RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/TPR/G/237 
29 September 2010  
 
(10-4830) 
Trade Policy Review Body Original: English 
   
 
  
 
TRADE POLICY REVIEW 
 
Report by 
 
SRI LANKA 
 
  
 
Pursuant to the Agreement Establishi ng the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), the policy statemen t by Sri Lanka is attached. 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
first session of the meeting of the Tr ade Policy Review Body on Sri Lanka. Sri Lanka WT/TPR/G/237 
 Page 3 
 
 
CONTENTS 
 
  Page 
I. INTRODUCTION 5 
II. RECENT ECONOMIC PERFORMANCE 5 
III. TRADE POLICY  8 
IV. TRADE POLICY MEASURES 9 V. INVESTMENT  11 
VI. SECTORAL PERFORMANCES 12 
  A
GRICULTURE  12 
  I NDUSTRY  13 
  S ERVICES  15 
VII. CONCLUSION  15 
 
 
 
 Sri Lanka WT/TPR/G/237 
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I. INTRODUCTION  
1. The Third Trade Policy Review of Sri Lanka takes place at a critical juncture in the country's 
recent development history as it faces new challeng es, following the end of 30 years of internal 
conflict and the defeat of terrorism.  The "Mahinda Chintana", which is the blueprint of the vision for 
the future, provides a diverse set of trade and de velopment policy guidelines aimed at achieving 
sustainable development, alleviating poverty and br inging prosperity to the entire country on an 
equitable basis.  The new approach integrates th e positive attributes of market economic policies. 
2. Sri Lanka, being a founder member of the WTO,  will continue to a pply outward-oriented 
economic strategies while striking an appropria te balance with domestic development-policy 
aspirations.  
3. High degree of openness to international tr ade, investor friendly atmosphere, and 
encouragement of foreign direct investment, among others, reflect the country’s commitment to the 
establishment of an environment conducive to priv ate sector business development.  Similarly, the 
achievements in terms of human capabilities have placed Sri Lanka at a higher rank, in the Human Development Index (HDI), vis-a-vis her South As ian neighbours.  Sri Lanka is also on track of 
achieving time bound targets of the Millennium  Development Goals (MDGs) which the 
United Nations member states agreed to achieve by the year 2015. 
4. Sri Lanka also accords due prominence to the development objectives of the Doha 
Development Agenda (DDA) and con tinues to engage actively in the WTO negotiations with a strong 
belief in the rule-based multilateral trading system  embodying transparency, equality and equity, as 
the best option to address global economic challenges. 
II. RECENT ECONOMIC PERFORMANCE 
5. The Sri Lankan economy grew at an average rate of 6%, during the period from 2004-2009, 
despite the adverse effects of terrorism, the 2004 tsunami disaster and the recent global economic 
slowdown.  This significant growth resulted in n early doubling the GDP per capita from US$1,062 to 
US$2,053 during the period under review. 
6. In 2009, the economy grew by 3.5% in real te rms, a commendable achievement in spite of 
external and domestic drawbacks.  The end to the prolonged internal conflict and the restoration of 
peace and normalcy has created a greater optimism about the achievement of economic prosperity, 
providing a strong basis for long-term sustainable development supported by appropriate policies. 
"Mahinda Chintana", the Government's Ten Year Horizon Development Framework 2006-2016 
(TYHDF 2006-2016) was introduced with the objec tive of raising the GDP Growth to a rate 
exceeding 8%, per annum. 
