lanka – Request for a Three-Year Arrangement U nder the Poverty Reduction and Growth Facility, and Use 
of Fund Resources – Request for an Extended Arrangement, Washington D.C.) 
36 Budget Speech 2003 Part I, p.5. Sri Lanka WT/TPR/G/128 
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235. The divestiture of the government’s shareholdi ng in Sri Lanka Telecom, (SLT) (39 per cent) 
was postponed for several years because of depressed market conditions that prevailed in both international and domestic markets.  However, in 2 002, the government was able to divest 12 per cent 
of its stake in SLT (Rs.3.2 billion) through an In itial Public Offering (IPO) on the Colombo Stock 
Exchange.  Foreign investors subscribed to 16 per cent of the share issue while the balance was taken 
up by domestic retail investors and state and pr ivate institutions.  The government was looking to 
divest a larger portion of its shares in the local mark et (15 per cent) and based on the success of this 
IPO to go for either an international IPO or a priv ate placement of the remaining shares.  However, 
the relatively low level of interest shown by local and foreign investors to the domestic IPO prevented 
them from doing either.   
- National development Bank. The government’s hol dings in the development banks have been 
disposed of, both domestically and internationally.   
- Air Lanka Limited. Early in 1998, 40 per cent of the shares of the national airline, Air Lanka, 
was bought by Emirates Airlines.   
- Regional Plantation Companies. The government continued the sale of its minority holding 
(19 per cent) in two plantation companies, namely, Thalawakele Plantations Ltd. (Rs.68.5 
million) and Malwatte Valley Plan tations Ltd (Rs.41.5 million).   
- A 53 per cent stake in Pelwatte Sugar Industri es Ltd. (Rs.296 million) and a 90 per cent stake 
in Sevanagala Sugar Industries (Rs.550 m illion) were also divested in 2002.  
- To further strengthen the private sector’s role  in the insurance industry, in April 2003, the 
government sold its minority holding (39 per cent)  in the National Insurance Corporation to 
its major shareholder Janashakthi Insuran ce Company Ltd (Rs.288 million) and Sri Lanka 
Insurance Corporation to Distilleries Company Sri Lanka Ltd. (Rs 6,050 million)    by divesting 90 per cent of its shareholding.   
- The enactment of the Petroleum Products (Sp ecial Provisions) Act No. 33 of 2002, was the 
most significant step taken in 2002 to increase private sector participation in the sector.  This 
legislation provided for the liberalisation of th e import and sale of petroleum products and the 
unbundling of services provided by CPC.  This  paved the way for the entry of multiple 
players into the sector.  The government announced  in Budget 2002 its policy to liberalise the 
petroleum sector to make it more competitive and efficient.   
- The government divested its holdings in La nka Marine Services (Rs.1.2 billion), a fully 
owned subsidiary of th e CPC, engaged in provi ding bunkering services.   
- As part of the reforms in the energy sector , the government enacted the Electricity Reform 
Act No. 28 of 2002.  This legislation sought  to reorganise the CEB by unbundling its 
activities.  The monopoly of CEB over power generation and distribution will thus be removed, allowing outside entrants to this sector.  The transmission function will however, 
continue to be carried out by CEB. 
- The government proposed a private-public partnership in the Regional Bus Companies to 
improve efficiency and service.  The prospectiv e investor was expected to invest in 39 per 
cent of the equity of the companies and to ta keover their  management.  An offer was made 
for 6 regional bus companies.  However, the tran saction was yet to be concluded at the end of 
the year.  Towards the end of 2002, the governme nt called for expressions of interest in the 
other Regional Bus Companies.   WT/TPR/G/128 Trade Policy Review 
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236. The preparatory work in relation to the rest ructuring of some of these institutions was 
initiated in 2002, while some public enterprises,  such as SLPA, CPC and CWE have already 
commenced the restructuring process, with both ins titutions initiating voluntary  retirement schemes in 
2002.  The government has also instituted a pr ogramme to reform the two state banks.   
237. The privatisation programme was confined in 2002 to the divestiture of the government’s 
balance shareholding in several previously priva tised public enterprises.  Consequently, although the 
budget envisaged the receipt of privatisation proceed s amounting to Rs.21 billion, actual receipts in 
2002 were Rs.5.7 billion.   
238. 2003 privatization programme expected to gene rate Rs. 13.5 billion to finance budgetary 
operations, compared to Rs. 5.7 billion in 2002. This Programme includes privatization of CPC (2nd 
player / IOC), Sri Lanka Insurance Corporation,  Shell gas, plantation companies and remaining 
government shares of various other entities.  
239. The 2004 programme  envisages generating an income of Rs. 13 billion. The Institutions that 
are to be covered under 2004 programme are-  
- Liberalisation of Petroleum Industry  
- Cluster Bus Companies  
- Privatisation in the Hotel Sector  
- RCDC 
- Plantation Companies 
- Sri Lanka Telecom  
- State Mortgage & Investment Bank 
 4.6 Foreign Investment  Regime 
 (a) Policy developments 
240. A major feature of the liberalization process th at Sri Lanka has pursued during the period 
under review has been the gradual opening of the economy to foreign investment. The capital account 
is largely open with inflows permitted in general.  
241. The principal Law applicable to foreign invest ment is Law No.4 of 1978 (known as BOI Act) 
and amendments introduced in 1980, 1983 and 1992 a nd regulations made under the Act.  There is no 
incentive bias between the foreign and local investor.  
242. As highlighted in Annex – V, foreign investment is permitted in almost all sectors of the 
economy, except in a few restricted areas. Foreign investment is allowed with automatic approval up 
to 100% of equity in all business activities other th an sections such as fishing, supply of water, mass 
transportation, freight forwarding, professional servi ces, travel agencies and shipping agencies.   
243. Sri Lanka provides for 100% foreign owners hip in sectors such as exports, tourism, 
infrastructure, services, agriculture dairy & livestoc k development, electronics.  Enterprises outside 
the above categories are required to be set up in the form of joint ventures with Sri Lankan partners.  
244. Non-national investors may invest in shares quoted on the Colombo Stock exchange and 
could hold up to 100 per cent of shares of most cat egories of such listed companies. The repatriation 
of dividends and sales proceeds of shares is freely permitted. Foreign investment by Sri Lanka’s private sector is also permitted on a case by case basis. Sri Lanka WT/TPR/G/128 
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245. The Board of Investment (BOI) operates as  a One-Stop - Service center for foreign 
investors. Foreign exchange restrictions for current  account transactions have been removed so that 
foreign investors can repatriate dividends or ro yalty payments through any commercial bank.   
246. The incentives offered to investors be long to two classes or regimes.  
1. Section 16 of the BOI Act  includes general incentives under th e normal laws of the country - 
General incentives for specific categories of industr y and services. – in particular  industries 
and services using advanced technology. This  includes Incentives for direct and indirect 
exports, in the form of tax exemption or payment of concessional tax at 15%.  
2. Section 17 of the BOI Act , special incentives outside identified laws of the country – 
 Special incentives are available for units, which satisfy certain eligibility criteria, such as 
export criteria and/or a minimum investment criterion. These incentives aim to diversify 
exports towards advanced technology and value addition, and to encourage investment in 
large scale projects including infrastructure. 
247. The investment regime over the period unde r review have been under reforms through 
liberalizing the foreign investment regime relaxe d foreign ownership limits in certain regulated 
industries - Banking - 60% (Previously - 49%), Insu rance - 90% (Previously - 0%), Stock broking 
Firms Licensed by the SEC - 100% (Previously - 49%)  and The restriction on foreign holding of stock 
broking firms has been lifted up to 100%. 
 4.7 Reforms in Banking, Capita l Markets and Insurance Sectors 
248. New financial institutions such as money broke rs, unit trusts and venture capital companies 
have emerged, while innovations in financial instruments and the use of modern technology have 
created a new dynamism and sophistication in the financial market.   
249. The government introduced markets based medium  term Treasury bonds in 1997.  Together 
with the short term Treasury bills that have been in  existence for many years, this has created a market 
in gilt edged securities that not only makes the g overnment’s borrowing operations more market 
oriented, but also provides a risk free benchmark yield curve.  
250.  The Central Bank opened the Real Time Gr oss Settlement on 08 September 2003, making Sri 
Lanka one of the pioneers in adopting this technology in the region.  
251. A proposal to convert government securities to  scripless securities is underway. In addition 
the improvements in the markets have assisted the Central Bank in its endeavours to move away from 
the direct controls, to the use of more market b ased instruments in the conduct of monetary policy. 
252. Sri Lanka has been able to avoid the contagion e ffect of the East Asian financial market crisis, 
to a large extent and maintain a reasonable degree of stability in the domestic financial markets.  
Therefore, the regulatory and superv isory aspects have been given a great deal of attention. Capital 
adequacy standards consistent with international nor ms have been introduced for commercial banks.   
253. Regulations on loan classifications, provisioning of doubtful debts, single borrower limits and 
other such precautionary features have been strictly  enforced.  On site and offsite surveillance of 
banks has been strengthened.   WT/TPR/G/128 Trade Policy Review 
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254. Other large non commercial bank financial ins titutions having a significant influence on the 
economy have been brought under the purview of the supervisory arms of the Central Bank.   
255. Legislative amendments have been introduced to  ensure that Sri Lanka’s legal systems keep 
abreast of international developments. 
 4.8 New Economic Policy Objectives 
256. Sri Lanka’s national developm ent agenda was presented by the Prime Minister in 
November 2002, the leader of the new government , which is in power in a programme entitled “ The 
Future Regaining Sri Lanka ” (RSL). 
257. This is aimed at the problems of debt, unem ployment and low growth. RSL has identified a 
comprehensive economic policy package to propel the economy on a high growth path.  The donor 
community has endorsed the policy package.  RSL h as identified a large number of reforms in the 
frontiers of macroeconomic policy,  reforms in both factor and product markets,  and physical, 
economic and legal infrastructure.   Some  of the major reforms are as follows. 
• Macroeconomic Policy 
• Fiscal consolidation – may remove crowding out effects, and enhance infrastructure 
development. 
• Trade and consumer protection – enhances market development 
• Commercial legal reforms 
• Employment, Labor and HR Development 
• Financial Sector Reforms 
• State sector banking institutions reforms 
• Social security system reforms 
• Payment and settlement reforms 
• Bank supervision reforms 
• Infrastructure Development 
• Telecommunication 
• E-Commerce 
• Power 
• Ports and Airports 
• Transport 
• Urban development 
• Sectoral Policies 
• Legal framework of agriculture 
• Agriculture research 
• Subsidies 
• Marketing arrangements 
• Reforming industries 
• Public sector reforms 
 Sri Lanka WT/TPR/G/128 
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258. Thus Sri Lanka is building a strong and stable economy that would enable it to integrate with 
economic development in the region and the rest of the world, while at the same time containing built 
in stabilisation features which would assist it to  withstand internal and external shocks. 
5. Trade Policy Developments 
 5.1 Tariff Policy 
 5.1.1 Import Tariffs and Levies 
259. As Table – 6 highlights, import duties, which c onstitute an average level of 11 per cent of 
government revenue in the 2000-2003 period, have been  used as a means of in fluencing the speed and 
the direction of economic growth. 
260. With the liberalisation of the economy in 1978, most of the control measures were replaced 
by high tariffs. In 1985, a major revision of tariffs took place with the removal of license control on textiles. In 1989, the tariff structure was convert ed into the new Harmonised Commodity Description 
Coding System (HS Code) involving 7,500 tariff lin es including around 2,500 national subheadings at 
the 8-digit level.  
261. The policy on trade has been to simplify the tariff system while reducing non-tariff barriers. 
At present a three-band tariff system applies, generally to large part of imports.  
262. As Table – 24 enumerates, the government adopt ed three-band tariff structure of 10, 20 and 
35 per cent, first in 1995. Since then the number of tariff bands have been generally maintained at 
three levels, though the subsequent changes saw ba nds being effectively increased to 7, under few 
exceptions. 
Table – 24:  Changes in Number of Tariff Bands During 1996 – 2004 Period 
 1996 1997 1998 1999 2000 2001 2002 2003 2004 
No of Bandsa 3 3 3 3 3 3 3 6 5 
Zero Zero Zero Zero Zero Zero Zero Zero Zero 
10% 10% 10% 5% 5% 5% 5% 2.5% 3% 
20% 10% 20% 10% 10% 10% 10% 5% 5% 
35% 35% 35% 30% 25%  12% 10% 12% 
   35% 35%  15% 15% 16% 
      20% 25% 27.5% Details 
      3 5 %    
a Indicates only main tariff bands. 
Source:  Department of Fiscal policy and Econom ic Affairs, Ministry of Finance, Budget Speeches, Central Bank of Sri 
Lanka, Annual reports. 
263. The government maintains a list of exemption, products on which no import duties are levied. 
There are 22 product categories that have been exempt ed from import duties. The list of exemptions is 
provided in Annex – VIII. 
264. There are certain products that can be imported into Sri Lanka at concessional rates. There are 
two sets of categories of products that  can be imported under this scheme. WT/TPR/G/128 Trade Policy Review 
Page 66 
 
 
(a) Under the terms and conditions approved by th e Secretary of treasury certain export oriented 
industries are allowed to import goods under concessional rates. The list provided in  
Annex – IX summarises the concessions granted,  which is contingent upon the quantity 
exported. 
 
(b) There are certain goods that receive concessi ons from customs duties, provided the goods are 
imported for the very purpose under the respec tive category and approval obtained from the 
Secretary to the Treasury. Annex – X provided the list of items that can be imported under this category. 
 
265. Since the last review, the following majo r tariff reforms have been introduced: 
- Removal of EDB cess on certain commodities along with the reduction of tariffs, which were 
more than or equal to 45 per cent.  
- Conversion of specific duties into ad volarem duties on certain commodities. 
- certification, surcharges and rationalisation of duty waivers were some of the main features in 
addition to the reduction of import duties. 
- 1998 - Steps towards a two-band tariff In 1998-  the Government announced that it would be 
moving to a two-band tariff structure by the Year 2000.  
- During the period 1996-1997, a sector-wise re form took place in addition to further 
rationalisation of tariff structure and removal of licences in the agricultural sector.  
- Import duties on food items, refrige rators and deep freezers, electrical motors, printing paper, 
stationery, packaging material, tyres and tubes, parts and accessories of motor vehicles were reduced from 45 to 25 per cent. Under the new budget of 2004, the 25 per cent slab has been increased to 27.5 per cent. 
- Import duties on agricultural machinery, implemen ts and tools were reduced from 35 to 10 
per cent, and components needed for assem bling buses were fixed at 10 per cent. 
- Import duty on timber was eliminated while re ducing the import duties on certain agricultural 
implements, writing paper and exercise books to 10 per cent from 35 per cent.  
- Import duty was removed on movie cameras, movie projectors, screens, and certain spare 
parts, fibreglass and certain inputs and engines used in the construction of fishing boats.  
- The import of seed cleaning machines, sorting and grading machines, seed testing equipment, 
seed packing machines, tea bag packaging mach inery and colour separators were made duty 
free.  
- In addition, importation of agricultural tractors,  lorries, prime movers, refrigerated trucks and 
buses was made duty free and the items imported for the manufacture of tractors, lorries and 
buses were exempted from import duty to encourage local industry.  
- Import duties on medical and dental equipment were removed.  
- Importation of computers, re lated components and software  as well as telecommunication 
equipment and accessories was made duty free.  Sri Lanka WT/TPR/G/128 
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- Import of yarn, thread and fabric was made duty free while the import duty on ready-made 
garments was reduced from 35 to 10 per cent.  
- By 1998, 13 out of 96 chapters in the HS Code System of tariffs were zero rated with sectors 
43 like textiles being made duty free. Specifically , pharmaceuticals, fertiliser, timber, wood, 
books, yarn, thread, fabrics, gold, precious and semi-precious stones were made duty free.  
- The Government further reduced the standard  tariff rates to 5, 10 and 30 per cent and 
removed most of the 8 digit HS Code items.  
- An import duty rate of 5 per cent was fixed for all industrial raw materials and machinery not 
manufactured in Sri Lanka. Transport, comm unication and medical equipment, which had 
import duty concessions were classified under zer o rate while imports of sports equipment 
were made duty free.  
- Since the agricultural sector was open for comp etition in 1996, import duty on agricultural 
products was allowed to remain at 35 per cent over the medium term. At present, import duty 
remains at 27.5 per cent. 
- Import duties on motor cars and jeeps, which were  at 50 - 100 per cent, were unified at 30 per 
cent in order to safeguard the government revenue targets.   
- Sri Lanka has a liberal trade regime. As at  September 2003, Sri Lanka’s tariff schedule 
contained 6,325 lines (including 8-digit HS Code ) with 5,142 six-digit items. Over 50 per cent 
of the tariff lines contained tariff rates that are 5 per cent or below while 73 per cent of the 
tariff lines contained rates of 10 per cent or below. Almost one tenth of the tariff lines carried 
a zero rate duty.  
- A detailed list of taxes and levies imposed on imports are provided in Section 4.1.3. 
266. The government's intention to adopt a two band sy stem did somewhat loose its direction, with 
the introduction of surcharge of 40 per cent on im ports in February 2001.  The purpose was to 
generate a favourable income to offset the high budget deficit situation pe rsisted during 2000-2001 
period.  The import surcharge has gradually co me down from 40% in 2001 to 10% 2004.  This 
development may help the process of rationalizing the ta riff structure to be back on track.  The current 
tariff regime of introducing new bands (for goods prev iously dutied at zero), while brining top band 
down meant that tariff structure is becoming more uniform. 
267. The present wave of tariff reforms of the Government aims at: 
- Rationalising the tariff within a simple rate structure.  
- Removal of certification, control and promoti on of facilitator’s role. Removal of prevailing 
distortions between BOI and Non-BOI industries. 
- Treating competitive import substitution and export promotion on a more level playing field. 
 5.1.2 Export Tariffs and Levies 
- Export duties were withdrawn by 1992, except for few items levied for non-economic 
reasons. Fiscal levies (Cess) and Royalty fees are levied on exports. The Customs Department 
collects the levies and royalty on certain items on behalf of other institutions. WT/TPR/G/128 Trade Policy Review 
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- The objectives of the imposition of levies are to discourage certain exports in primary form 
and to encourage value addition through horizont al diversification, to generate funds for 
export promotion and devel opment activities and to protect national security and 
archaeological items and environment. 
- The product categories that are subjected to Cess and Royalties. The complete list with 
applicable levies is provided in Annex – XI. 
• Coconut Products • Tea 
• Natural rubber • Cashew nuts 
• Raw Hides • Non-ferrous scrap metal 
• Quartz • Iron or non-alloy steel products 
• Chanks • Conch shells 
• Elephants  
 5.2 Prohibitions and Restrictions on Imports 
- Restrictions on imports currently apply only in respect of health, security, environment and 
phytosanitary reasons. There are several statua ry bodies, which are responsible for import and 
export regulations of the country.  
- The Department of Imports and Exports has a formal procedure in issuing licenses where 
conditions are imposed on import licenses in respect of origin of the product for non-
economic reasons. Similarly, the conditions  are laid down on import procedures for 
importation of restricted and prohibited items due to sanitary & phytosanitary requirements.  
- The Laws & Regulations in place to protect Human, Animal and Plant Health 
• The Food Act No.26 of 1980 –  
1. Contains the laws and provisions for regulations in food safety;  
 2. Ministry of Health is the implementing agency;  3. The Food Advisory Committee is the statutory body  
 
• The Plant Protection Act No.35 of 1999 – 
 1. Contains regulations for protection of plan ts, fresh fruits & vegetables, soil and other  
organisms  
 2. Director General of Department of Agriculture is the statutory body   3. The designated material in the Regulation can not be imported into SL with out 
permits 
 
• The Animal Diseases Act No.59 of 1992 –  
1. Contains laws and procedures for protection of animal health 
2. Applied both on Imports and exports of  animals, animal products and veterinary 
drugs & veterinary biological products 
3. Director of Animal Production and Health is the statutory body. 
 Sri Lanka WT/TPR/G/128 
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- The following table summarises th e measures that are in place  
The Measure Reasons for applicatio n Relevant WTO Provisions Remarks 
Import prohibitions, which 
apply to a range of goods,  They are maintain ed for health, 
safety, security, environment, and moral reasons Article XX of the GATT 
Article XXI of the GATT Annex - XII Import prohibitions 
Import Licensing Regime They are introduced on 
considerations of national 
security, health, environment,  
public moral Article XX of the GATT 
Article XXI of the GATT At present there are 546 items at 
6-digit level items remain under 
licence.  
Standards and Technical Regulations For the certification of products 
and systems for health and safety 
reasons  Article XX of the GATT The Food Act No.26 of 1980  
Sri Lanka Standard Institution  
 
Plant and Animal Quarantine  This  is to ensure that exotic 
diseases are not introduced 
through the importation of livestock and livestock products Article XX of the GATT The Plant Protection Act No.35 
of 1999  
The Animal Diseases Act No.59 of 1992 
 
- Under recent budget for 2004 the maximum age limit for import of used construction 
machinery into Sri Lanka has been reduced to 7 years from 10 years. 
- Similarly, the maximum age limit for import of used motor vehicles into Sri Lanka has been 
increased from 3 years to 3 ½ years. 
 5.3 Prohibitions and Restrictions on Exports 
  Export Licences - The Department of Imports and Exports Contro l has a formal procedure in issuing licenses 
where conditions are imposed on export licen ses in respect of certain items due to 
environmental and other related reasons.  
- The items that are under  prohibited to export from Sri Lanka are Ebony items, protected 
plants and animals under the Flora and Fauna Ac t, certain sand and minerals under the Mines 
and Mineral Act, dangerous drugs under Da ngerous Drugs Ordinan ce and other products 
listed in Schedule ‘B’ of the Customs ordinance.  The list of products that are prohibited is 
provided in Annex – XII. 
- The items that are control under licensing requi rements are – Ivory and Ivory products (HS 
0507 and 9601)), Coral and similar materials (HS 0508), Timber (HS 4407) Motor vehicle of 
first registration of which in Sri Lanka is pr ior to 1945 (HS 8702 and 8703) and Non- ferrous 
iron scrap, etc., The list of products that ar e restricted is provided in Annex – XIII. 
- The conditions are laid down on export procedures for exportation of certain restricted items 
due to environmental reasons.  
  Minimum Export Price  
- Export of Silica quartz is still subject to a minimum price of US$300 / Mt. The objective of 
imposing this minimum price is to ensure exporting of Silica quartz at a reasonable price.  WT/TPR/G/128 Trade Policy Review 
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  Export Quotas 
- Quantitative controls on exports, other than textiles and garments have been totally 
eliminated, with the exception of a few items that are being kept under licensing for non-economic reasons. 
- Sri Lanka’s exports of textiles and clothing ar e subject to quotas in Canada and the United 
States at present, under the provisions of the WTO Agreement on textiles and Clothing (ATC). Sri Lanka is considered a sma ll supplier under the ATC. Sri Lanka accounts 
approximately 1% of the world apparel market. 
- Apparel quotas are allocated by the Textile Q uota Board (TQB) a statutory body, established 
under the Textile Quota Board Act No. 33 of 1 996. It functions under the Ministry of 
Enterprise Development, Industrial Policy and In vestment Promotion.  The Act stipulates 
inter alia the powers, duties, functions of th e Board, power to vary, suspend or cancel the 
export quota.  The act will provide for capital of th e Board, the office of the Director General, 
staff of the Board and any other matter incidental to the operation of the Board.   
- All allocations of textile quota are made in  accordance with the scheme approved by the 
Ministry of Enterprise Development Industr ial Policy and Investment Promotion under 
section 4 of the Textile Quota Board Act No. 33 of 1996, a domestic legislation designed for 
the management, distribution, utilization and allocation of Export Quotas of Textiles and 
Textile Products. 
- This scheme is in operation since 1992. Th is scheme is prepared after obtaining 
representations from all 5 Apparel Industry Associ ations and also from the major exporters in 
the country.  Since inception, the Textile Q uota Board has recognized the need to obtain 
industry representation in the decision making pro cess and to follow a transparent procedure.  
These two objectives have been achieved by ap pointing a representative each from the Five 
Industry Associations as members of the governi ng board.  The Board Meetings of the Textile 
Quota Board are being held fortnightly and the details of all the quota allocations and 
utilization are made available to the me mbers of the Board at such meetings. 
- In order to ensure 100% transparency, Te xtile Quota Board makes available the under-
mentioned information to the Industry Associations on a regular basis. 
a) Performance by category and factory  wise for the entire year 
 b) Details of allocations by category and factory wise for the year 
 c) Permanent transfer / exchange between factories monthly 
 d) Exchange of quotas with the Textile Quota Board monthly  e) Temporarily transfers in and out in factory and category wise monthly  f) Textile visas/export license issued by factory wise category monthly 
 
- All additional allocations are being made only after obtaining approval from the members of 
the Board. 
- Sri Lanka Apparel Exporters Association h as set up a special unit to monitor the quota 
allocations and use.  The information relating to allocation and utilization of quota are also 
made available to this unit on a regular basis.  There is no allegation whatsoever made against 
the Textile Quota Board by any association up to now. 
- The Scheme of Allocation used by the TQB is provided in Annex – XIV. Sri Lanka WT/TPR/G/128 
 Page 71 
 
 
- Major Changes Since 1996: 
• The Textile Quota Allocations Committee of the Ministry of Textile became a legal 
entity by an Act of parliament. i e. Te xtile Quota Board Act. No 33 of 1996. 
• Active participation of the trade through Exporters Associations. 
• Publication of   quota allocation guidelines.  
• Establishment of Electronically operated VISA system and networking TQB, BOI 
service center and US customs. 
• Amendments to allocation guidelines - 2003. Major Changes are.  
a) The requirement of registration of sub contracts with the TQB was removed. 
  b) Requirement of TQB approval for transfer of quotas between exporters was 
removed. 
  c) Removal of special allocations to non-quota exporters.  
• Allocations to Small and Medium Industr ies (SMI) - Special allocation scheme to 
SMI; 
• Access Via Internal: Quota utilization repor ts could be accessed Via Internet.   
 
6. Key Developments in Institutional and Legal Framework for Formulation and 
Implementation of Trade Policy  
6.1 Constitutional Reforms 
268. Sri Lanka is a free sovereign and independent st ate consisting of institutions of the center and 
of the regions which exercise powers as laid down in  the constitution. Sovereignty is vested with the 
people. The executive power of the people is exercise d by the President of the country in consultation 
with the Prime Minister and Cabinet of Ministers.  
269. The legislature is called Parliament and cons ists of 225 representatives (from whom Ministers 
are appointed by the President). The Members of Par liament (or MPs) are elected for a 6 year term at 
periodical General Elections through a system of proportional representation. Sri Lanka’s Parliament 
is a unicameral assembly. Despite the fact that the President and the Prime Minister represent two 
different political parties since 2001, there exists cooperation between the two parties on major issues 
of national interest.  
270. Sri Lanka's judiciary consists of a supreme c ourt, a court of appeal, a high court, and a 
number of subordinate courts. A major World Bank Judicial Reform  Project approved funding to 
reform aspects of the judiciary.  The project aims  to improve the legal framework, legal education and 
access to legal information in the area of commercia l law; enhance the capacity of the Registry of 
Companies; improve the efficiency and quality of judicial services and training. 
271. The latest amendment known as the 17th amendment to the constitution established the 
Constitutional Council and many other commissions. The duty of the Council is to regulate the 
appointments of officers, which in future would be conducted in consultation with the Council.  
272. The establishment of the Public Service Co mmission. The main functions include the 
appointment, promotion, transfer, functions of disci plinary control and dismissal of public officers is 
vested with the Commission.    
273. The establishment of the Election Commission. The Commission will exercise, perform and 
discharge all such powers, duties and functions conferred or imposed on or assigned to (a)  the 
Commission; or (b)  the Commissioner-General of El ections, by the Constitution, and by the law for WT/TPR/G/128 Trade Policy Review 
Page 72 
 
 
the time being relating to the election of the Presi dent, the election of Members of Parliament, the 
election of members of Provincial Councils, the el ection of members of local authorities and the 
conduct of Referenda. 
274. The establishment of a Judicial Service Co mmission. The Judicial Service Commission is 
vested with the power to transfer judges of the High Court;   appoint, promote, transfer, exercise 
disciplinary control and dismiss judicial officers and scheduled public officers.  
275. The formulation of public policy is a joint effo rt of the executive and legislative branches of 
government which have been reformed. This supports good governance through the checks and 
balances mechanism built in to th e legislative - executive structur es which renders it difficult for 
partisan politics to undermine. 
 6.2  New Decision Making Process: 
276. Chart provided in Diagram 137 sets out the role of the emerging trade policy making process 
in Sri Lanka involving the government through - 
• the Cabinet and the Economic Policy Sub committee of Cabinet,  
• the Ministry of Policy Development and Implementation, which sets out the broad 
policies,  
• the Macro/Trade Framework Steering Committee, which monitors implementation 
and the line ministries responsible for implementation of broad policies 
 277. A Macro / Trade Steering Committee has been  established to oversee the macro economic 
and trade policy framework and implementation of broad policies, particularly to implement the 
activities spelt out in RSL.  This Committee is cons isting of senior officials from relevant ministries, 
the Tariff Advisory Council, the Central Bank along with representatives from the private sector and 
research institutions. 
278. These changes have been intro duced with a view to addressing the inherent weaknesses, 
where agency functions conflict and duplicated. The an ticipated structure would up to a certain extent 
address such weaknesses and bring toge ther all relevant institutions. In that context, the primary task 
of the Macro / Trade Steering Committee is to ensu re that the different agencies and ministries 
responsible for implementation work to that end in  a coordinated manner. It is accountable to the 
Economic Policy Sub Committee of the Cabinet. 
 6.3 Formulation of Law on Consumer Protection 
279. The most recent reforms in public enterprises, particularly those that are engaged in the 
provision of public utility services, highlight the need for a strong regulatory framework to ensure that 
the welfare of consumers is protected.   
280. In January 2003, Parliament approved the C onsumer Protection Authority Act to regulate 
competition policy in Sri Lanka.  The Act repealed the existing Fair Trading Commission Act and the 
Consumer Protection Act and it became a combin ation of competition an d consumer protection 
legislation.  It also amalgamated the powers and functions of the Fair Trading Commission and the 
Department of Internal Trade.    
                                                           
37 Please refer Annex – XV. Sri Lanka WT/TPR/G/128 
 Page 73 
 
 
281. The new Act created the Consumer Affairs Authority (CAA) which replaces the present Fair 
Trading Commission (FTC) and the Department of Internal Trade (DIT).  The CAA comprises an 
investigative Authority and an adjudica tive body - the Consumer Affairs Council. 38 The two 
institutions were set up in mid 2003 and have commenced operations.    
282. The Consumer Protection Authority (CAA) functions  to control or eliminate restrictive trade 
agreements among enterprises, arra ngement between companies with regard to price, abuse of 
dominant position, restraining competition, investig ate in to anti competitive practices and protect 
consumer rights, under taking studies relating to ma rket conditions, promoting consumer education 
are some of the other functions of the Consumer Protection Authority.  
283. The Consumer Protection Council has the authorit y to give an order within one month of 
receiving an application on anti competitive practic es from the authority or any other person, or 
association of traders. The council has the power to issue notices to witnesses, power to procure & 
receive evidence.  
284. There is a demarcation of investigative and adjudicative powers between the Consumer 
Protection Authority and the Consumer Protection C ouncil.  For instance, it seems that the Consumer 
Protection Authority may carry investigations rega rding the existence of monopolies, mergers and 
anti-competitive practices but need to refer the matter to the Council for determination.  While it is the 
Authority, which is empowered to investigate and deci de as to the price increase of 'specified articles' 
essential to the life of the community.39 
285. Anti competitive practices relating to monopolies,  mergers & acquisitions are not covered by 
this Act at present. The Government is also c onsidering the adoption of competition policies that 
encompass the area commonly known as antitrust or anti-monopoly law and practice, as well as micro industrial policies affecting markets and governing business practices. 
 6.4 Cooperate Governance 
286. Accounting and Auditing Standards become Mandatory - Nondisclosure of the true 
financial position of listed companies and business enterprises in their published accounts has been a 
major concern. The Government having recogni sed the importance of promoting sound corporate 
governance introduced legislation to make the accounting and auditing standards mandatory for 
business entities in the country.  
287. Accordingly, the Sri Lanka Accounting and Auditing Standards Act No.15 of 1995 was 
introduced in 1995 enabling for the Institute of Ch artered Accountants of Sri Lanka to enforce 
accounting and auditing standards for business enterpri ses specified in the Act in the presentation of 
their annual audited accounts. This would compel su ch enterprises to maintain uniform as well as high 
standards in the publication of audited accounts, and will ensure greater disclosure in financial 
statements. 
288. Standards have been gazetted in Gazette Extr a-ordinary No.1056/19 dated 02.12.1998. The 
Act also provides for the establishment of a Sri Lanka Accounting and Auditing Standards Monitoring 
Board to monitor compliance with such  standards by specified enterprises.  
                                                           
38 A D V de S Indraratna (undated), Competition Policy and Law and Consumer Protection:  Sri 
Lankan Case  [Online].  Available at:  http://www.ciroap.org/ap cl/conf/documents/Malaysia.doc [20 May 2003].  
39 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]. WT/TPR/G/128 Trade Policy Review 
Page 74 
 
 
289. Business enterprises specifi ed under the Act are:  
• Companies licensed under the Banking Act No.30 of 1988  
• Companies authorised under the Control of Insurance Act No.25 of 1962, to carry on 
insurance business  
• Companies carrying on leasing business  
• Factoring Companies  
• Companies licensed under the Securities and Exchange Commission Act No. 36 of 1987 to 
operate unit trusts, fund management compani es, stockbrokers or stock dealers, stock 
exchange.  
• Companies listed in a Stock Exchange  
• Public corporations engaged in the sale of goods or the provision of services.  
• Unlisted companies40 
 