Table I 
Selected Economic Indicators, 2004-2009 
 2004 2005 2006 2007 2008 2009 
DEMOGRAPHY       
Mid-year population (‘000 persons)b 19,462 19,668 19,886 20,010 20,217 20,450a 
Growth of population (per cent)b 1.2 1 1.1 1.1 1 1.1 
Population density (persons per sq.km.)b 310 314 317 319 322 326 
Labour force ('000 persons)  8,061c 7,312d, e 7,599e 7,489e 8,082f 8,074f 
Labour force participation rate (per cent)  48.6c 49.3d, e 51.2e 49.8e 49.5f 48.7f 
Unemployment rate (per cent of labour force)  8.3c 7.2d, e 6.5e 6.0e 5.4f 5.8f 
Table I (cont'd) WT/TPR/G/237 Trade Policy Review 
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 2004 2005 2006 2007 2008 2009 
OUTPUTg       
GDP at current market prices (Rs. billion)  2,091 2,453 2,939 3,579 4,411 4,825 
GNP at current market prices (Rs. billion)  2,070 2,423 2,898 3,540 4,306 4,769 
Per capita GDP at market prices (Rs. ) 107,432 124,709 147,776 178,845 218,167 235,945 
Per capita GNP at market prices (Rs.)  106,367 123,181 145,744 176,893 212,972 233,216 
Per capita GDP at market prices (US$)  1,062 1,241 1,421 1,634 2,014 2,053 
Per capita GNP at market prices (US$)  1,051 1,226 1,402 1,616 1,966 2,029 
REAL OUTPUT (percentage change)g       
GNP 5.4 6.0 7.5 7.1 4.6 4.8 
GDP 5.4 6.2 7.7 6.8 6.0 3.5 
Sectoral classification of GDP       
Agriculture 0.0 1.8 6.3 3.4 7.5 3.2 
Industry 5.4 8.0 8.1 7.6 5.9 4.2 
Services 6.7 6.4 7.7 7.1 5.6 3.3 
AGGREGATE DEMAND AND SAVING (% of GDP)g 
Consumption 83.6 82.1 83 82.4 86.1 82.0 
Private 70.9 69.0 67.7 67.2 70.0 64.3 
Government 12.6 13.1 15.4 15.3 16.2 17.6 
Investment 25.3 26.8 28.0 28.0 27.6 24.5 
Private 22.5 22.4 23.9 22.6 21.1 17.9 
Government 2.7 4.4 4.1 5.4 6.5 6.6 
Net exports of goods & services  -8.8 -8.9 -11.0 -10.4 -13.7 -6.5 
  Exports of goods & services 35.3 32.3 30.1 29.1 24.8 21.4 
  Imports of goods & services 44.2 41.3 41.1 39.5 38.5 27.9 
Domestic saving 16.4 17.9 17.0 17.6 13.9 18.0 
Net factor incomeh 5.5 5.9 5.4 5.8 3.9 5.8 
National saving 22 23.8 22.3 23.3 17.8 23.9 
EXTERNAL TRADE       
Trade balance (US$ million)  -2,243 -2,516 -3,370 -3,656 -5,981 -3,122 
Exportsi 5,757 6,347 6,883 7,640 8,111 7,085 
Importsi 8,000 8,863 10,253 11,296 14,091 10,207 
Terms of trade(percentage change)  -5.2 -4.2 -3.5 -1.0 -11.8 24 
Export volume index (1997=100) (percentage 
change) 7.8 6.7 4.1 7.3 0.4 -12.3 
Import volume index (1997=100) (percentage 
change) 9.0 2.7 7.1 4.1 4.0 -9.8 
EXCHAGE RATES       
Annual average       
Rs/US$ 101.19 100.50 103.96 110.62 108.33 114.94  
Rs/SDR 149.88 148.45 153.00 169.37 171.24 177.22 
NEER (2006=100) (24 currency basket) 104.32 104.06 100.00 89.23 90.20 89.52 
REER (2006=100) (24 currency basket) 90.60 97.43 100.00 100.27 118.41 120.85 
Year End       
Rs/US$ 104.61 102.12 107.71 108.72 113.14 114.38 
Rs/SDR 162.45 145.95 162.03 171.57 174.27 178.67 
a Provisional. 
b As reported by the Registrar General's Department. c  From 1
st Quarter 2004, QLFS coverage includes both Northern & Eastern Provinces excluding Vavuniya, Mullaitivu & 
Killinochchi.  Districts and all district s from 2nd Quarter 2004. However, both Mulla itivu & Killinochchi districts were exclud ed 
for 2004 annual estimates.  
d  QLFS was conducted as a one - off survey in August 2005.  
e  Data excluding both Northern and Eastern provinces.  
f  Excluding Northern Province.  
g  From 2003, data are based on GDP estimates comp iled by the Department of Census and Statistics.  
h  Includes workers' remittances.  
i   Excludes re-exports and re-imports from 2007 onwards.  
Source:  Central Bank of Sri Lanka, Annual Reports 2007, 2008 and 2009. Sri Lanka WT/TPR/G/237 
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7. Agriculture, industry and services sectors have cont ributed to the overall growth in GDP, with 
the industrial and services sectors in particular showing sustained growth.  Similarly, higher levels of 
export performance and increase of investments have  also contributed towards the GDP growth.  A 
notable achievement in 2009 was the sharp deceler ation in inflation owing to monetary policy 
measures adopted by the Government in the recent past. 
8. The lower growth in agriculture sector in 2009 was mainly due to the effect of adverse 
weather conditions that affected the plantation crops  and paddy cultivation.  However, the agriculture 
sector benefited from favourable market conditions. 