290. If a specified business enterprise or its Auditor fails to comply with the gazetted Accounting 
and Auditing Standards, the Monitoring Board has powe rs to take legal action against such enterprises 
as stipulated in Section 27 of the Act.  
291. The Board would also bring lapses/negligence on the part of accountants in charge of 
preparation and finalisation of accounts to the notic e of the professional institutions of which such 
accountants are members. Similarly, the Board wo uld also bring instances of failure of business 
enterprises to comply with prescribed Accounting a nd Auditing Standards to the notice of relevant 
regulatory authority concerned in respect of busin ess enterprises coming under their purview such as 
the Central Bank in the case of banks and fina nce companies and the Securities and Exchange 
Commission in the case of public companies listed on the Stock Exchange. 
 6.5 Trade Remedy Laws 
292. Sri Lanka does not have any laws or regula tions governing anti-dumping, countervailing and 
safeguard measures. The Government has drafted na tional legislation in respect of Anti-dumping, 
Countervailing Measures and safeguard measures, but  had deferred the decision of approving and 
implementing the laws.  
7. Conduct of Regional and Multilateral Trade Relations 
7.1 Regional Trade Arrangements 
293. In view of the importance of trade with its  neighbouring countries Sri Lanka has actively 
promoted the development of regional links, while  also being committed to the promotion of a 
restriction free multilateral trading system.  
294. Countries have entered in to an overlapping web of agreements as a strategic response to rival 
cooperation agreements. Inte rnational cooperation if effectively ha ndled could derive vast benefit. 
Accordingly it is the government policy to enter in to Bilateral, Multilateral and Regional Agreements 
enabling entrepreneurs to explore market opportunities in the respective countries they intend to penetrate.  
                                                           
40 Which have an annual turnover in excess of five hundred million rupees, shareholders equity in 
excess of one hundred million rupees, gross assets in ex cess of three hundred million rupees, liabilities to banks 
and other financial institutions in excess of one hundred million rupees, staff in excess of one thousand persons.  Sri Lanka WT/TPR/G/128 
 Page 75 
 
 
295. Sri Lanka is a signatory to the South Asian Association for Regional Cooperation (SAARC),  
the South Asian Preferential Trading Arrangeme nt (SAPTA), Bangkok Agreement, Generalised 
System of Preferences (GSP), and Global Sy stem of Trade Preferences (GSTP) Schemes.  
296. Sri Lanka receives preferential tariff under the Generalized System of Preference (GSP) as 
well as from the Global System of Tariff Preferences (GSTP). Under GSP Sri Lanka and other 
developing countries receives concessional tariff rate s from participating developed countries. Under 
GSTP SL exchanges tariff concessions with othe r participating developing countries. 
297.  “Regaining Sri Lanka” (RSL) policy document of the government has emphasized the 
importance of entering in to bilateral free trade ag reements with some of the identified countries.  
Accordingly the Ministry of Commerce & Consumer Affairs in association with other line Ministries 
are making a concerted effort in identifying countri es for bilateral Free Trade Agreements (FTAs) for 
trade negotiations on fast track basis.  
298. The success in the implementation of Indo – Lanka FTA agreement has, convinced both 
countries to expand the scope and c overage of the existing free trade agreement.  Accordingly it has 
been decided by both governments to move on to the next stage of the existing FTA, to include 
trading services, investments and other areas of cooperation to form a Comprehensive Economic 
Partnership Agreement (CEPA).  
299. Those agreements pave the way for Sri Lanka’s entrepreneurs to have access to their markets. 
Some of the regional agreements are IOR-AR C (Indian Ocean Rim Association for Regional 
Cooperation) and BIMST-EC (Bangladesh, India,  Myanmar, Sri Lanka and Thailand Economic 
Cooperation) which were established in 1997 and 1998 respectively.  
 Recent developments 
- The Sri Lanka - Pakistan FTA passed through the last round of official level negotiations in 
March 2003.  
- Under the Sri Lanka - US Trade & Investme nt Framework Agreement (TIFA) the two 
countries are working towards a closer trade and economic cooperation with the expectation 
of entering in to a FTA with the US.  
- Sri Lanka intends to enter in to an FTA with Egypt, Bangladesh, Thailand and Malaysia 
where initial rounds of negotiations have comme nced. After a several rounds of negotiations 
draft Framework Agreement of the proposed Sri Lanka – Egypt FTA has been cleared at the official level. 
- Initial round of negotiations to develop a Co mprehensive Economic Partnership Agreement 
between Sri Lanka & Singapore (CEPASS)  was concluded in October 2003.  
- Four rounds of negotiations have concluded in establishing the BIMST-EC Free Trade Area 
where Sri Lanka is a member state in this regional agreement.   
- As member of SAARC, Sri Lanka is a party to  SAFTA the establishment of which is nearing 
the final stage.  It is expected to be launched by January 2006.  WT/TPR/G/128 Trade Policy Review 
Page 76 
 
 
 7.2 Sri Lanka and the Multilateral Trading System 
300. Sri Lanka is a founder member of the Genera l Agreement on Trade and Tariff (GATT) and 
the World Trade organization (WTO).  Sri Lanka grants Most Favoured Nation (MFN) treatment to 
all its trading partners.  
 (a) Commitments in Tariffs 
301. In the Uruguay Round Sri Lanka bound most ag ricultural tariffs and other non-agricultural 
tariffs at 50%.  Since then Sri Lanka has bound 98 per cent of items included in Annex I of the 
Agreement on Agriculture. Some agricultural items that were not bound at the time of the Uruguay 
Round because they were subject to an Article  XXVIII negotiation will now be bound in January 
2004 on the rates agreed during the negotiations. In addition, tariff concessions affecting textiles and 
clothing came into effect on 1 March 2001. 41   
(b) Agriculture  
302. As the WTO negotiation on agriculture enters its  crucial phase, Sri Lanka has taken very keen 
interest on the debate on how to address the legitim ate concerns of developing countries, such as, 
rural development and food security. In Sri Lank a, the agriculture sector had already been 
substantially liberalised prior to the adoption of the AOA, due to macro-economic reforms led by the 
World Bank and the International Monetary Fund stru ctural programmes. The agriculture sector is in 
fact more liberalised than is required unde r Sri Lanka’s AOA commitments. Sri Lanka has 
traditionally been pursuing a two-pr onged agriculture policy, one w ith a developed plantation sector 
geared towards exports markets and other – non-plan tation sector or subsistence agriculture sector – 
based on smallholder production of mainly basic fo od products, geared towards the domestic market. 
303. As discussed earlier in the report, agriculture sector still supplies the bulk of basic food, and 
provides subsistence and income for the large rura l population accounting for nearly 35 percent of the 
labour force. It is a significant contributor to th e GDP, contributing nearly 20 percent as well as an 
important source of foreign excha nge and revenue, generating nearly 20 percent of export income. 
Almost 75 percent of the population is still classifi ed as rural, which for all intents and purposes 
means mainly engaged in agriculture. Further, f ood consumption accounts for a significant share of 
expenditure for households in Sri Lanka. The sector  provides a lot of opportunities and potentials for 
expansion of the economy.  
304. The agriculture sector in Sri Lanka plays star kly different role in the development of the 
country, in ensuring food security and rural developm ent and alleviating poverty. Under the definition 
adopted in the WTO, Sri Lanka is as a food-insecure  developing country also categorised as a Net 
Food Importing Developing Country.  
305. It is, therefore, recognised that Sri Lanka needs to deal with inadequate production and lack of 
resources to raise agricultural productivity and fo od production in line with its needs and potential. 
The main domestic policies on agriculture have been  pursued and implemented within the pursuit of 
the overall structural economic programmes. These policies have been very painful and sometimes 
detrimental to the rural population which mainly li ves on subsistence farming. Sri Lanka should have 
pursued its policies on agriculture bearing in mind th e kind of flexibilities, which were available to it 
under the AOA. However, the autonomous liberali sation policies have not taken in to their 
                                                           
41 Modifications and rectifications to Schedule VI of Sri Lanka were certified and became effective as 
of 7 June 2001 (WTO document WT/Let/398, 22 June 2001);  and WTO document  
G/MA/TAR/RS/77,7 March 2001. Sri Lanka WT/TPR/G/128 
 Page 77 
 
 
consideration the special place, which the agricu lture sector occupies in Sri Lanka’s economy. A 
broad range of instruments could have been  used to achieve the desired objectives. 
306. Keeping this in mind, ever since the Seattle  Ministerial Conference, developing countries, 
including Sri Lanka have sought to introduce a ‘development box’ that would allow them more 
flexibility in implementing the AOA. The concept in f act consists of an array of measures that would 
provide space for development friendly policies.  
307. In pursuit of achieving this objective, Sri La nka, along with a number of other developing 
countries presented a number of negotiating proposals during the first phase and further elaborated informal proposal s during the second phase on the concept of ‘Development Box’. It was proposed 
the creation of a ‘development box’ should focus on measures that would enhance food security, and 
safeguard the livelihoods of rural communities.  The proposal aimed at responding to Sri Lanka’s 
need to: (a) Protect and enhance the food produc tion capacity, particularly in key staples; (b) 
Safeguard employment opportunities for the rural poor  and (c) Protect small/marginal farmers from 
‘an onslaught of cheap imports’. Among the key elem ents of the proposal were that basic food 
security crops, which are the main sources of livelihood for low-income and resource-poor farmers’, 
should be exempted from reduction commitments u nder AOA; developing countries, which are at or 
below the de minimis level of permitted domes tic support, should be allowed to maintain 
‘appropriate’ tariff bindings on their food security cr ops, by maintaining the current bound rates or 
raising them if current bindings do not provide effective protection,  and to include an ‘appropriate 
safeguard mechanism’ to respond to import surges of  food security crops. Sri Lanka has taken certain 
negotiating positions in the area of market access, domestic suppor t and export competition in the 
ongoing negotiations, keeping in view the multif aceted nature of the agriculture sector. 
(c) Non-Agricultural Market Access 
308. As discussed earlier in the report, revenue ge nerated from custom duties is an important 
component in the total government revenue structur e, mobilising nearly 11 per cent during the 1999 – 
2003 period. The revenue from custom duties is project ed at 14 per cent in 2004. In order to achieve 
the projections set out for the future, Sri Lanka needs to maintain revenue maximizing tariffs at 
current applied levels till such time alternative revenue collection systems are put in place.  
Furthermore, a minimum tariff level would also be  needed to use as an instrument to promote 
development, specially certain industries, which are in their early stage of industrialization.  
Therefore, Sri Lanka would need to maintain mi nimum tariffs below which tariffs could not be 
reduced. 
309. Due to the above reasons, Sri Lanka supported the position that the concept of “less than full 
reciprocity” should be taken into consideration in  designing the negotiating modalities in the area of 
non-agricultural market access.   
310. Sri Lanka’s bound coverage in this area is only 28 per cent, when take into account the 
commitments made during Uruguay Round in 1995 and the subsequent unilateral commitments made 
in 2001. The average tariff level of unbound products is 7%.  Based on calculations made on applied 
rates in 2001 and current bound levels, Sri Lanka’s  country average, is figured at 16.74%.  The 
analysis undertaken by the authorities revealed that Sri Lanka, which has low country average and 
bound coverage, will be penelised fo r not binding tariffs at a higher le vel under the proposed formula.   
311. As a result of the case presented by Sri Lanka, along with other developing countries, the 
draft modality paper proposed to exempt countries w ith bound coverage of non-agricultural tariff lines 
less than 35% to exempt from tariff reduction commitm ents through the use of formula.  Instead they WT/TPR/G/128 Trade Policy Review 
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would be required to bind their tariffs at the deve loping country average, i.e. 27.5%, thus, providing 
required flexibility to Sri Lanka. This indeed w ould have been an achievement had the draft 
ministerial text been adopted in Cancun in September 2003. 
(d) Services 
312. As highlighted in Table – 1, the service sector accounts for nearly 54 per cent of Sri Lanka’s 
Gross Domestic Product. Sri Lanka therefore recogn ises the importance of the service sector to the 
economy and its growing significance in achieving  expected economic growth.  The government 
focuses its development strategies for efficient perfo rmance of the service sector, particularly the sub-
sectors that make substantial contributions to the economy. The sub-sectors that are of great 
significance to the economy are tourism, communi cation, banking, insurance, shipping and air 
transport.  
313. Sri Lanka therefore looks at service liberaliza tion from a development perspective to attract 
foreign investors to develop infrastructure, since e fficient service sector makes goods sector also more 
competitive. As discussed in the paper, privat e, both local and foreign investment has been 
encouraged through the introduction of conduc ive policies, which aimed at creating better 
environment for investors and ensuring that fair competition prevails in the market place.  
314. Sri Lanka therefore firmly believes that the main objectives of the on going negotiations on 
services should be to promote economic growth, to increase the participation of developing countries 
and to reduce or eliminate measures that adversely affect to provide effective market access in trade in services.  
315. As required, Sri Lanka has already submitted its  request lists to 18 countries. The areas, 
where requests have been made are (a) Professional services
 - Services provided by Midwives, 
Nurses, Physiotherapists and Paramedical  personnel; (b) Computer related services  - Consultancy 
related services related to comput er related hardware, Software de velopment implementation services, 
Data processing services, Database services; (c) Communication Services  - Telecommunication 
Services, Voice telephone services, Circuit switch da ta transmission services, private leased circuit 
services, Electronic mail, voice mail, and  on-line in formation and database;  (d) Health Related and 
social services  - Other human health services (residential health facilities services other than hospital 
services – Geriatric care, Reflexology, Ayurvedic heal th care and therapy, herbal therapy, Other than 
human health services (Ayurvedic, herbal and aromat herapy, meditation services carried out in health 
clinics, Beauty and physical well being services (Cosmetic treatment), Other beauty treatment 
services (body care, herbal therapy, fitness centers);  (e) Transport services - Air transport services 
(airline computer reservation system); (f) Se rvices auxiliary to all modes of transport  - Cargo handling 
services, storage and warehouse services, freight transport agency/freight forwarding services. In these sectors Sri Lanka has requested full commitm ents in modes 1, 2, 3, and in Mode 4 ( Movement of 
natural persons)  commitments in market access as refe rred to in the section on horizontal 
commitments.  
316. The challenge that developing countries like Sri Lanka is likely to face is related to opening 
of mode 4 – movement of natural persons.  Ther e are specific proposals from developing countries 
highlighting the importance of liberalizing this very  important mode of supply which is hindering the 
effective supply of services from developing countr ies to developed countries.  Sri Lanka, as a 
developing country has a comparative advantage in exporting labour intensive services involving 
movement of persons, therefore, effectiveness of the future commitments to be made by other 
members of WTO in Mode 4 will determine whether Sr i Lanka would be able to  gain further benefits 
from the ongoing negotiations. Sri Lanka WT/TPR/G/128 
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317. Sri Lanka has also made initial offers for va rious requests submitted by WTO members. The 
initial offers have been made on telecom, financia l services, and tourism sectors in August 2003. The 
offers in other service sectors, such as tertiary e ducation, distribution services, which include retail 
trade, and professional services etc., are being examin ed carefully by the Inter Ministerial Committee 
on Services to determine whether further commitmen ts could be made. Sri Lanka expects to submit 
further offers in early 2004 as negotiations progress. 
318. Sri Lanka also recognises that due account should  be taken and credit shall be given in the 
negotiations for autonomous liberalisation undertaken  by members since previous negotiations. It is 
Sri Lanka’s anticipation that the “Modalities for Tr eatment of autonomous liberalization” adopted by 
the Special Session of the Services Council would be taken into account in the bi-lateral negotiations.  
Sri Lanka also attaches equal importance to rule  making in the areas of services viz. safeguard, 
subsidies and government procurement which will pr ogress in parallel to the negotiation process.   
 (e) Trade Related Aspects of Intellectual property Rights (TRIPS) 
319. Sri Lanka is a signatory to the Convention Establishing the World Intellectual Property 
Organisation (WIPO) and to other interna tional conventions on intellectual property.42  Sri Lanka has 
signed a bilateral agreement with the United States to  protect intellectual property rights on 20 .Sept. 
1991.43 
320. Sri Lanka introduced its first comprehens ive domestic legislation on protection and 
enforcement of Intellectual property rights – Act No.52 of 1979 in 1979. Since then there have been a number of important changes to its intellectual property regime.  These were aimed, in particular, at 
ensuring compliance with the WTO Agreement on Tr ade-Related Aspects of Intellectual Property 
Rights (TRIPS).  Consequently, this statute govern ed Sri Lanka's protection and enforcement of 
intellectual property regime till Mid November 2003.  
321. Originally, the Code of Intellectual Property Ac t No. 52 contained laws relating to copyright, 
industrial designs, patents, marks, trade names and unfair competition.  During the period under 
review, the government revised, consolidated, and am ended the law, and drafted a new bill to amend 
the Code of Intellectual Property Act No. 52, in or der to regulate copyright and related rights in Sri 
Lanka and to include other amendments , as required by the TRIPS Agreement. 
322. Sri Lanka's intellectual property legislation - Act No. 52 of 1979 and its amendments have 
been notified to the WTO and they were review ed by the Council for TRIPS on 27 November 2001.
44    
323. A new Intellectual Property Act No.36 of 2003 was passed by Parliament on or about the 
25th July 2003. After completing the procedural forma lities, the bill has practically come into force as 
the new IPR law in the country, as it has already b een certified by the Speaker as required by Article 
                                                           
42 WIPO Convention Establishing the World Intellect ual property organisation, Patent Cooperation 
Treaty,  the Berne Convention for th e Protection of Literary and Artistic  Work, the Paris Convention for the 
Protection of Industrial Property;  th e Madrid Agreement for the Repression of False or Deceptive Indications of 
Source on Goods;  and Trademark Law Treaty,  Nairob i Treaty on the Protection of the Olympic Symbol and 
Amendments to Article 9 (3) of the WIPO Conven tion; Intellectual Property Protection Treaties 
[Online].Available at: http://www.wipo.int/trea ties/sitemap/a-z.html [15 October 2003]). 
43 Government of the United States (2002), Sri Lanka Country Commercial Guide FY2002  [Online].  
Available at: http://www.usatrade.gov/Website/ CCG.nsf/CCGurl/CCG-SRI_L ANKA2002-CH-1:-00468C89 
[14 February 2003]. 
44 WTO document JOB (01)/156/Rev.1 (Council for Trade-Related Aspects of Intellectual Property 
Rights, 21 November 2001. WT/TPR/G/128 Trade Policy Review 
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80(1) of the Constitution.    Accordingly, the ne w Law- Act No.36 of 2003 has been in force since 
12th November 2003. 
324. This legislation is to provide for the law rela ting to IPR and for efficient procedure for the 
registration; control and administration; to ame nd the Customs Ordinance (Chapter 235) and the High 
Court of the Provinces (Special) Provisions Act, No .10 of 1996; and to provide for matters connected 
therewith or incidental thereto. The new law will give Sri Lanka a comprehensive legal framework for 
protecting intellectual property rights. 
325. The New Law covers all the requirements under th e TRIPS Agreement.  It has also covered 
areas beyond the TRIPS Agreement, including the Trademark Law Treaty, US - Sri Lanka Bilateral 
Agreement and some provisions of the WIPO Intern et Treaties of 1996.  The Act covers copyrights 
and related rights, patents, tradem arks, certification marks, collective marks, Industrial designs, layout 
designs of integrated circuits, undisclosed info rmation, protection against unfair competition, 
geographical indications, administration of intell ectual property rights and cost effective and time 
saving enforcement mechanism. 
326. Sri Lanka's contact point for intellectual property purposes is the Registrar of Patents & Trade 
Marks of Sri Lanka.45  There is a National Intellectual Pr operty Office of Sri Lanka, which comes 
under the purview of the Ministry of Commerce a nd Consumer Affairs, where industrial designs, 
patents, marks and other matters provided by the Ac t are registered and administered. The institutions 
that are charged with the enforcing of intellect ual property rights are: The National Intellectual 
Property Office, Department of Customs, Sri Lanka  Police and the Attorney General's Department. 
  (i) Copyright and Related Rights [Part II – Chapters I and II] 
327. The protection provided under the Intellectual Property Act No. 36 of 2003, in respect of 
copyrighted works and related rights, not published,  performed, produced or fixed in Sri Lanka by 
non nationals, is protected by virtue of., and in accordance with, any interna tional convention or any 
international agreement to which Sri Lanka is a party. Reciprocity is not specified as a ground for 
protection of works of authors who are nationals of or  have their habitual residents in Sri Lanka, and 
works first published in Sri Lanka and works first published in other countries, but published in Sri 
Lanka within 30 days of such publication irrespectiv e of the nationality or residence of the author.  
Similar provisions applicable to related rights as well. The new law of 2003 conforms to all the 
requirements of the Bern Convention, Rome Conventi on and to a certain extent to WIPO two internet 
treaties of 1996. 
  (ii) Industrial design [ Part III – Chapters III – X] 
328. The Act provides protection to all new industrial designs46, with the exception of anything in 
the industrial design, which serves only to obtain a te chnical result.  Anything in an Industrial Design 
which serves only to obtain a technical result may obt ain the benefit of Patent protection if it meets 
the relevant criteria. Hence, it may be protected under the law of patent. 
                                                           
45 WTO document IP/N/3/Rev.6, 1 March 2002 
46 An industrial design is any composition of lines or colours or any three dimensional form, whether or 
not associated with lines or colours, that gives a special appearance to a produ ct of industry or handicraft and is 
capable of serving as a pattern for a product of industry or handicraft (Part III, Industrial Designs, Chapter III, Section 30). Sri Lanka WT/TPR/G/128 
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329. Industrial designs may be protected as a copyright  and also under Part III of the new Act.  The 
basic differences in the scope of protection afforded  for industrial designs under Part 11 and Part 111 
of the Intellectual Property Act No. 36 of 2003 may be tabulated as follows: 
Area Part II Part III 
Period of protection Life plus 70 years 5 year s renewable for 2 further periods of 5 years 
each. 
Formalities Not necessary Registration mandatory 
Moral rights Provide for  Not provide for registration 
Priority Evidence is necessary First applicant for register ion 
Protection Independent creati ons do not violate rights of 
earlier creation Independent creations too would be deemed to be 
violative. 
330. 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 (Section 31). The creat or, (i.e. the person who makes the first application 
for registration or who first validly claims the earliest priority for registration), owns the right to 
protection (Section 32).  Certain exceptions to this rule are fully set out in Section 48 of the Act, 
including the right to obtain protection when there to  two or more persons jointly creating the design, 
(Section 32 and 34) or when the creation happe ned during the performance of a contract of 
employment. 
331. To be protected under Part III of the new Act, an industrial design must be registered 
(Section 36).  Applications for the registration of I ndustrial Design would have to be made to the 
Director-General of Intellectual Property appointed in  terms of the Act.  These are examined by the 
Director General only to ensure certain formal re quirements.  The Director General may refuse to 
register the design, if the application is not in c onformity with the procedure laid down in respect of 
application by the new Act (Fees, declaration of nove lty etc) or if the design does not meet the criteria 
for a registrable Industrial Design (Sections 36,37,38 and 39).  
332. A design application is not published for opposition before being granted registration.  It is 
only published after registration (S ection 44), 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 new Act.  No 
limitation period for such an application is provided.   
333. The registration of an industrial design will expire  five years after the date of receipt of the 
application and may be renewed for two consecutive periods of five years each on payment of the 
required fees (Section 45).  The maximum life of an industrial design registration is 15 years from 
date of application.  Registration grants the crea tor the right to reproduce a product that embodies the 
design; and import, sell, stock or use such a good.   These rights may be transferred either through 
assigning or transmitting the registration or concluding licence contracts (section 47). 
  (iii) Patents [Part IV – Chapter XI – XVIII] 
334. In Sri Lanka patents are granted if an inventi on is new47, involves an inventive step and is 
industrially applicable (Section 63).  The Act define s an invention 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 
may relate to a product or a process (Section 62).  Pa tent applications must fulfill all requirements 
                                                           
47 An invention is considered new if it has not been an ticipated by prior art, which is defined in the Act 
(Section 64). WT/TPR/G/128 Trade Policy Review 
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described in Sections 71, 72 and 73, and the ap plication be accompanied by a novelty search report 
(Section 73).  Some inventions ar e not patentable in Sri Lanka.48 
335. The right to the patent belongs to the inventor .  The owner of a patent may exploit, assign or 
transmit the patent; and conclude licence contracts to transfer rights.49  Patents are valid for 20 years 
after the date of application for its registration (S ection 83), but they must be renewed annually.  The 
term of 20 years cannot be extended. 
336. Once the Director-Gen eral of Intellectual Property appointed in terms of the Act, he shall 
examine the application and shall satisfy himself to the fulfillment of the conditions outlined in 
section 78(1), which seem to be more than administra tive (Section 78).  The patent is recorded in the 
Register and published in the Gazette (Section 80).  An application for invalidation or declaration for 
nullity of a patent can be made in the court if, for in stance, the invention is not considered to be new; 
the invention is not patentable; or if there ar e doubts about the creator's identity (Section 99).   
337. However, the grant of a patent shall not be refu sed and a patent shall not be invalidated on the 
ground that its commercial exploitation is prohibited by any law or regulation.  However, commercial 
exploitation of a patent might be prevented in or der to protect the public order [Section 79 (1)]. 
338. The new Act contains an important section on lim itations of owner’s exclusive rights granted 
under section 84. This section relates to the exhausti on of IP rights [Section 86 (1)] and other use 
without authorisation of the right holder [Section 86 (2)]. In addition, Section 87 recognises the rights 
of others derived from prior manufacture or use. 
  (iv) Marks and Trade Names [Part V – Chapters XIX – XXX] 
339. Part V of the Code protects trade marks, ser vice marks, trade names, collective marks, 
certification marks and geographical indications.  The exclusive right to a mark is acquired by 
registration (Section 102).  Registration of a mark is granted to the person who has first provided a 
valid application or who is the first to fulfill the c onditions of a valid application and to claim priority 
for his application [Section 102 (2)].   
340. A mark may consist of words, slogans, designs, etc.50  Protection is afforded to all marks that 
are registered, principally by providing for protection against unfair competition. Further, a mark 
resembling a geographical indication, geographical name or surname, collective mark, certification 
mark and well-known mark cannot be registered as Trade Marks. Prot ection also is available to well 
                                                           
48 These include:  discoveries, scientific theories and mathematical methods;  plant or animal varieties 
other than micro organisms, and essentially biological pro-cesses for the production of plants or animals, other 
than micro-biological processes and the products or such processes;  schemes, rules, or methods for doing 
business, per-forming 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, inventions useful  
in the utilisation of special nuclear material or atomic en ergy in an atomic weapon and inventions the prevention 
within Sri Lanka of the commercial exploitation of whic h is necessary to protect the public order, morality 
including the protection of human, animal or plant life or health or the avoidance of serious prejudice to the 
environment. (Section 62 (3)). 
49 Exploitation of a patent when it granted in respect to a product means making, importing, offering 
for sale, selling, exporting  and using the product, stocking  such products for the purpose of offering for sale, 
selling, exporting or using.  Exploitation of a process means using it; and importing, stocking, selling and using a product manufactured by using the patented process and preventing any person using that process. ( Section 
84). 
50 The Code in Sections 103 and 104 provide a list of marks which cannot be registered, on objective 
grounds and due to reasons of third party rights. Sri Lanka WT/TPR/G/128 
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known marks not registered in Sri Lanka [Section 104(1) (d)]. A mark resembling a well-known mark 
is not registrable as they are protected.  Moreover, such well-known marks can be protected both under the Unfair Competition Law & the Common Law of Passing - Off.  
341. Registered trademarks are valid for ten years,  and it might be renewed for consecutive periods 
of ten year.
51  Trade marks can be renewed indefinitely [Section 118(1) and 119 (1)]. The owner of 
the mark has the exclusive right to use the mark, to  assign or to transmit the registration of the mark 
and to conclude licence contracts [Section 121(1)].   
342. The new Act contains an important section dea ling with limitations of registered owner’s 
rights. Under Section 122 (b), rights of third parti es from using the mark in relation to goods lawfully 
manufactured, imported, offered for sale, sold, used or stocked in Sri Lanka, provided that such goods 
have not undergone any change. 
343. The Registrar examines the application for re gistration and if the mark is considered 
admissible the applicant is notified (Section 110).  The applicant 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 a period of five years from the date if issue of the certificate of 
registration [Section 134(3)]. If no notice of opposition is  received by the Regist rar, the Re gistrar will 
register the mark. 
344. Once the mark is registered it cannot be removed from the Register except under the 
provisions of Sections 136, 137 and 172 of the Act.52  Under Section 136 the mark may be removed if 
the owner without valid grounds has failed to use the mark within Sri Lanka for five consecutive 
years, immediately proceeding the date of applicatio n to the Court, 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.   
  (v) Geographical indications [Part IX - Chapter XXXIII] 
345. The new Act had adopted the definition provide d for in the TRIPS Agreement for purpose of 
defining geographical indications in the Domestic legislation [Section 101].  
346. Regarding geographical indications (GIs) the la w prevents 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 origin [Section 16 (1) (i)].   
347. The law also prevents any use of a geographical indication which constitutes an act of unfair 
competition within the meaning of Section 160 [Section 161 (1) (ii)]. 
348. The expressions such as "kind", "type", "style" or  "imitation of the like" may not be used in 
geographical indications identifying goods, includ ing agricultural product, food, wines or spirits 
[Section 161 (1) (iii)]. 
349. The protection accorded to GIs under sections 103 (Marks), 160 (Unfair Competition) and 
161 shall be applicable for GIs, which, although lite rally true as to the territory, region or locality, 
falsely represents to the public that the goods originate in another country [Section 161 (2)]. 
                                                           
51 Renewal of registration will not be subject to furt her examination by the Registrar or opposition by 
any person [Section 119 (2)]. 
52 Sections 136 and 137 relate to nullity proceedings. WT/TPR/G/128 Trade Policy Review 
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350. In case of homonymous GIs for goods including an agricultural product, food, wine or spirit, 
protection shall be accorded to each indication, s ubject to the provisions of Sub-Section 161 (2).  
351. In addition, a false declaration in respect of  geographical indications including of Ceylon Tea 
and Ceylon cinnamon are considered an offence,  liable for conviction and a fine of SL Rs. 500,000 
[Section 191 (b)].   
352. The Act provides for the registration of a ge ographical good, which owes its distinctiveness, 
essential characteristics or reputation and quality to  its geographical origin and include goods – 
agricultural products, food, wine and spirit. Th e registration at present is facilitated through 
Certification marks and collective marks. 
353. Sri Lanka Tea Board has drafted a Domestic regulation to provide registration for the 
authorized users of the geographical term “Ceylon Tea”. This domestic regulation will be enacted through Tea Board Act No.14 of 1975, to specify  the procedures and rules to be followed for 
registering authorized users of GIs – Ceylon and other names of key tea growing areas in Sri Lanka. 
354. Sri Lanka is an advocate of extending the protec tion of geographical indications to products 
other than wines and spirits.
53  
  (vi) Layout Designs 
355. The new Intellectual Property Act of 2003 provides protection for the layout design of 
integrated circuits.  
356. They are protected for ten years from the date of the first commercial exploitation in or 
outside Sri Lanka. The protection granted shall term inate at the end of tenth calendar year, hence no 
renewal is permitted. [Section149 (2)]. Layout designs,  which have been commercially exploited in or 
outside of Sri Lanka for more that two years prior to the enactment of this Act may not be protected 
[Section 184 (2) (v)]   
357. Protection is provided to original designs subject to registration.  The owner of design has the 
exclusive right to authorize its reproduction, importa tion, sale, and distribution.  However, layout 
designs may be reproduced to be used for evaluati ons, analysis, research or teaching or education 
[Section 148(2)].  The owner may assign or transfer his rights to someone else.   
358. The new Act provides for the cancellation of a registration of a layout design on certain 
grounds (Section 154). 
  (vii) Undisclosed Information or Trade Secrets [Part IV – Chapter XXXII] 
 359. A section relating to the protection of undisclo sed information/Trade Secrets is provided in 
the new Intellectual Property Act No.36 of 2003, which were not expressly protected under the Code 
of Intellectual Property Act No 52 of 1979.  
360. The new Act does not expressly protect undisclo sed information /trade secrets.  However, 
they may be protected under the law of unfair competition or the common law of confidentiality or the 
law of contract. 
                                                           
53 WTO document IP/C/W/353, 24 June 2002. Sri Lanka WT/TPR/G/128 
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  (viii) Other developments 
361. GSL is contemplating to introduce a law for th e protection of plant varieties and farmers’ 
rights. The objective would be to give a significan t thrust to agricultural growth by providing an 
effective system for the protection of plant vari eties and farmers’ rights, which will stimulate 
investments for research and development both in the public and private sectors for the development 
of new plant varieties by ensuring appropriate returns on such investment. 
  (ix) Enforcement 
 