9. The output of the industrial sector grew by 4. 2% in 2009, with the gradual revival of the 
demand in both export and domestic markets in spite  of global economic slowdown.  Prior to the 
economic slowdown, the sector had maintained an  average growth of 6.8% during the period from 
2004 to 2008.  Industrial sector growth was complemented by the increase in average labour productivity at an annual rate of 3% during the period under review. 
10. The services sector, which accounts for the largest sh are (57.7%) of the GDP grew at 3.3% in 
2009 compared to the growth of 5.6% in 2008.  The decline in growth was largely due to slow 
performance in the external trade activities, though ther e was growth in sub-sector s such as transport, 
post & telecommunication, banking, insurance and real estate and hotel services.  However, a 
noteworthy average growth of 6.6% in the services sector has been recorded during the period from 
2004 to 2008. 
11. The services sector contributed to 42% of th e total employment in 2009, generating new 
employment opportunities resulting in a substantia l reduction in the unemployment rate which 
declined by 35% from 8.3% to 5.8% during the period under review.   The increase in the level of 
employment has led to poverty re duction, higher level of  living standards and increase in aggregate 
demand.  
12. The fiscal policy measures have been able to  mitigate the effects of the global economic 
slowdown.  Sri Lanka continues to adopt a floating exchange rate system while ensuring an adequate 
level of liquidity.  The exchange rate policy in 20 09 was focused on maintaining the stability in the 
domestic foreign exchange market in the face of si gnificant foreign exchange outflows in the first few 
months followed by substantial inflows thereafter.  The floating exchange rate system continues to 
strengthen the stability of the foreign exch ange market and external competitiveness. 
13. Taking into consideration vul nerabilities and risks associated with the global economic 
slowdown, the government introduced a temporary ec onomic stimulus package to the exporters in 
2009, to maintain the level of employment.  
14. The external sector of the economy recovered during 2009 amidst the challenging global 
economic recession experienced since the latter part of 2008.  External trade has improved during the 
last quarter of 2009, although total export earnings dr opped by 12.7%, in parallel to the global trade. 
However, this was partly compensated with  the drop in imports by 27.6% in 2009.  
15. The positive economic outlook and the increased investor confidence with the defeat of 
terrorism have helped Sri Lanka’s external sector to recover during the second half of 2009.  It was 
further strengthened by the approval of IMF-SBA faci lity in July 2009 and enhanced foreign inflows, 
especially to the securities market.  The lower cu rrent account deficit and the substantially high 
financial flows led the Balance of Payments (BOP ) to record a significantly high surplus in 2009. 
Furthermore, inward remittances by Sri Lankans empl oyed abroad have increased to US$3.3 billion in 
2009 and were in excess of the trade deficit.  WT/TPR/G/237 Trade Policy Review 
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III. TRADE POLICY  
16. The "Mahinda Chintana" (TYHDF 2006-2016) iden tifies international trade as one of the 
significant macroeconomic instruments to achieve the country’s development goals.  It envisages 
closer integration of trade promotion in the nati onal development framework by further rationalization 
of trade and tariff policies, facilitation of a fa ir trading environment and encouragement of 
investment.  The trade objectives within the T YHDF 2006-2016 also focus on increasing integration 
of the Sri Lankan economy with global markets.  
17. Sri Lanka is committed to pursue an outward-or iented trade regime following the principles 
of the WTO, with a view to enhancing overseas market access for its products and achieving greater 
integration into the world economy.  Towards achiev ing the desired objectives, Sri Lanka continues to 
simplify her tariff structure and encourage foreign dir ect investment into the country for infrastructure 
development and expanding the output while genera ting employment opportunities.  A more recent 
and significant development in the tariff policy was the introduction of a three band (5%, 15% and 
30%) tariff structure with effect from June 2010.  With  this policy change, 44% of the total tariff lines 
at eight digit level are under zero duty. 
18. Sri Lanka also actively engages in negotiati ons at regional and b ilateral levels while 
maintaining her multilateral commitments and obligations.   
19. At multilateral level, Sri Lanka remains comm itted to a fair, equitable, transparent and 
progressively liberalized multilateral trading system, w ith due consideration given to the needs of all 
developing countries, while preserving adequate policy space for their future development.  Sri Lanka 
has actively participated in the negotiations on the Doha Development Agenda (DDA), particularly in 
areas such as Agriculture, NAMA, TRIPS, and Trade Facilitation.    
20. During the 2009 Ministerial Conference in Gene va, Sri Lanka re-emphasized her strong belief 
on the rule-based multilateral trading system embody ing transparency and equality.  Sri Lanka has 
placed great importance on the tariff reductions anti cipated at the conclusion of DDA.  Sri Lanka 
considers that the resulting problem of preference erosion should be d ealt appropriately.  At the same 
time, the concerns of Disproportionately Affect ed Countries (DACs) regarding the solution for 
preference erosion in the form of delayed tariff redu ctions, need to be addressed through an effective 
measure that should include a faster phasing out period and enhanced product coverage for DACs. 
21. In Agriculture negotiations, Sri Lanka, be ing a Net Food Importing Developing Country 
(NFIDC), has placed a great importance on the need for flexibilities to safeguard rural development, 
livelihood of farmers and food security.  Furthe rmore, as a Small and Vulnerable Economy (SVE) 
with a relatively low binding le vel, Sri Lanka requires flexible treatment in tariff reduction 
commitments. 
22. With regard to the preferential market acce ss provided under the GSP Schemes to build up 
sustainable trade, Sri Lanka has emphasized that  any such special incentive arrangements should 
respond positively to the development, financial, a nd trade needs of developing countries, and should 
not be utilized as a means to pursue political objectiv es of the GSP granting countries.  Sri Lanka has 
also placed confidence on her development partne rs to respond positively the need for enhanced 
facilities under the Aid for Trade programme. 
23. Sri Lanka strongly believes that increased leve ls of regional trade a nd economic cooperation, 
should eventually pave the way for trade liberali zation at multilateral level.  At regional level 
Sri Lanka is a member of the South Asian Free Trade Area (SAFTA) and the Asia-Pacific Trade 
Agreement (APTA).  Sri Lanka is a founding memb er of Bay of Bengal Initiative for Multi-Sectoral Sri Lanka WT/TPR/G/237 
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Technical and Economic Cooperation (BIMSTEC) and Indian Ocean Rim Association for Regional 
Cooperation (IOR-RAC).  She is also a member of  the Global System of Trade Preferences (GSTP). 
Sri Lanka has also entered into two bilateral tr ade agreements:  the I ndo-Sri Lanka Free Trade 
Agreement (ISFTA) and the Pakistan-Sri Lanka Free Trade Agreement (PSFTA), signed in 1998 and 
2002 respectively.   
24. Sri Lanka has pursued an export-oriented indus trialization strategy since 1977, but production 
and trade remain concentrated in a few products a nd markets.  Therefore, Sri Lanka has identified 
three priority areas for Aid-fo r-Trade assistance, namely assist ance for trade policy analysis, 
negotiation and implementation, export divers ification and improving competitiveness.  Japan 
continues to be the largest aid-for-trade devel opment partner followed by  the Asian Development 
Bank (ADB).  Sri Lanka also receives aid for trade from other develope d and developing country 
partners, notably China and India. 
25. Emphasis has been placed on infrastructure development and facilitation of the export sector.  
Enhancing productivity and narrowing economic di sparities by linking rural and urban areas and 
thereby increasing active participation in the internat ional trade have been targeted towards achieving 
sustainable economic development in the count ry.  Technological innovation, increasing private 
sector investments, upgrading public service delivery, promoting the development of Small and Medium Enterprises (SMEs) and encouraging Pub lic-Private Partnership are identified as key 
elements in this process.  
26. The Department of Commerce (DOC) under the Ministry of Industry and Commerce plays a 
key role in trade policy formulation, coordination, negotiations and implementati on.  Its mission is to 
develop and promote Sri Lanka's foreign trade relati ons at bilateral, regiona l and multilateral levels by 
the effective implementation of government trade polic y, with a view to raising the standards of living 
and realizing a higher quality of life through th e increase of production, income, and employment 
levels.  The Department is also responsible for th e conduct of Sri Lanka's inte rnational trade relations, 
including trade representation abroad and playing an active role in export promotion.  The Department 
is the national focal point for the WTO.  
IV. TRADE POLICY MEASURES 
27. Sri Lanka's unilateral trade liberalization process was initiated in 1977, ahead of her 
neighbours.  Successive governments have contin ued these policy measures despite the internal 
conflict of the past and the recent global economic downturn.  The changes in trade policy during the 
period under review were to further the efforts towards this objective  with greater transparency.  
28. Sri Lanka's trade policy focused on value based  measures rather than non-tariff measures 
thereby maintaining greater transparency.  Online info rmation is also available on tariff and non-tariff 
measures and their effects.  Sri Lanka implements the WTO Customs Valuation Agreement (CVA) since 7 January 2003.  