362. Infringement of IPR is a punishable offence under both criminal and civil jurisdiction.  Relief 
available to owners includes injunctive relief, seizure and destruction of infringing goods, and 
prohibition of importation.  Under the new Act, pe nalties for offences have been strengthened.  
363. However, enforcement is a crucial problem, as is public awareness of  intellectual property 
rights.  At present, aggrieved parties must on their own seek redress of any IPR violation through the courts, which is a time-consuming process.   
364. As a complementing activity to various legisla tive initiatives relating to the installation of the 
legal framework for the administration of IP laws, Sri Lanka has taken several steps to modernise its 
national intellectual property office in the country. 
 (f) Implementation of the WTO Valuation Agreement  
365. WTO Valuation Agreement (Article VII of  GATT 1994) was implemented by Sri Lanka 
Customs with effect from January 2003.A Customs (Amendment) Act No 02 of 2003 was passed by 
the Sri Lankan Parliament in this respect. 
366. A simplified procedure at the Customs Import Declaration processing center at Colombo sea 
port (Long Room) was introduced along with this im plementation. This procedure, coupled with 
WTO valuation methods, would identify and facilitate  the major trade facilitation exercise undertaken 
by Customs in recent years. As a result, Cust oms valuation is done based on documentation only. 
Physical examination for the valuation purpose h as been discontinued. This permitted faster cargo 
clearance especially in the area of  FCL consignments. 
367. Today declared Transaction value is accepted in  90% of the customs import declarations 
submitted and processed. Based on a risk analysis programme at least 10% of the entries are referred for detail analysis on valuation prior to the clear ance .This is to combat the suspected valuation 
frauds. However clearance of 90% entries, subject to  post audit verification, has been a major success 
for this programme and importers are immensely benefited. A post Clearance Audit Branch (PCAB) 
has been established to scrutini ze the declarations after clearance and for periodical auditing at 
consignee’s premises. 
8. Trade Policy Outlook 
368. Fiscal performance is critically affected by eco nomic and other events elsewhere. Hence, a 
close watch needs to be maintain ed on such events. Several encour aging developments have taken 
place, but there also occurred events of concern. 
• The unprecedented amount of assistance to support Sri Lanka’s ongoing reforms and 
peace process. WT/TPR/G/128 Trade Policy Review 
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• The acceptance of the Governments policy document, “Regaining Sri Lanka: Vision 
and Strategy for Accelerated Development”. 
• The approval by the International Moneta ry Fund of a Poverty Reduction Growth 
Facility and Enhanced Financing Facility for our country. 
• The continuing ceasefire agreement between the government and the LTTE and its 
beneficial effects on the economy. 
369. Real output is expected to grow by about 5.5 per cent in 2003 benefiting from a recovery in 
all major sectors; Agriculture (2 per cent), Indus try (7 per cent) and Services (7 per cent).  The 
Agriculture sector growth will be mainly driven by the expected monsoon rains, expanding economic 
activity in the North and the East and continuing strong export demand for minor agricultural crops.  The Industrial sector growth will be generated by the momentum in manufacturing industry and 
construction activity.  Expanding activities in trade and transport, recovery in tourism and port 
services, and the continuation of a high growth mo mentum in the telecommunications and financial 
sectors will mainly drive the high growth in the serv ices sector, which is the largest sector in GDP, 
accounting more than half of the total value addition.    
370. Inflationary pressures are expect ed to decline further in 2003 with continuation of monetary 
policy aimed at containing monetary expansion.  This will also be supported by increasing domestic 
agricultural production, rising productivity, increasing  competition, greater stability in the exchange 
rate and lower pressure on the interest rates fro m fiscal deficit financing.  Accordingly, annual 
inflation is expected to decrease to about 7.5 per cent of GDP in 2003, reducing inflationary 
expectations, which are still high.    
371. Further strengthening of the external sector is  expected in 2003, containing the current 
account deficit at a manageable level, generating a su rplus in the overall balance, building up external 
reserves and reducing external debt service payments.  Despite the expected re covery in exports, the 
current account deficit is projected to increase to  3.3 per cent of GDP, mainly reflecting a higher 
increase in imports driven by increasing investor and consumer confidence.  Export earnings are projected to grow, benefiting from both increasing vo lumes and rising prices.  Meanwhile, imports are 
expected to grow faster, reflecting increasing demand for all three categories, i.e., consumer, 
intermediary and capital goods.  However, the conse quent increase in the trade deficit is expected to 
be offset partly by improved earnings from tourism and port services, telecommunication services and private transfers. 
372. The capital and financial accounts are expected  to improve significantly benefiting from 
increasing external donor support, improving foreign i nvestor confidence and expected privatisation 
proceeds.  Government’s external borrowings un der concessional terms and conditions are estimated 
to be higher in 2003 with the progress in the p eace process and the firm commitment to implement 
economic reforms with the international donor co mmunity supports.  Consequently, the government 
will be able to keep its external  commercial borrowings to a minimu m to ensure long-term external 
debt sustainability.  Investment inflows are exp ected to improve with the continuation of political 
stability, peace process and improving investor confid ence with the endorsement of policies by the 
Bretton Woods Institutions.  The proposed measures to further liberalise the capital account in 2003 
would help the private sector  attract more medium and long-term external financing.   
373. Consequently, it is expected that Sri Lanka woul d realise an overall surplus in the BOP for the 
third consecutive year, reducing pressure on the ex change rate and enabling the build up of the 
country’s external reserves to a more comfortable le vel.  The estimated BOP surplus for 2003 is about 
US dollars 300 million including expected progra mme supports from interna tional organizations.  
With the projected surplus in the BO P, the total external reserve leve l is expected to increase to an Sri Lanka WT/TPR/G/128 
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import coverage of 4.7 months by end 2003, while the official external reserve level would be enough 
to cover 3.5 months of imports.  The external de bt service, as a ratio of current receipts including 
private transfers, is estimated to decline to 13.7 per cent in 2003 from 11.7 per cent in 2002, benefiting from increasing external earnings as we ll as low international interest rates.  
374. The floating exchange rate regime is exp ected to safeguard the country’s external 
competitiveness by adjusting according to mark et prices and reflecting developments in 
macroeconomic fundamentals of the country.  The Ce ntral Bank will continue its intervention in the 
foreign exchange market only to prevent undue exce ssive volatility and to build up official external 
reserves by purchasing at market rates.  Further deepening and expansion in the foreign exchange 
market are expected through expansion in forward market activity. 
375. Recognising the burden of an already very hi gh public debt and the need for achieving 
medium-term fiscal sustainability, Budget 2003 has b een formulated to further consolidate fiscal 
operations, reducing the overall de ficit and domestic financing requi rement, while introducing more 
measures to address structural issu es on the fiscal front.  Accordi ngly, measures have been proposed 
for enhancing revenue, rationalisi ng expenditure and improving debt management as continuation of 
efforts initiated in the previous year’s budget.  Fu rthermore, measures have been proposed to improve 
transparency and accountability of fiscal management. 
376. In line with the medium-term fi scal consolidation path, the ove rall deficit in 2003 is to be 
reduced to 7.5 per cent of GDP.  The current account deficit and the primary deficit are also expected 
to be reduced to 2.3 per cent and 0.2 per cent of GDP, respectively.   
377. These are compatible with the medium-term fis cal strategy consisting of reducing the overall 
deficit to below 5 per cent of GDP by 2006 and ou tstanding government debt to  85 per cent of GDP at 
the end of 2006 and turning around the primary defi cit to a surplus and reducing current account 
deficit sharply, while maintaining an adequate leve l of public investment.  The improvements in fiscal 
aggregates are expected to be achieved through a re duction of current expenditure (by 1.7 percentage 
points to 19.3 per cent of GDP) and an increase of re venue (by 0.4 percentage points to 17.1 per cent 
of GDP), while raising public investment (by 0.8 percentage points to 5.3 per cent of GDP) in 2003. 
378. The challenges in monetary management in 2003 will largely come from the fallout from 
international geopolitical developmen ts and delays in the global economic recovery, as both will have 
adverse implications on price levels , the domestic foreign exchange market and aggregate demand.  It 
is essential to strike a balance between curtailment of inflationary pressures in the domestic market 
arising from external shocks and the need to improve economic recovery .  Similarly, a close 
monitoring of the expected large inflows of foreign assistance is critical to minimising their potential inflationary pressures and impact on the country’s  external competitiveness.  Increasing reliance on 
open market operations in moneta ry management will facilitate facing these challenges without 
creating economic distortions. 
379. The expected decline in inflationary pressures would enable the Central Bank to reduce its 
policy rates cautiously and would gradually shift the yield curve further down.  The expected surplus 
in the BOP raising domestic liquidity and reduci ng public sector borrowings would further facilitate 
reductions in market interest rates. 
380. Based on the overall macroeconomic outlook, m onetary expansion (i.e., growth in broad 
money supply (M
2b)) has been targeted to be around 13.5 per cen t to be compatible with the expected 
economic growth of 5.5 per cent and the reduction of inflation to 7.5 per cent. WT/TPR/G/128 Trade Policy Review 
Page 88 
 
 
381. Faster progress in the peace process, accelera tion of structural reforms and a stronger 
recovery in the world economy may improve the macroeconomic situation.   However, existing 
downside risks cannot be underestimated.  Any slowdow n or reversal of the peace process, delays in 
recovery of the world economy, large fiscal slippa ges and delays in envisaged structural reforms 
could worsen the macroeconomic situation causi ng severe difficulties for economic management.  
Therefore, efforts are being made to move forwar d in the peace process, achieve the envisaged fiscal 
targets, implement structural reforms and take corr ective measures to absorb ex ternal shocks in time. 
382. All indicators show clearly that the Government ’s fiscal and monetary policies have placed 
the economy on an upward march–the Colombo Stock Exchange, the international support received at 
the Tokyo Development Forum, reduced inflation, redu ced bank interest rates, a stable exchange rate, 
increasing foreign direct investment and remittances, greater tourist arrivals, increase in agricultural 
production, particularly in paddy are all signs of a vibrant economy in which there is public 
confidence. The opening-up of the markets of the No rth and East of the coun try and their productivity 
also added impetus to the economy. Sri Lanka WT/TPR/G/128 
 Page 89 
 
 
Annex – I  
 Direction of Trade – Exports
 
 
Group of Countries Percentage of Exports to the Rest of the World During 1996 - 2002 
  1996 1997 1998 1999 2000 2001 2002 
1. Industrial Countries  73.046 73.300 73.143 73.763 73.825 72.911 73.034 
Belgium - Luxemburg 5.343 4.230 3.232 2.967 2.810 2.497 5.492 
France 2.638 2.198 2.103 2.202 2.059 2.220 1.983 
Germany , Federal Republic of 5.833 4.948 4.826 4.670 4.152 4.121 4.238 
Japan 6.249 5.038 4.081 3.690 4.143 3.857 2.984 
Netherlands 3.013 2.945 2.182 2.327 1.883 1.795 1.649 
United Kingdom 9.470 11.303 11.036 13.078 13.288 11.967 12.553 
United States of America 34.016 35.850 39.333 38.788 39.548 39.988 37.516 
2. Developing Countries  21.716 21.425 21.258 20.653 20.268 20.606 22.204 
Africa 0.910 0.943 0.836 0.779 0.664 0.722 0.826 
South Africa , Union of 0.378 0.339 0.264 0.267 0.219 0.210 0.225 
Asia 8.513 8.325 7.163 8.264 8.550 7.830 10.479 
Hong - Kong 1.545 1.167 1.088 1.361 1.246 1.093 1.207 
India 1.045 0.942 0.784 1.054 1.047 1.495 3.627 
Korea , South 0.854 0.957 0.549 0.710 0.554 0.586 0.706 
Pakistan 0.899 0.809 0.560 0.667 0.536 0.516 0.613 
Singapore 1.456 1.243 0.906 0.964 1.100 1.186 1.536 
Europe 3.393 3.210 2.816 2.053 1.419 1.368 1.520 
Turkey 2.087 2.108 1.810 1.294 0.961 0.959 1.014 
Middle East 7.415 7.249 8.787 7.879 7.898 9.006 8.089 
Iran 0.879 0.505 0.381 0.543 0.602 0.611 0.745 
Syrian Arab Republic 1.336 0.916 1.083 1.002 0.932 1.156 1.383 
United Arab Emirates 1.359 1.911 0.768 2.645 2.436 3.019 2.541 
Western Hemisphere 1.485 1.697 1.656 1.677 1.449 1.406 1.530 
Mexico 0.473 0.577 0.625 0.758 0.617 0.635 0.814 
3. C.I.S., Eastern Europe  3.153 3.750 3.171 2.407 2.613 3.440 3.648 
C.I.S. Countries (d) 3.079 3.674 3.066 2.341 2.573 3.407 3.660 
b Provisional. 
Source:   Economic Research Department , Central Bank of Sri Lanka.  
 
 WT/TPR/G/128 Trade Policy Review 
Page 90 
 
 
Annex – II  
 Direction of Trade - Imports
 
 
Group of Countries Percentage of Imports fr om the Rest of the World During 1996 - 2002  
  1996 1997 1998 1999 2000 2001 2002 
1. Industrial Countries 34. 561 33.849 36.202 32.101 30.718 29.891 29.413 
Australia 1.969 2.554 2.164 1.792 2.238 2.698 2.746 
Belgium - Luxemburg 2.625 2.342 2.283 2.423 2.196 2.737 2.797 
France 0.906 0.871 1.241 1.308 1.113 1.339 1.288 
Germany , Federal Republic of 2.822 3.126 3.443 2.269 2.146 2.314 1.990 
Italy 1.583 1.399 1.412 1.266 0.866 1.107 1.367 
Japan 9.130 8.171 9.445 9.458 8.832 5.648 5.815 
New Zealand 1.278 1.145 1.360 1.172 0.874 1.182 1.051 
Sweden 1.043 1.229 0.723 0.612 0.542 0.719 0.898 
Switzerland 1.724 1.251 1.399 1.328 1.563 1.272 1.464 
United Kingdom 4.612 4.814 5.179 4.189 4.258 3.699 4.302 
United States of Amercia 3.639 3.181 3.899 3.607 3.485 4.452 3.576 
2. Developing Countries 57.182 61.988 60.427 57.283 55.143 60.399 69.001 
Africa 1.224 0.931 0.969 0.605 0.480 0.444 0.569 
South Africa , Union of 1.089 0.773 0.835 0.526 0.390 0.369 0.486 
Asia 45.955 48.419 50.520 48.856 45.572 50.575 5.282 
China , People's Republic of : 2.719 2.894 3.847 2.694 3.432 3.695 4.231 
China - Taiwan 5.283 6.344 6.434 5.794 5.337 5.412 4.713 
Hong - Kong 6.499 7.012 6.983 7.659 7.052 8.389 8.039 
India 10.315 9.543 9.164 8.536 8.204 10.085 13.661 
Korea , South 6.419 7.785 7.737 6.453 5.418 5.625 4.971 
Singapore 4.744 4.876 5.282 7.538 6.781 6.882 7.092 
Europe 1.022 0.442 0.437 0.380 0.343 0.373 0.464 
Middle East 7.638 8.996 6.326 6.492 8.241 8.506 14.436 
Iran 2.795 1.682 1.983 1.346 2.779 3.910 3.007 
Saudi Arabia 2.084 3.085 1.687 0.760 1.829 0.597 2.549 
United Arab Emirates 0.951 1.232 1.358 1.861 1.949 2.531 4.356 
Western Hemisphere 1.343 3.199 2.174 1.591 0.507 0.494 0.755 
3. C.I.S., Eastern Europe 0.499 0.296 0.359 0.273 0.108 0.191 0.176 
Source:   Economic Research Department, Central Bank of Sri Lanka. Sri Lanka WT/TPR/G/128 
 Page 91 
 
 
 Annex-III  
Fiscal Management (Responsibility) Act No. 3 of 2003  
Reports to be placed before Parliament  
 
Fiscal Strategy 
Statement 
  
With the Budget 
Speech  
 
Minister of Finance 
 
Budget Economic and 
Fiscal position Report  
With the Budget 
Speech  
 
Minister of Finance 
 
 
Mid-Year Fiscal 
Position Report  
End of June  
 
Minister of Finance 
 
 
Final Budget Position 
Report  
End of May  
 
Minister of Finance 
 
Pre- election  Budgetary Position 
Report (submitted by the Secretary to the 
Minister of Finance)  Within 3weeks  of 
the announcement 
of a General 
Election.    
 
Secretary to the 
Treasury 
 
Statement of 
Responsibility 
 Within 3weeks of 
the announcement 
of a General 
Election.    
 