29. As stated earlier, the Government introduced a new three band tariff structure;  5%, 15% and 
30% with effect from 1
 June 2010 replacing 2009 tariff structure.  Accordingly, 44% of the total tariff 
lines at eight digit level have become zero duty.  Current applied tariffs for most of the goods range 
from 0% to 15% while 30% tariff rate is applied for  agricultural and food products, consumer goods, 
chemicals, and other intermediate goods.  The appl ied tariff rates are much lower than Sri Lanka's 
bound rates.  96% of tariff lines are ad valorem .  Prior to the above changes an eight band tariff 
structure was in place.  This unilateral tariff reduction clearly demonstrates Sri Lanka's firm 
commitment towards progressive trade liberalization. WT/TPR/G/237 Trade Policy Review 
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30. The centralized electronic system of Sri Lanka Customs facilitates the documentation 
procedures.  Since 1994, Sri Lanka uses the Automa tic System for Customs Data (ASYCUDA).  The 
system processes data including transit and cu stoms warehouses information and automatically 
manages the application of preferential duty under re gional and bilateral trading arrangements.  With 
the introduction of the system, the Customs Departme nt has been able to handle 246,596 declarations 
in 2009 taking an average time of 16 hrs.  Sri La nka has been identified as a country that has a lower 
level of documentation with regard  to importation compared to other countries in the region.  
Pre-shipment inspection is not mandatory in Sri La nka.  The Government aims to introduce a "Single 
Window" system of processing all the import and e xport documentation in order to enhance the 
efficiency of document handling, thereby reduci ng the cost of transaction and facilitating trade. 
31. Preferential tariffs are granted for agreed  products under regional and bilateral trade 
agreements namely;  South Asian Preferential Trade Agreement (SAPTA) South Asia Free Trade 
Agreement (SAFTA), Asia-Pacific Trade Agreemen t (APTA), India-Sri Lanka Free Trade Agreement 
(ISFTA), and Pakistan-Sri Lanka Free Trade Ag reement (PSFTA) and also under the Global System 
of Trade Preferences (GSTP).   
32. Trade policy aims at minimizing the use of non-tariff barriers.  A few import restrictions are 
maintained mainly relating to health, safety, security, environment and public moral reasons.  
33. Sri Lanka had notified 103 trade -related technical regulations and 18 SPS notifications to the 
WTO as at March 2010.  In formulation of nationa l standards the Sri Lanka Standard Institution 
(SLSI), the national focal point, always takes into account all the equivalent standards established by 
other countries and International Organizations such as ISO, IEC, ASTM & Codex.  With regard to 
SPS matters, the national enquiry point is the Ministry of Healthcare and Nutrition.  At present, imports of certain plants, some live fish, soil and livi ng modified organisms are restricted.  Imports of 
animals and animal products of ruminant origin ar e allowed only from countries which have officially 
been declared as "Bovine Spongiform Encephalopathy (BSE) Provisional Free Status" by the World Organization for Animal Health (OIE).   
34. Contingency measures on anti-dumping, counterva iling and safeguard measures are currently 
under consideration.  
35. With regard to exports, Sri Lanka continues to  apply simplified proce dures to facilitate export 
led economic growth.  Export of value added pr oducts are encouraged with the intention of 
establishing a sustainable and competitive industrial base and backward linkages. 
36. In complying with WTO-TRIPS Agreement,  Sri Lanka enacted new comprehensive 
intellectual property legislation in 2003.  The new Ac t covers:  copyright and re lated rights;  industrial 
designs;  patents;  marks and trade names;  layout  designs of integrated circuits;  unfair competition 
and undisclosed information;  and geographical indi cations.  The new Act has also extended the term 
of copyright protection, from life plus 50 years, to life plus 70 years.  Comprehensive legal provisions 
have also been introduced to fight against piracy. 
37. The Imports and Exports (Control) Act No. 1 of 1969 and by Special Import Licence 
Regulation No. 1 of 1977, as amended, regulate the list of goods subject to import licensing.  
Sri Lanka has notified to the WTO of her rules re garding import licensing procedures in May 2003.  
The Department of Import and Export Control admi nisters the import and export measures on selected 
products on the basis of economic, national security , health and environment reasons.  Licences are 
processed within two working days.  Block Licenses (v alid for one year) are issued to importers of 
pharmaceuticals, who have continu ously imported pharmaceuticals during past three-year period. Sri Lanka WT/TPR/G/237 
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38. As stated earlier in para 13, the Government taking into consideration vulnerabilities and risks 
associated with the global economic slowdown, intro duced a temporary economic stimulus package in 
2009 to assist exporters to maintain the level of employment.  
V. INVESTMENT 
39. Sri Lanka's foreign investment regime has been  significantly liberalized since 1977.  100% 
foreign ownership is perm itted in most industrial and a number of service sector activities including 
banking, insurance, finance, construction, mass transportation, telecommunications and information 
technology, and petroleum distribution.  There is no restriction on repatriation of profits/dividends of 
foreign companies.  Remittance of management fees, royalties and licensi ng fees are also permitted 
for companies with majority foreign investme nt approved under Section 17 of the Board of 
Investment (BOI) Act.  Stock market investment s can be remitted without prior approval from the 
Central Bank.  Investment returns can be remitted in  any convertible currency at the market rate while 
foreign investors may invest in foreign-currency de nominated bonds.  National tr eatment is offered to 
all foreign investors.  The main laws regulating foreign investment in Sri Lanka are the Board of 
Investment of Sri Lanka Law No. 4 of 1978 as  amended (in 1980, 1983, 1992, and 2002) and its 
implementing regulation.  Other la ws affecting foreign investments are the Securities and Exchange 
Commission Act of 1987 as amended (in 1991 and 2003), the Takeovers and Mergers Code of 1995, 
as amended in 2003, and the Companies Act of 2007 Exchange Control and Immigration Laws.  
Sri Lanka notified to the WTO in 2000 that its investment regime does not provide for local-content requirements, trade-balancing requirements, forei gn exchange balancing re quirements and exchange 
restrictions resulting in import restrictions or dome stic sales requirements, involving restrictions on 
exports. 
40. Foreign investment protection is guaranteed by  the Constitution of the Democratic Socialist 
Republic of Sri Lanka.  Sri Lanka has signed inv estment protection agreements with Australia, 
Belgium/Luxembourg, China, Egypt, France, Germ any, India, Indonesia, Iran, Japan, Malaysia, 
Pakistan, Singapore, Thailand, the United States, Denmark, Finland, Italy, Kuwait, Netherlands, 
Norway, Korea, Romania, Sweden, Switzerland, United Kingdom of Great Britain and Northern 
Ireland and Viet Nam.  Sri Lanka also signed double taxation agreemen ts with Canada, China, France, 
Germany, Iran, Japan, Korea, Kuwait, Mauritius,  Nepal, Pakistan, the Philippines, Russia, 
Saudi Arabia, Singapore, Thailand, the UAE, the United Kingdom, the United States,  SAARC 
Limited Multilateral Agreement, Australia, Banglades h, Belgium, Czechoslovakia, Denmark, Finland, 
Honk Kong, India,  Indonesia, Italy, Malaysia, Netherla nds, Norway, Poland, Qatar, Romania, 
Sweden, Switzerland and Viet Nam.  Sri Lanka is  a founder member of the Multilateral Investment 
Guarantee Agency (MIGA).  This provides further safeguard against expropriation and non commercial risk. 
41. The Arbitration Act No. 11 of 1995 implemen ted the New York Convention on Recognition 
and Enforcement of Foreign Arbitral Awards.  As a result, the arbitral awards made abroad are 
enforceable in Sri Lanka, if the other Party concerne d is a State Party to the New York Convention on 
Recognition and Enforcement of Foreign Arbitral  Awards, and awards made in Sri Lanka are 
enforceable abroad, subject to the provisions of th e Arbitration Act No. 11 of 1995.  At present there 
are four Arbitration Centres in Sri Lanka viz, Ceylon International Arbitration Centre (CIAC), 
Sri Lanka National Arbitration Centre (SLNAC), Arbitration Centre of the National Chamber of 
Commerce and Institute for the Development of Commercial Law and Practice (ICLP).   WT/TPR/G/237 Trade Policy Review 
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VI. SECTORAL PERFORMANCES 
AGRICULTURE  
42. Agriculture continues to play an important role in Sri Lanka's economy, in terms of 
contribution to the GDP, employment, foreign ex change earnings, and a source of inputs for the 
industrial sector.  Agriculture employs 32.6% of the labour force, accounts for 23.9% of merchandise 
exports (2009), and is an importa nt supplier of raw materials for the manufacturing industry.   