Secretary to the 
Treasury 
 Name of Report Date By WT/TPR/G/128 Trade Policy Review 
Page 92 
 
 
Annex – IV  
List of Specific Duties 
HS CODE DESCRIPTION RATES AS AT  
MARCH 2003 RATES AS OF 
01.01.2004 * 
07019000 Potatoes, fresh or chilled:  ot her than seed Rs 20/kg. Rs 20/kg. 
07031001 Red onions Rs 5/kg. Rs 5/kg. 
07031002 B' onions Rs 6/kg. Rs 8/kg. 
07031003 Other onions Rs 6/kg. Rs 8/kg. 
07031009 Other Rs 6/kg. Rs 8/kg. 
07101001 Potatoes:  uncooked Rs 20/kg. Rs 20/kg. 
07101009 Potatoes:  cooked Rs 20/kg. Rs 20/kg. 
07119002 Onions Rs 6/kg. Rs 8/kg. 
07122000 Onions Rs 6/kg. Rs 8/kg. 
07133101 Green gram (moong) Rs 5/kg. Rs 5/kg. 
07133902 Cowpea Rs 5/kg. Rs 5/kg. 
07133903 T/Dhal (Cajanas Cajan) Rs 5/kg. Rs 5/kg. 
09042001 Fruit of the genus Capsicum or of the genus Pimenta, 
dried or crushed or ground:  chillies Rs 30/kg. Rs 30/kg. 
10061000 Rice in the husk (paddy or rough) Rs 5/kg. Rs9/kg. 
10062000 Husked (brown) rice Rs 5/kg. Rs 9/kg. 
10063000 Semi-milled or wholly milled rice, whether or not 
polished or glazed Rs 5/kg. Rs 9/kg. 
10064000 Broken rice Rs 5/kg. Rs 9/kg. 
11023000 Rice flour Rs 7/kg. - 
14049001 Beedileaves 25% or Rs 170/kg 25% or Rs 170/kg 
17011100 Cane sugar Rs 3.50 per kg. Rs 4.50 per kg. 
17011200 Beet sugar Rs 3.50 per kg. Rs 4.50 per kg 
17019901 White crystalline cane suga r Rs 3.50 per kg. Rs 4.50 per kg 
17019902 White crystalline beet suga r Rs 3.50 per kg. Rs 4.50 per kg 
17019903 Other sugar Rs 3.50 per kg. Rs 4.50 per kg 
17029003 Sakkara, Jaggery Rs  3.5/kg. Rs 3.5/kg. 
21069009 Compound alcoholic preparations of a kind used for 
the manufacture of beverages Rs 550 per l Rs 550 per l 
22030000 Beer made from malt Rs 75 per l Rs 75 per l 
22041000 Sparkling wine Rs 175 per l Rs 200 per l 
22042100 Other wine;  grape must with fermentation prevented 
or arrested by the addition of alcohol:  in containers 
holding 2 litres or less Rs 175 per l Rs 200 per l 
22042900 Other wine;  grape must with fermentation prevented 
or arrested by the addition of alcohol:  other than in 
containers holding 2 litres or less Rs 175 per l Rs 200 per l 
22043000 Other grape must Rs 175 per l Rs 200 per l 
22051000 Vermouth and other wine of fresh grapes flavoured 
with plants or aromatic substances:  in containers holding 2 litres or less Rs 175 per l Rs 200 per l 
22059000 Vermouth and other wine of fresh grapes flavoured 
with plants or aromatic substances:  other than in containers holding 2 litres or less Rs175 per l Rs 200 per l 
22060000 Other fermented bevera ges Rs175 per l Rs 200 per l 
22071000 Indentured ethyl alcohol of an alcoholic strength by 
volume of 80% vol or higher Rs. 40 per l Rs 60 per l 
22072009 Ethyl alcohol and other spirits, denatured, of any 
strength:  other Rs 40 per l Rs 60 per l 
22082000 Spirits obtained by distilling grape wine or  grape marc Rs 800 per p. l Rs 880 per p. l 
   Table (cont'd) Sri Lanka WT/TPR/G/128 
 Page 93 
 
 
HS CODE DESCRIPTION RATES AS AT  
MARCH 2003 RATES AS OF 
01.01.2004 * 
22083000 Whiskies Rs800per p. l Rs 880 per p. l 
22084001 Rum Rs 800 per p. l Rs 880 per p. l 
22084002 Tafia Rs 800 per p. l Rs 880 per p. l 
22085000 Gin and Geneva Rs 800per p. l Rs 880 per p. l 
22086000 Vodka Rs 750 per p. l Rs 825 per p. l 
22087000 Liqueurs and cordials Rs 750 per p. l Rs 825 per p. l 
22089001 Coconut base arrack Rs  750 per p. l Rs 825 per p. l 
22089009 Other Rs 750 per p. l Rs 825 per p. l 
24021000 Cigars, cheroots, cigarillo s containing tobacco  Rs1,370 per kg. Nett Rs1,370 per kg. Nett 
24022001 Beedies 50% or Rs 1570/kg gross wt 50% or Rs 1570/kg gross wt 
24029000 Other 250% or Rs 1370/kg gross wt 250% or Rs 1370/kg gross wt 
24031001 Pipe tobacco 250% or Rs 1370/kg gross wt 250% or Rs 1370/kg gross wt 
24031009 Other 250% or Rs 1370/kg gross wt 250% or Rs 1370/kg gross wt 
24039101 Pipe tobacco 250% or Rs 1370/kg gross wt 250% or Rs 1370/kg gross wt 
24039109 Other 250% or Rs 1370/kg gross wt 250% or Rs 1370/kg gross wt 
24039901 Pipe tobacco 250% or Rs 1370/kg gross wt 250% or Rs 1370/kg gross wt 
24039909 Other 250% or Rs 1370/kg gross wt 250% or Rs 1370/kg gross wt 
33021009 Mixtures of odoriferous substances and mixtures 
(including alcoholic solutions ) with a basis of one or 
more of these substances, of a kind used as raw 
material in industry, othe r preparations based on 
odoriferous substances, of a kind used for the 
manufacture of beverages: other  25% or Rs. 550/ per l 25% or Rs. 550/ per l 
64011000 Footwear incorporating a metal toe-cap 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64019100 Covering the knee 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64019200 Covering the ankle but not covering the knee 25%  or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64019900 Other 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64021200 Ski boots and cross country ski footwear and snow 
board boots 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64022000 Footwear with upper straps  or thongs assembled to the 
sole by means of plugs 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64023000 Other footwear, incorporating a metal toe-cap 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64029100 Covering the ankle 25% or Rs. 100/  per pair 25% or Rs. 100/ per pair 
64029900 Other 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64031200 Ski boots and cross country ski footwear and snow 
board boots 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64032000 Footwear with outer sole s of leather and uppers which 
consist of leather straps across the instep and around 
the big toe 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64033000 Footwear made on a base  or platform of wood, not 
having an inner sole or a protective metal toe-cap 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64034000 Footwear incorporating a protective metal toe-cap  25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64035100 Covering the ankle 25% or Rs. 100/  per pair 25% or Rs. 100/ per pair 
64035900 Other 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64039100 Covering the ankle 25% or Rs. 100/  per pair 25% or Rs. 100/ per pair 
64039900 Other 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64051000 Other Footwear: with uppers of leather or composition 
leather 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64052000 Other Footwear: with uppers pf textile material s 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
64059000 Other 25% or Rs. 100/ per pair 25% or Rs. 100/ per pair 
87120009 Bicycles and other cycles  (including delivery tricycles), 
not motorised: other 25% or Rs. 750/ per unit 25% or Rs. 750/ per unit 
 
* Changes under 2004 Budget. WT/TPR/G/128 Trade Policy Review 
Page 94 
 
 
Annex – V  
Revised Bands of Customs Duties and List of Products under 2004 Budget  
1. Free 
 Pharmaceutical Products 
 Printed Books, News papers, Pictures and other products of the Printing industry  Silk 
 Wool, Fine or Coarse animal hair 
 Cotton  Other textiles fibers 
 Man made filaments 
 Man made Staple Fibers  Special woven fabrics, tufted textile fabrics 
 Knitted or Crocheted fabrics 
 Natural or Cultured Pearls  Precious or semi precious stones 
2. From 2.5% to 3% 
 Live Trees 
 Wheat , Maize 
 Ores, Slag and Ash 
 Mineral fuel and oil 
 Inorganic chemicals 
 Organic chemicals  Fertilizers 
 Tanning or Dyeing extracts 
 Miscellaneous chemical products  Plastics 
 Synthetic Rubber 
 Natural Cork  Pulp of wood or other fibrous cellulose materials  
 Copper and art. Thereof 
 Lead and art. Thereof  Zinc and art. Thereof 
 Tin and art. Thereof 
 Other base metal and art. Thereof  Nuclear reactors, Boilers and majority of Machinery 
 Ships boats and floating structures 
3. From 5% to 6% 
 Nickel and art. thereof 
 Aircraft, Spacecraft and parts 
 Railway or Tramway Rolling stock and parts and accessories thereof 
 Harvesting or threshing machines 
 Tools and implements  Electronic Integrated circuits 
 Medical or surgical instruments  
4. From 10% to 12% 
 Fish and Crustaceans 
 Products of animal origin 
 Rye, Barley, Oats  Gums, Resins and Vegetable saps and extracts 
 Animal fats and oils 
 Residues and waste from the food industry Sri Lanka WT/TPR/G/128 
 Page 95 
 
 
 Essential oils 
 Natural rubber 
 Raw hides, skins and leather 
 Paper and paper boards  Carpets and other textile floor coverings 
 Apparel and clothing accessories (knitted or crocheted)  
 Apparel and clothing accessori es (not knitted or crocheted) 
 Other made up textile articles  
 Glass 
 Art. Of iron and steel  Musical instruments  
5. From 25% to 27.5% 
 Meat and edible meat 
 Live animals 
 Dairy products 
 Cut flowers  Edible vegetables 
 Edible fruits 
 Tea, Coffee and spices 
 Products of milling industry 
 Preparations of meat, fish and crustaceans  Preparations of Vegetables, fruits and nuts 
 Miscellaneous edible preparations 
 Perfumery, Cosmetics or toilet preparations  Pneumatic tyres of rubber 
 Art. Of leather, saddlers  
 Fur skins and art. of fur   Manufactures of straw 
 Headgears and parts  
 Umbrellas  Prepared feathers and down and art. made of feathers  
 Ceramic products 
 Glassware   Furniture, Beddings, Mattresses 
6. Other Tariff lines 
 75%  
 Unmanufactured tobacco 
 100% 
 Cigars and cheroots 
 250% 
 Other manufactured tobacco 
 20%, 16% WT/TPR/G/128 Trade Policy Review 
Page 96 
 
 
Annex - VI  
The Conditions Stipulated in Exchange Cont rol Regulations Regarding Foreign Investment  
1. Exclusions  -   
 Following areas are totally reserved only for Sri Lankans: 
 (a) Money lending  
 (b) Pawn broking,  (c) Retail trade with a capital of less than One Million US Dollars,  (d) Coastal fishing. 
1.1 Limitations  
(a) The permission is granted in respect of shares in  a company carrying on or proposing to carry 
on any of the following businesses only up to 40% of the issued capital of such company, or if 
approval has been granted by the Board of Invest ment of Sri Lanka for a higher percentage of 
foreign investment in any company, only up to such higher percentage. 
 (a) Production of good where Sri Lanka’s e xports are subject to internationally 
determined quota restrictions ; 
 (b) Growing and primary processing of tea, rubber, coconut, rice, sugar and spices ; 
 (c) Mining and primary processing of non renewable national resources ;  (d) Timber based industries using local timber ;  (e) Fishing (deep sea fishing) ;  (f) Mass communication ; 
 (g) Education ; 
 (h) Freight forwarding ;  (i) Travel agencies ;  (j) Shipping agencies ; 
(b) The permission is granted in respect of the shares of a company carrying on or proposing to 
carry on any of the businesses set out below only up  to the percentage of the issued capital of 
the company for which percentage either general or special approval has been granted by the 
Government of Sri Lanka or any legal or admi nistrative authority set up for the approval of 
foreign investment in such business. 
 (a) Air transportation ;  
 (b) Coastal shipping ;  
 (c) Industrial undertaking in the Second Sche dule of the Industrial Promotion Act, No. 
46 of 1990, namely – any industry manufacturing arms, ammunitions, explosives, military vehicles and equipment aircra ft and other military hardware; 
  Any industry manufacturing poisons, narcotics, alcohols, dangerous drugs and toxic, 
hazardous or carcinogenic materials; 
  Any industry producing currency , coins or security documents; 
 (d) Large scale mechanized mining of gems;  (e) Lotteries. Sri Lanka WT/TPR/G/128 
 Page 97 
 
 
Annex - VII  
Industry-wise Incentives at a Glance  
Qualifying Criteria Incentives 
Concessionary Tax Import Duty 
Exemption on Category Min. Invt 
(USD) Min. 
Export 
Req. 
(% of 
output) Full 
Tax 
Holiday 10% 15% 20% Capital 
goods Raw 
materials Exemp-
tion 
from 
Ex- 
change 
Control 
1. Manufacture of 
non-traditional goods1 
for export including 
deemed exports 150,000 80% 5 yearsa 2 years Thereafter N/A Yes Yes2 Yes 
2. Export-oriented 
services 150,000 70% 5 yearsa 2 years Thereafter N/A Yes Yes2 Yes 
3. Manufacture of 
Industrial Tools and /or  
Machinery 150,000 N/A 5 yearsa 2 years N/A Thereafter Yes3 No No 
4. Small scale 
Infrastructure Projects: 
Power generation, 
Tourism and/or recreation, Warehousing and/or Cold storage, 
Garbage collection and/or 
disposal, Construction of houses not less than 25 housing units in not more than 4 locations, Construction of hospitals 500,000 N/A 5 years
a 2 years N/A Thereafter Yes3 No  
5.1 Information 
Technology (IT) and/or 
IT enabled services4 
5 technically qualified 
persons for IT enabled 
services) 
 
5.2 IT related 
Training Institutes 
(Min. 300 students p.a. in 
IT related Training 
Institutes) N/A 
 
 
   
N/A N/A 
 
 
   
N/A  3 years
a 
 
  
 
 
3 years
a 2 years 
   
2 years If export 
oriented 
 
  
If export 
oriented If not 
 
 
   
If not Yes
5 
 
  
Yes
3 No 
   
No Yes, if 
exports 
> 70% 
 
No 
6. Regional 
Operating Head 
Quarters6 N/A 70% 3 yearsa 2 years If export 
oriented If not Yes No Yes 
7. Any Industrial, 
Agriculture, Construction or Service 
or  any other business 
activity  approved by the 
Board subject to the concurrence of the Minister  5,000,000 N/A 3 years
a 2 years If export 
oriented If not Yes3 No Determi
- 
ned by 
the 
Board 
8. Research and 
Development7 50,000 N/A 5 yearsa N/A Thereafter N/A Yes3 No No 
Table (cont'd) WT/TPR/G/128 Trade Policy Review 
Page 98 
 
 
Qualifying Criteria Incentives 
Concessionary Tax Import Duty 
Exemption on Category Min. Invt 
(USD) Min. 
Export 
Req. 
(% of 
output) Full 
Tax 
Holiday 10% 15% 20% Capital 
goods Raw 
materials Exemp-
tion 
from 
Ex- 
change 
Control 
9. Agriculture and/or 
Agro-processing other than processing of Black 
tea8 10,000 N/A 5 yearsa N/A Thereafter N/A Yes3 
(lifetime 
if export 
ori-
ented) No 
 Yes, if 
exports 
>70% 
10. Existing 
enterprises9 
undertaking an 
expansion  of its industry 
in the same location  or 
another location  500,000 N/A 2 yearsb 
 
  N/A Thereafter N/A  
  
Yes 
  
  
Yes 
 Yes 
11. Non-performing or 
under performing 
enterprise10 10,000 Apply 
accordin- 
gly 3 yearsa N/A Apply 
accordin- 
gly Apply 
accordin- 
gly Apply accordin gly Deter-
mined 
by the 
Board 
Annual value 
of turnover 
(USD) 
5-10 mn 
  
  
  
     
  
5 years
a 
 
10–25mn  5% tax 
up to 
5 yearsa  12. Export Trading 
House  exporting entirety 
of locally procured manufactured products or re-exporting the entirety of imported products and 
location should be within 
the EPZ  
Over 25 mn  0% tax 
for 
5 years
a   
   
Thereafter  
   
N/A  
   
Yes  
   
Yes  
   
Yes 
12,500,000 Apply 
accordin- 
gly 5 yearsa 
 
25,000,000 Apply 
accordin- 
gly 8 yearsa 
 13. Large-scale (new 
/existing) Projects  A 
company formed by the 
acquisition of assets of 
any existing enterprise to engage in the business relating to Petroleum, Power generation, transmission and 
Development of 
highways, Sea ports, Air ports, Railway, Water services, Public Transport, Agriculture and/or Agro processing services other than processing of black 
tea in bulk or any other 
Infrastructure project approved by the Board with concurrence of the Minister over 
50,000,000 Apply 
accordin- 
gly 10 
years
a  
  
 
N/A  
  
 
Thereafter  
  
 
N/A  
  
 
Yes
3  
  
 
No Determi
ned by 
the 
Board  
Table (cont'd) Sri Lanka WT/TPR/G/128 
 Page 99 
 
 
Qualifying Criteria Incentives 
Concessionary Tax Import Duty 
Exemption on Category Min. Invt 
(USD) Min. 
Export 
Req. 
(% of 
output) Full 
Tax 
Holiday 10% 15% 20% Capital 
goods Raw 
materials Exemp-
tion 
from 
Ex- 
change 
Control 
 
 
 
10,000,000  
 
 
N/A  
 
6 yearsa 
 
25,000,000  
N/A  
8 yearsa  
 
50,000,000  
N/A  
10 
yearsa 14 . Large-scale 
Infrastructure   
Projects :  
• Power generation, 
transmission & distribution 
• Development of 
Highways, Sea Ports, Air Ports, Public transport, Water services 
• Establishment of 
Industrial Estates 
• Any other 
Infrastructur e projects 
approved by the Board 
  
75,000,000  
N/A  
12 
yearsa  
 
 
  
N/A  
 
 
 Thereafter  
 
 
 
N/A  
 
 
 
Yes
3  
 
 
 
No  
Deter-
mined 
by the 
Board  
a The tax holiday period will be r eckoned from the year of assessment in which the enterprise begins to ma ke profits or any yea r of 
assessment not later than 2 years reckoned from the date of  commencement of commercial operation or production whichever 
year is earlier. 
b The tax holiday period (2 years) will be r eckoned from the date of expiry of the ta x holiday of the existing company or from the 
date of commencement of commerci al operation of the expansion.  
1 Non-traditional Goods include all goods other than Black tea in bulk, Crepe rubber, Sheet rubber, Scrap rubber, Coconut oil, 
desiccated coconut (other than Desiccated  coconut manufactured using continuous scale automated process technology and 
marketed with a quality guarantee), Copra, Fresh coconuts, coc onut fiber or such other commodity as may be determined by the 
Board 
2 For export quantities 
3 During the project establishment/implementation period 4 IT enabled services includes call centers  or contact centers, transcription (data entry), data centers, hosting centers, e-go vernance 
related projects and any other related activity determined  by the Board subject concurrence of the Minister. 
5 If exports less than 70%, only duri ng the project implementation period 
6 Incentives to Regional operating head quart ers are available provided 2 or more of the following services are provided to rel ated 
businesses established outside Sri Lanka: Administration, busine ss  & co-ordination, Sourcing of raw materials & components, 
R & D services, Technical support services, Financial & treasury management, Marketing & sales promotion 
7 Any systematic or intensive study carried out in the filed of science or technology with the object of using the result of th e study 
for the production or improvements of materials, devices, products, produce or process but not include
: Quality control of 
products or routine testing materi als, devices, products or produce; Research in th e social sciences or humanities; Routine dat a 
collection; Efficiency surveys or management studies; Market research or sales promotion 
8 Agriculture includes cultivation of plants , animal husbandry and rearing and/or pro cessing of fish but excluding processing o f 
black tea & prawn culture.  
9 An Existing enterprise which is engage d in the manufacture for non-traditional goods  for export including deemed or export of  
services as approved by the Board & invest ment should be made before 31 March 2004. 
10 A new or existing enterprise which takes over, merges or acquires a non-performing or under performing industry/factory for 
rehabilitation with the provision to meet st atutory liabilities of these industries & inve stment should be made before 31 March  
2004.  If a non-BOI company takes over non- performing or unde r performing company, a new company should be incorporated. 
(“Non-performing ” – not in operation at least for 6 months pr ior to the submission of the application; “ under performing ” – 
not made profits for consecutive 2 years) WT/TPR/G/128 Trade Policy Review 
Page 100 
 
 
Annex - VIII  
Goods Exempted from Import Duties  
No Description Approval agency 
01 Passengers' Baggage as define d by regulations made by the Minister of Finance under 
Section 107A of the Customs Ordinance (Chapter 235). Secretary to the Treasury 
02 Films of educational, scien tific or cultural character pr oduced by the United Nations 
Organization or any of its specialized agencies Secretary of the Treasury 
03 Temporary import of professional and scientific equipm ent and pedagogic material,  Secretary to the Treasury 
04 Articles awarded abroad to any person for distin ction in art, literature,  science or sport, or 
for public service, or otherwise as a reco rd of meritorious achievement and conduct, 
imported by or on behalf of that person Secretary to the Treasury 
05 Raw materials for the manufacture of pharmaceuticals Secretary to the Treasury 
06 Ayurveda, Siddha and Unani raw and prepared  drugs and medicinal plants specified by 
Notification published in Gazette  by the Director General of Customs in consultation 
with the Secretary, Ministry of Health, a nd Ayurvedic, Unani and Siddha preparations 
(other than cosmetics preparations) Secretary to the Treasury 
07 Homeopathic drugs recommended by the Homeopathic  Council of Sri Lanka Secretary to the Treasury 
08 Nutritional supplements for nesogastric tube feeding Secretary to the Treasury 
09 Artificial limbs, crutches, hearing aids, acce ssories for hearing aids {including batteries 
of a voltage not exceeding 1.4 ( one decimal point four) - being meant for use in hearing aids as specified on their packing } and othe r appliances which are worn or carried or 
implanted in the body, to compensa te for a defect or disability Secretary to the Treasury 
10 Articles specially designed for the use of the deaf and the blind Secretary to the Treasury 
11 Articles of foreign production upon which im port duty had previously been paid, re-
imported subject to regula tions made by the Director General of Customs Secretary to the Treasury 
12 Goods being gifts from persons  or organizations overseas for the relief of distress caused 
by natural or other distress Organizations to be approved by 
the Secretary to the Treasury 
13 Goods for display or use at exhi bitions, fairs, meetings or simila r events Secretary to the Treasury 
14 Capital and intermediate goods, and transport equipment for exclusive use of an industry 
that exports and/or supplies to direct e xporters 50% or more of its output, for use 
exclusively at the place of production Terms and conditions to be 
approved by the Secretary to the 
Treasury  
15 Inputs (raw materials, components and part s) imported under inward processing scheme 
for export Terms and conditions to be 
approved by the Minister of Finance 
16 Ornamental fish for re-export under such te rms and conditions approved by the Director 
General of Customs Secretary to the Treasury 
17 Fish caught by fishing vesse l operating from a Sri Lankan Port and duly registered at a 
Port of Registry in Sri Lanka or issued with a landing permit Ministry of Fisheries 
18 Ground equipment and technical supplies for use within the limits of an Airport in Sri 
Lanka in connection with the establishment and maintenance of an International Air 
Service Secretary to the Treasury 
19 Materials and parts for the fabrication of plan t, machinery and equipment, to be used in 
an industry that exports 50% or more of its output Terms and conditions to be 
approved by the Secretary to the 
Treasury 
20 Containers and accessories thereof, us ed for the safe carriage of goods.  
21 Products and preparations certified by the Mi nistry of Health a nd Indigenous Medicine 
as registered as drugs under the Cosmetics Devices and Drugs Act Secretary to the Treasury 
22 Import of  Personal items a nd samples in relation to business worth not more than 
SL Rs 10,000 – through parcel post or courier  Terms and conditions to be 
approved by the Secretary to the 
Treasury  
Source: The Gazette of the DSR of SL – Extraordinary No.1261/12 – 06th November 2002 – Revenue Protection Order 
No. 07/2002 
Customs Laws of Sri Lanka (2002), A Manual, P. Weerasekera and T. Kanathalingam. Sri Lanka WT/TPR/G/128 
 Page 101 
 
 
Annex - IX  
List of Items Importable under Concessional Rates  
Item Description Rate of Duty 
01 Material imported for the fabrication of plant,  machinery and equipment to be used in an 
industry which export 25% or more and less than 50% of the output  under terms and 
conditions as are approved by the Secretary to the Treasury 50% of the normal rate of 
duty 
02 Capital and intermediate goods and transpor t equipment for use exclusive at the place 
of production, imported for the exclusive use of an industry which exports and/or 
supplies to direct exporters, 25% or more and less than 50%  of its output under such 
terms and conditions as are approved by the Secretary to the Treasury. 50% of the normal rate of 
duty 
Source: The Gazette of the DSR of SL – Extraordinary No.1261/12 – 06th November 2002 –  Revenue Protection Order 
No. 07/2002 WT/TPR/G/128 Trade Policy Review 
Page 102 
 
 
Annex - X  
List of Items Importable under Concessional Rates  
This list provides the goods that receive concessions from Customs Import Duty provided that the 
goods are imported for the very purpose appr oved under the respective category and approval 
obtained from the Secretary to the Treasury.   
Item Description Rate of Duty 
01 
 
 
02  
 
03  
04 
  
05 
   
06 
  
07 
  
 
08  
 
 09 
 
 10 
 
11   
12 
  
13 Apparatus, drugs and chemicals imported for educational purposes or for research work, 
imported subject to approval by the Secretary to the Treasury. 
 
Machinery including ambulances, medical, surgi cal and dental equipment, instruments, 
apparatus, accessories and parts thereof, require d for the provision of Health Services, imported 
subject to approval by the Secretary to the Treasury. 
 Unused postage and revenue stamps to be  of current or new issue in Sri Lanka. 
 
Ingredients other than maize, lentils and rice,  for the manufacture of animal and poultry food, 
imported subject to approval by the Secretary to the Treasury. 
 
Weapons, armaments, ancillary equipment, amm unition, explosives, vehicles and equipment 
capable of being used by the armed forces and imported by the Service Commanders and the 
Inspector General of Police for the purpose of  National Security as recommended by the 
Secretary, Ministry of Defence, subject to  approval by the Secretary to the Treasury. 
 Project related machinery, equipment, parts and inputs including raw material and accessories for 
the Textile and Garments Industry, imported subject  to approval by the Secretary to the Treasury. 
 Materials including chassis fitted with engine s, imported for the manufacture/assembly of 
tractors, lorries, trucks, refrigerated trucks and buses, imported subject to approval by the 
Secretary to the Treasury. 
 
Parts, components and accessories for the manuf acture/assembly of machines for cleaning, 
sorting or grading of seed, grai n or dried leguminous vegetables; machinery used in the milling 
industry or for the working of cereals or dried leguminous vegetables, imported subject to 
approval by the Secretary to the Treasury. 
 Raw materials, components, parts and accessori es for the manufacture of fishing boats by 
manufacturers, imported subject to approval by the Secretary to the Treasury. 
 Green houses, poly tunnels, sprinklers, drip irri gation systems and netting for Agriculture and 
related activities, imported subject to appr oval by the Secretary to the Treasury. 
 
Raw materials, components, parts and accessories  for the manufacture of energy-saving compact 
lamps, imported subject to approval by the Secretary to the Treasury. 
 
Components as approved by the Secretary to the Treasury, imported for the local manufacture of 
Milk Chilling tanks and Cold Rooms. 
  
Multi-layered packing material and packs consisting of laminates of paper, polyethylene film and 
aluminium foil, used for packing of milk, vegetable and fruit juices, imported subject to approval 
by the Secretary to the Treasury 2% 
 
 
2% 
 
 
2% 
 
2% 
  
2% 
   
2% 
 
 
2% 
  
 
2% 
 
 
 
2% 
 
 
2 % 
 
2% 
  
2% 
  
2% 
 
 Sri Lanka WT/TPR/G/128 
 Page 103 
 
 
Annex - XI  
List of Fiscal Levies on Exports  
Cess on Exports  
1. Coconut products (Coconut  Development Board) 
 Fresh Coconuts (Chap. 8) 750/- per 1000 nuts 
  Desiccated Coconut (Chap. 3) 1000/- per Mt.   Copra (Chap. 12) 900/- per Mt. 
 
 Coconut Oil (Chap. 15) 400/- per Mt. 
  Poonac (Chap. 23) 250/- per Mt.  
  Defatted Coconut (Chap. 23) 250/- per Mt 
 
 Coconut Cream (Chap. 20) 450/ per Mt.   Coconut Milk Powder (Chap. 11) 450/- per Mt.  
 Coconut based liquor (Chap. 22) 3/-per Ltr. 
  Coconut Shell Charcoal (Chap. 44) 250/- per Mt   Coconut Shell Flour/Pieces (Chap. 14) 200/- per Mt. 
 
 Coconut Shell Activated Carton (Chap.38) 450/- per mt. 
  Coconut Ekels (Chap. 14) lO0/- per Mt.   *Mattress Fibre (Chap. 53) 250/- per Mt. 
 
 *Bristle Fibre (Chap. 53) 250/- per Mt.   *Coir Yarn (Chap. 56)/Coir Rope(Chap 56) 100/- per Mt.  
 *Coir Twine (Chap. 56) 200/- per Mt. 
  **Twisted Fibre (Chap. 53) 250/- per Mt.   *Tawashi Brushes (Chap. 96) 50/- per 1000 pcs  
 *Brooms and Brushes (other than Tawashi) (Chap. 96) Rs. 100/- per 1000 pcs. 
  *Coir Mats / Rugs (Chap. 57) Rs. 250/- per 1000 Pcs. 
  *Coir Mattlngs (Chap. 57)  Rs. 500/- per 1000 Rca. WT/TPR/G/128 Trade Policy Review 
Page 104 
 
 
 *Rubberized Coir Pads 
 (below 60 mm. in thickness) (Chap. 94) Rs. 0.50 per Sq. Meter  *Pads/Mattress for Bedding (above 60 mm. in thickness) (Chap. 94) Rs. 5.00 per pcs. 
 
  Cess on items marked * above has been removed w.e.f. 04.07.2000 for a period of six 
months 
 2. Tea (Bulk packets and bags) 
   Tea Board Cess Rs. 2,50 per Kg  Medical aid- Rs. 0.0035 per Kg   3. Natural Rubber and Compound Rubber 
 (Rubber Development Cess for me dical aid) RS. 1.65 per 100 Kg 
 4. Cashewnuts in shells (EDB cess) 200% of FOB value 
 5. Raw Hides (EBB cess) 
 
 (Various items under various Headings carry different rates as given below) 
 50% of the FOB va’lue or Rs. 100/- pe r Kg whichever is higher (Raw Hides) 
 50% of the FOB value or Rs. 300/- per Kg whichever is higher (Raw Hides) 
 25% of the FOB value or Rs. 40/- per sq .ff whichever is higher (Semi Processed) 
 
6. Non-ferrous Scrap Metal 25% of the FOB Value 
  
Export Duty 
 
1. Quartz 20% of the FOB Value  
2. Iron or non-alloy steel products Rs. 125/- per Metric ton 
 
 
Royalty 
 
1. Chanks Rs. 75/- per 1000 Units  
2. Conch Shell Rs. 75/- per 1000 Units  
3. Elephants Rs. 10/- per Unit  
4. Tuskers Rs. 500/- per Unit Sri Lanka WT/TPR/G/128 
 Page 105 
 
 
Annex –XII  
List of Items that are Prohibited and Restricted when Imported into Sri Lanka  
1. Any article bearing the imprint, affixation or in scription of a religious picture, religious name 
or emblem or title, whether as trade mark or otherwise, ~, in the opinion of the Principal 
Collector of Customs, such imprint, affixation or  inscription on such article is derogatory to 
any religious teacher or his teachings or is likely to wound the religious susceptibilities of the 
followers of the religion with which such pi cture, name, emblem or title is associated. 
2. Any book or pamphlet which in the opinion of the Principal Collector of Customs contains 
disparaging and insulting references to an y religious teacher or his teachings. 
3. Any newspaper, pamphlet, leaflet, book or picture containing matter calculated to lead to acts 
made punishable under section 120 of the Penal Code. 
4. Appliances (including pistols, pistol-pens, pistol-pencils, hand grenades, cartridges, &c.) for 
discharging gas, unless imported by or on behalf of Government. 
5. Beedies and beedy tobacco excep t such as are imported under the authority of a licence issued 
by the principal Collector of Customs and only through such ports and subject to such 
conditions as he may specify by notif ication published in the Gazette. 
6. Books wherein the copyright shall be first subsis ting, first composed, or written or printed in 
the United Kingdom, and printed or reprinted in any other county, and of which notice that 
copyright subsists shall have been given by th e proprietor to the Commissioners of Customs, 
London. 
7. Chinese crackers which contain explosives of such  composition, or in such quantity, as in the 
opinion of the Collector of Customs render them dangerous. 
8. Coin, namely false money or counterfeit sterling coin of the realm, or any money purporting 
to be such, not being of the establishe d standard in weight or fineness. 
9. Cotton, silk or other woven goods impressed w ith designs and imitations of currency notes, 
promissory notes, or stock notes of the Govern ment of Ceylon or of any other Government. 
10. Dummy firearms, toy pistols, or other articles wh ich in the opinion of the Principal Collector 
of Customs are capable of being easily converted into lethal weapons. 
11. Eggs, unless they are stamped indelibly with the name of the country of origin, 
12. Fish, grain, and other articles in a damaged, stinking, or offensive condition, unfit for food 
and legitimate use, or likely to breed sickness or any contagious disorders. 
13. Indecent or obscene prints, paintings, books, car ds, lithographs, photograp hs, engravings or 
any other indecent or obscene articles. 
14. Japanese shaving brushes. 
15. Lottery proposals, circulars, or tickets. 
16. Mattur dhal (Lathyrus Sutivus) otherwise known as Kesari dhal. WT/TPR/G/128 Trade Policy Review 
Page 106 
 