43. Sri Lanka's export-oriented agriculture sector includes major exports such as tea, rubber and 
coconut, as well other exports such as cinnamon, cardamom, cloves, pepper, and cocoa.  Major 
plantation sectors comprising of tea, rubber and coconut accounted for 20.5% of export earnings in 
2009, while other export crops accounted  for 3.4% of export earnings.  
44. Tea continues to maintain a dominant position in the country's economy, accounting for 
16.7% of total exports earnings in 2009.  Export  of raw rubber and coc onut products accounted for 
1.4% and 2.3% respectively in the same year.  Sri Lanka places emphasis on value added exports in 
this sector.  In terms of revenue, Sri Lanka mainta ins her position as the world's highest tea exporter.  
Tea production showed yearly fluctuations, reaching a r ecord high of 318.7 million kg in 2008, before 
decreasing to 290 million kg in 2009, mainly on account  of dry weather conditions in plantation areas.  
Exports of tea need a permit issued by the Sri La nka Tea Board and subject to random sampling to 
conform with the quality standard to be free of any contamination and to adhere to stipulated 
Maximum Residue Limits (MRLs).  Tea manufactures must register with Sri Lanka Tea Board and sell their production through approved channels onl y.  The Colombo Tea Auctions, Private Sales, 
Direct Sales and Forward Contracts are the approved channels of sale.  The Sri Lanka Tea Board 
(SLTB), under the Ministry of Plantation Industri es, is the official agen cy responsible for the 
development and promotion of the tea sector.   
45. Agricultural policy instruments aim at stabilizi ng farmers' income, a voiding domestic price 
escalation and managing supply situa tions.  Sri Lanka's average app lied MFN tariff for agricultural 
products increased from 21.3% (2003) to 24.3% (2009) .  However, it was much lower than its average 
bound rate of 50.1%.  The number of tariff lines on agricultural products subject to specific duties 
remain at minimal level while majo rity of the products are subject to  ad valorem  duties.  In 2007 the 
Government also introduced a single composite Special Commodity Levy, replacing the different 
levies and charges imposed on products such as milk  powder, dhal, sugar, onions, and potatoes in 
order to prevent domestic price escalation of  essential food items.  There are no quantitative 
restrictions on agricultural exports except licensi ng requirements that apply on a limited number of 
products on environmenta l, genetic and endemic plant preservation grounds. 
46. Domestic food production sector mainly comprises of rice cultivation.  Rice production 
accounted for 14% of total agricultural output, over 20%  of cultivated land in 2009.  The national 
policy of Sri Lanka is aimed at increasing production to achieve self-sufficiency in rice as it is the 
staple food of the country.  This policy helped the country to balance the negative effects of the recent 
global food price fluctuations successfully.  
47. Under the TYHDF 2006-2016 ("Mahinda Chinta na"), agricultural policy is aimed at 
increasing production to ensure food and nutritional secur ity and raising small farmers' income levels, 
by improving competitiveness through modern tec hnology, shifting to commercial agriculture and 
promoting diversification into higher value a dded products.  The Government's policy towards 
reaching these objectives  include  addressing current constraints such as capital, agricultural inputs, 
irrigation, transport, marketing requirements and post-harvest losses. Sri Lanka WT/TPR/G/237 
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48. The Government launched a three-year  national campaign under the theme " Api Wawamu 
Rata Nagamu " (Let us cultivate and uplift the nation) to increase food production in 2007 in line with 
the objectives of the ten year plan.  The actions envisaged include promoti on of home gardening, use 
of organic fertilizers, provision of seeds and plan ting materials, dissemination of agro-technologies, 
and improved accessibility to inputs and services (cre dit, insurance and marketing).  Under this 
programme, in 2009 some 75,752 acres of abandoned land were converted into cultivated areas, 
adding about 91,000 tonnes of rice to the nationa l production, and 300,000 home gardens were 
developed. 
INDUSTRY  
49. Sri Lanka's average applied MFN tariff for manufactured products remained at 10.1% in 
2009, which is much lower than its average bound ra te at 21.3%.  Tariffs for manufactured products 
range from zero to 30%.  Leather, rubber, footw ear and travel goods have average rates of 18.1%, 
followed by transport equipment (15.7%), wood, pu lp, paper and furniture (14.4%), mineral products 
(13.3%), and electric machinery (12.2%).  The Gove rnment's objective is to promote manufacture of 
value added products.  Most of the imported i nputs for export industries enjoy duty free access 
e.g. textile materials, yarn, intermediate and cap ital goods for the apparel i ndustry, gold and gems for 
the jewellery industry.  