 
17. Meat (whether fresh or frozen) of the follo wing description, being meat derived from any 
warm-blooded animal if such meat is imported for human consumption 
 a) meat which consists of offal, scraps, trimmings and other pieces (whether with or 
without bone~ of such shape or in such condition as to afford insufficient means of 
identification with a definite part of a carcass 
 b) Meat comprising the wall of the thor ax or abdomen from which there has been 
detached any part of the pleura or (except in the case of meat derived from a pig) the 
peritoneum, other than a part necessarily removed in preparing the meat; 
 c) Meat from which a lymphatic gland (except a gland necessarily removed in preparing   the meat) has been taken out; and 
 (d) Meat comprising the head of an animal  from which the sub maxillary gland has been 
removed. 
18. Meat or a meat product of the following description being meat or a meat product derived 
from any warm-blooded animal and imported for human consumption, unless such meat or meat product is accompanied by a certificate or other document issued by a competent 
authority in the country of origin, being a certificate of document which, in the opinion of the 
Principal Collector of Customs, can be treated as containing a sufficient warrant that the meat 
or meat product to which such certificate or document relates is fit for human consumption 
 (a) Meat or any meat product, packed in air-tight containers 
 (b) Cooked or cured or dried meat; 
 (c) Intestines and other parts prepared in the form of sausage 
 (d) Rendered animal fats other than margarine; and 
 (e) Pies, sausages or other prepared or ma nufactured article of food containing meat of 
any description, other than fat. 
19. Milk condensed which co ntains less than 31 per centum of milk solids (including less than 9 
pet centum of milk tat). 
20. Parts of articles, viz., any distinct or separate part of any article not accompanied by the other 
part or all the other parts of such articles, so as to be complete or perfect, if such articles be 
subject to duty according to the value thereof. 
21. Sword-sticks or other articles which, in the opini on of the Principal Collector of Customs, are 
so designed or constructed as to disguise the f act that they are capable of being used or 
adapted for use as knives or swords or other instruments for cutting or stabbing. 
22. The following goods, when they are consigned to any person other than a registered medical 
practitioner, a wholesale or retail chemist, or a person who has obtained the written sanction 
required for the purposes of the proviso to section 3 of The Venereal Diseases Ordinance 
 (a) Any medicines or medicaments for the pr evention, cure, or relief of any venereal 
disease; 
 (b) Any advertisement, notice, handbill or circular recommending to the public any such 
medicine or medicament 
 (c) Any label of any description designed or adaptable for use or capable of being used 
on any box, bottle, phial or other receptacle or container for the purpose of conveying 
the information that any such medicine or medicament is contained therein. 
23. Walking-stick guns, and every gun of any descrip tion which is so designe d or constructed as 
to disguise the fact that it is a gun. Sri Lanka WT/TPR/G/128 
 Page 107 
 
 
24. Weapons, armaments, ancillary equipment, am munition, explosives, vehicles and equipment 
capable of being used by the armed fo rces, except by licence from the Minister. 
25. Any article exported from Ceylon and refused admittance by the authorities at the port to 
which it was exported except by permission of the Collector of Customs. 
26. Articles the importation of which is prohibited by any enactment or any legal order now in 
force or hereafter to be enacted, or any rul es, regulations, notifications, proclamations, or 
orders made or issued thereunder, 
27. Articles the importation of which is restricted by any enactment or any legal order now in 
force or hereafter to be enacted, or any h rul es, regulations, notifications, proclamations, or 
orders made or issued thereunder except in accordance with such enactment, rules, 
regulations, notifications, proclamations, or orders. WT/TPR/G/128 Trade Policy Review 
Page 108 
 
 
Annex - XIII  
List of Products that are Restricted or Prohibited for Export  
Product Restriction Prohibition 
Animals dead or alive and parts of animals 
Any mammal, bird, reptile, amphibian, fish, coral 
or invertebrate whether dead or alive or the eggs, 
feathers, or plumage of any bird , horns, antlers, 
skin or hide of any mammal  or reptile or any part 
of any mammal, bird, rep tile amphibian, fish, coral 
or invertebrate cannot  be exported without 
approval of the Director of Wild Life. Domestic animals (non-indigenous species) are excluded Exports only under permit issued by the Director 
of Wild Life.  Domestic animals (non indigenous species) are excluded.  Permits are issued to 
promote scientific know ledge, including supplying 
foreign zoos, museums, etc. Permits are issued for research purposes as well as 
for exchange with foreign Zoos and Museums. 
Fine; Rs. 20,000/- up to Rs. 50,000/- or imprisonment of 5—10 years or both. (Ref. 4.5 and 
50)  
Fish-Live Ornamental   
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. (Ref.Para 49) 
  
Coral chanks  and conch shells (HS 0508.00.01 
and 0508.00.02) Export under licence issued on the 
recommendation of the Di rector of Fisheries  
Protected Plants 
Protected plants for the time being specified in 
Schedule V of the Fauna and Flora Protection Ordinance. 
Any flora and fauna listed in the Appendices 1,11 
and III of the CITES (Convention of International Trade of Endangered Species) to which Sri Lanka 
is a Signatory  
Export of items in Appendix II may be permitted on licence issued by the Director Wild Life Conservation if they are not considered 
endangered species in Sri Lanka. 
Export of items in Appendix III may be permitted on licence issued by the said  Director. If any of the 
species listed in above Appendices is captive bred, 
export may be permitted on licence issued by the said Director. (Ref. 49)  
Exports of Protected plants specified in Schedule V  - Appendix I 
of the Fauna and Flora 
Protection Ordinance are prohibited.  
Flora and fauna listed  in the Appendices I, II and 
III of the CITES (Convention of International Trade of Endangered Species) Exports of items included in Appendix II and III 
allowed under licence issued by the Director of Wild Life Conservation.  Exports of items included 
in Appendix I are prohibited 
Cinchona bark  in any form, 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: Exports under a licence issued on the 
recommendation of the Ministry of Agriculture, 
Lands, and Forestry.  
Coconut shell charcoal Exporters must be registered with the Coconut 
Development Authority (CDA) and their names 
must notified by the CDA to the Custom Department  
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   HS0507.10 
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 being used to propagate it to 
India, Pakistan, Indonesia or any other prescribed 
country. Exported under a license issued by the Tea 
Controller under the Tea Control Ordinance (Chap.251).  
Table (cont'd) Sri Lanka WT/TPR/G/128 
 Page 109 
 
 
Product Restriction Prohibition 
Antiquities/Cultural Property 
‘Antiquity’ includes any  of the following objects 
lying or being found in Sri Lanka, and which has 
been in existence for more than one hundred years. Statues, Sculptured or dr essed stone and marbles of 
all descriptions, engravings, carvings inscriptions, 
paintings, writings and the material whereon the same appear, all specimens of ceramic, glyptic, 
metallurgic and textile art, coins, gems, seals, 
jewels, jewellery, arms, tools, ornaments, and all other objects of art which are movable property. Exported under a permits issued by the 
Commissioner of Archaeology (Cultural property 
Act/Antiquities Ordinance)   Antiquities/Cultural 
Property cannot be 
exported without the 
permission of the Commissioner of 
Archaeology. 
(Ref 29, 40 and 41). 
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, 
laterite, shale, stone aggregate coral, shell, hall clay, kaolin, feldspar, sedimentary limestone, glass 
sand, calcite, dolomite (marble) silica quartz (vein 
quartz) garnet, mica, fluorspar, serpentinite, magnesite, green marble, radioactive minerals, 
apatite, dimension stone in raw form. 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. The Bureau issues mining licences 
for interested parties to mine minerals and also 
issues Trading licences to trade the mined 
minerals. Bureau  is a llowed to issue export 
licenses.  Any party either who owns a mining 
licence or trading licence can apply for export 
licences  Sand, gravel, shale, stone 
aggregate coral, shell, ball clay, kaolin, feldspar, 
sedimentary Limestone, 
glass sand, calcite, dolomite (marble), garnet,  
fluorspar, magnetite, 
green marble, radioactive minerals, etc. are 
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  
Obscene writings, drawings, prints, paintings, 
printed matter, pictures, posters, emblems, 
photographs, cinematographi c films or any other 
obscene objects. Obscene Publications Ordinance (Ref. 55) 
 Prohibited under the 
Obscene Publication Ordinance (Chap. 42) 
Prohibited under Poisons 
Opium and Dangerous Drugs Ordinance. 
(Ref. 53) 
Source:  http://www.tradenetsl.lk/trade_info/annex1.html [10 Ap ril 2003];  http://www.tradenetsl.lk/trade_info/annex2.html 
[18 February 2003];  WTO (1996), Trade Policy Review – Sri Lanka,  Geneva;  and P. Weeserasekera and 
T. Kananathalingam (2002), Customs Law of Sri Lanka 2002:  A Manual,  Gothatuwa New Town. WT/TPR/G/128 Trade Policy Review 
Page 110 
 
 
Annex - XIV  
The Scheme of Textile Quota Allocation  
The over-riding objectives of the scheme was to main tain the growth and stability of the apparel 
export industry, encouragement of non quota export,  achieving excellence in export performance, 
increasing utilization of locally produced raw mate rials and maximum utilization of textile quotas 
available to the country. 
ELIGIBILITY TO RECEIVE QUOTAS: A manufacturer of textile and textiles products regist ered as an exporter with the Board of Investment 
or with the Ministry of Enterprise Development is el igible to receive textile quotas or apply for textile 
quotas. 
The present system of quota allocations is summarized below. 
1. Criteria of Allocation: 
i) To ensure continuity for an exporter, quotas are allocated primarily on the basis of 
past export performance. A quota holder who had used 98% or more of his performance quota holding in a particular cat egory in the preceding year will be given 
an allocation equal to 100% of his holding in that category.  However, a quota holder 
who has used less than 98% of his perform ance quota holding in a particular category 
is eligible to receive an allocation equa l to the quantity of quota performed in the 
previous year.  This means that quotas ha ve to be earned and re-earned by export 
performance.     Allocation on the basis of past export performance are referred to as 
“performance Quota” or “Main Quota” 
ii) Approximately 3 percent of the quota availa ble in a year will be reserved for “Small 
Scale Manufacturing Units” subject to there being no deficit in any category. Small Scale Manufacturing Unit is a unit which employs a minimum of 50 and a maximum of 200 employees and whose quotas holding in all fast moving categories taken together is 4,000 dozens or less. The quota reserved for small Scale Manufacturing 
Units will be allocated primarily on the basis of the number of employees. The 
allocation of quota under this scheme is made  after inviting applications from all the 
eligible applicants through a newspaper advertisement. Th e Allocation is primarily on 
the basis of the number of employees, attach ed to each factory.  The details of all 
allocations made under this scheme are made available to the industry through the 
industry representatives in the Board. 
iii) 50% of any quota remaining after the allocation on the basis of (i) and (ii) above is 
reserved for resuscitation of sick factories or any other purpose determined by the TQB from time to time.    
 iv) Any quota balances remaining after allocati on on the basis of (i), (ii), (iii) will be put 
to a “Common Pool” and allocated under Common Pool scheme. 
2. Stages of Allocation: 
(i) In order to make a portion of the quotas ava ilable to the industry at the beginning of a 
year, a preliminary allocation of the performance quota will be made on the basis of Sri Lanka WT/TPR/G/128 
 Page 111 
 
 
cleared quantities of exports during the first 11 moths of the preceding year. 
Generally, this allocation is made at least  four weeks before the commencement of 
the year.  
 (ii) After verification of performance figures, a final quota allocation is made by the first 
week of February each year. This alloca tion supersedes the preliminary allocation. 
 (iii) Between the preliminary and final alloca tions, applications for additional preliminary 
allocations are considered on individual merits. 
3. Transfer of Quotas: 
 In order to provide flexibility to the industr y, an exporter is permitted to transfer quotas to 
another exporter. 
4. Surrender of Quotas:  A quota holder who is unable to utilize his performance quota allocation fully is encouraged 
to surrender the quotas which he does not expect to utilize. 
 Surrender of quotas is operated in four phases  Phase i:  Within 6 weeks of final quota allocation – 100 percent of the surrendered 
quantity will be allocated in the succeeding year; 
 Phase ii: During the period from the end of Phase i and before May 31
st – an allocation 
equal to 75 percent of the surrendered quantity will be allocated in the succeeding year. 
 Phase iii: During the period from the end of Phase ii and before July 31
st – an allocation 
equal to 50 percent of the surrendered quantity will be allocated in the 
succeeding year. 
 Phase iv: During the period from the end of Phase iii and before August 31st – an 
allocation equal to 25% of the surrend ered quantity will be allocated in 
succeeding year. 
5. Pool Quota Schemes: 
 Pool Quota Schemes, whilst contributing to  optimum utilization of quotas it provides further 
opportunities for exporters with small quota holdings and newcomers.     
 (i) Conditions for Utilization of Pool Quotas:   (a) Allocation is valid for the period specified.   (b) (i) Validity of un-utilized quantiti es within the specific period will be 
extended only subject to a cash depos it/bank guarantee at the rate or 
rates to be determined by the TQB.  WT/TPR/G/128 Trade Policy Review 
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   (ii) An exporter who wishes to hold the quota without a specific period 
of validity in a year should fu rnish a cash deposit/bank guarantee 
from the date of allocation. 
   (iii) Validity of quotas issued under Phase II of the Cold Pool Quotas 
Scheme will not be extended on cash deposit/ bank guarantee. 
  ( c  )  In the case of the Main Poll Quotas Scheme, those who fail to utilize at least 
75 percent of the quantities within the validity period may be debarred for a specified period from participating in further Pool Quota Schemes. 
  (d) Pool quotas are not transferable. 
 (ii) Sources of Pool Quotas: 
• Balance of quotas remaining after allocation on the basis set out in sub 
paragraphs (i), (ii) and (iii) of paragraph 5 above; 
 
• Surrendered Quotas: 
 
• Quotas allocated but not accepted by exporters; 
 
• Quotas forfeited from exporters. 
  Normally two schemes will be operated during a year.   (a) Cold Category Pool Quota Scheme:  This Scheme is to make available quotas early  in those categories which were substantially 
under – utilized in the preceding year. The quantities to be made available to the pool will depend on 
the extent of under utilization. This Scheme w ill commence at the beginning of the year. The TQB 
shall declare the “Cold” categories, at least before December of the preceding year. 
 This scheme will be operated in two phases. 
 Phase I:  The basis of allocation and the qua ntities to be allocated will be decided by 
the TQB. An exporter who wishes to ho ld large quantities of quotas in Phase 
I could be permitted to do so, subject to  Cash Deposit/ Bank Guarantee at the 
determined by the TQB. 
 Phase II: Any quantity remaining after operation of Phase I will be made available to 
applicants on the condition that shipments should be made within Ten working days from the date of allocation or within a grace period of additional three working days from that date. The TQB will fix the maximum quantity that will be allocated in respect of each category. 
  (b) Main Poll Quotas Scheme: 
 This Scheme commences immediately after the final allocation of performance quotas and 
granting of credit against performance of pool quotas  in the preceding year, generally before the 31
st 
of March. Allocation of main pool quotas is primarily on the basis of the number of employees. Sri Lanka WT/TPR/G/128 
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  (c) a special pool quota scheme may also be operated, if necessary, towards the 
end of the year. Under this Scheme quotas are allo cated on a first-come-first served basis. The TQB 
will fix the maximum quantity that is allocated to an exporter, in each category.  
  (d) Allocation of under – performing quotas 
 By the end of September each under – Perform ing quota (say below 65%) shall be put into a 
pool and offered to exporters for allocations in th e current quota year under bank guarantee scheme.   
 WT/TPR/G/128 Trade Policy Review 
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Annex – XV  
Diagram 1 – Trade Policy-Making Processes  
  
  Ministry of Finance needs 
Tariffs to raise revenue  
 Pectoral ministries manage 
Representations tariffs (on final goods) or  
law  tariffs (on inputs) 
  
 Ministry of Commerce 
involved in market access  negotiations using Sri  
Lankan tariffs (access to Sri  
Lanka) as negotiating coin   
- WTO 
- regionals - bilaterals 
 
 World manage antidumping if 
  present draft becomes law 
 
  Consumers benefits from  
Reduced tariffs and lower  
Costs of living – which  
ministry?  Tariff Advisory Council TAC) 
 Consider representations, and 
 Long term tariff policy 
Trade/Macro Steering committee  
 
 Convened by central bank and 
TAC chairs 
 Ensure that ministries 
implement broad policy targets 
set out in RSL  Economics Policy Sub  
Committee of Cabinets 
 Minister of policy 
development and Implementation 
- sets out broad policies 
- specifies policy implementation 
 Minister of Finance 
 Minister of Economic 
Reform 
 Minister of Commerce 
 Minister of Enterprise 
 Development 
 etc 
Task forces 
on bilateral
Trade Policy Processes 
 Economy –wide analysis 
 Independent advisory capacity 
  Transparent consultation  
 Informed negotiation 
 Policy development 
 Policy implementation    
 
Consumers 
 
Commercial 
stakeholders Research 
agencies Building 
BROAD POLICY TARGETS   
Coordi-
nated   
by 
Source : Report on Tariff and trade policy framework for Sri Lanka in 2003 
               By Mr. Sandy Cuthbertson,   
                Prepared for: Economic and Social Commission for Asia and the Pacific (ESCAP) 
 
__________