50. Under the TYHDF 2006-2016, Sri Lanka continues her export-oriented industrial strategy 
towards diversifying industrial exports, expanding  their manufacturing bases to all regions of the 
country and strengthening backward in tegration.  In this direction, the progress of the textiles/apparels 
manufacturing and rubber product sectors are particularly noteworthy.  The industries based in the 
Western Province are gradually expanding and re locating their manufacturing activities to other 
regions where certain cost advantages are present.  The Government has extended special concessions 
to industries that are established or relocated out side the Colombo and Gampaha Districts under the 
300 Enterprise Programme conducted jointly by the Ministry of Industry and Commerce (MIC) and the BOI.  As at end 2009, 132 projects have b een approved under 300 enterprise programmes aiming 
at regional development (Gamata Karmantha Progra mme), of which 46 industries are in commercial 
operations and 33 industries are at various stages to commence the commercial operations.  Similarly 
58 new industries were established under the BOI (Nipayum Sri Lanka Programme), while 18 sick 
industries were rejuvenated and 5 industries were expanded. Approval was granted for 8 industries to 
relocate outside Colombo and Gampaha Districts.  Further, the Government took necessary steps to 
establish Industrial Estates covering all district s, while focusing on reopening defunct factories 
especially in the Northern and Eastern Provinces.   Infrastructure development of Trincomalee 
(Kappalthurei) Industrial Estate was completed in 2009 and infrastructure development work of 
Buttala Industrial Estate is near completion.  
51. The manufacturing sector accounted for 18.1% GDP in 2009 as the second largest sector to 
contribute to the GDP after the service sector.  Th e food, beverages and tobacco sub-sector accounted 
for 45.4% of total manufacturing output in 2009, while textile & clothing contributed 18%, rubber-based products 16.3%, metal products 7.08% and others 4.4% respectively.  Together, the 
three largest sub-sectors accounted for 79% of total manufacturing output in 2009.  The 
manufacturing sector employs 17.7% (in 2009) of th e total employment.  As mentioned earlier labour 
productivity in the sector grew at an average rate of 3% during the period 2004-09.  Major players in 
the apparel industry were able to remain co mpetitive in the export markets during 2009 by 
maintaining the reputation for hi gh quality products catering for leading brands.  In addition, 
manufacturers in the apparel sector have taken measu res to differentiate their products by adhering to 
innovative environment-friendly manufacturing pr actices and high interna tional labour standards WT/TPR/G/237 Trade Policy Review 
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under the theme of "Garments without Guilt".  Pion eering work undertaken by the Sri Lankan apparel 
industry in these areas has been globally acclaimed. 
52. Foreign direct investment (FDI) has played a key role in the development of the 
manufacturing sector, particularly in export-oriented  industries.  In 2009, the Board of Investment 
(BOI) attracted US$601 million worth of FDI, of  which US$163 million were directed to the 
manufacturing sector.  The main contribution of th e FDIs in the manufacturing sector during 2009 
was to the textile, apparels and l eather products sub-categories.   
53. In terms of national income generation, empl oyment creation and regional growth, the Small 
and Medium Enterprises (SMEs) have also played  a significant role in the economy.  With the 
elimination of terrorism from the Northern and Eastern Provinces of the country, SMEs development 
has assumed increasing importance in enhancing the liv ing standards of people in these areas.  The 
Government has taken major initiatives under th e TYHDF 2006-2016 to support micro-enterprises 
and SMEs to address special development needs in these provinces.  The plan also envisages 
strengthening of innovation efforts and the estab lishment of a Technology Development Fund (TDF) 
to support competitiveness initiatives.  
54. Major achievements of special programmes im plemented through line ministries and allied 
institutions with the focus on equitable regional in dustrialization could be summarized as follows:  
a. Industrial sector development in the newly liberated Northern and Eastern Provinces 
were carried out through the "Wadakki l Wasantham" and "Nagenahira Navodaya" 
special programmes implemented by the gove rnment for development of Northern 
and Eastern provinces.  
b. The establishment of Industrial Estates and Special Economic Zones are in progress. 
Infrastructure development work of Trinco malee (Kappalthurei) Industrial Estate was 
completed in 2009.  
c. A considerable portion of infrastruct ure development of Embilipitiya and 
Galigamuwa Industrial Estates has been completed and preliminary work of 
Pallegodawatta (Mathugama) and Madampe Industrial Estates are under way.  
d. The Government has also completed the pr eliminary work of the Textile Processing 
Zone in Horana and commenced the preliminary work of five Special Economic Zones in Trincomalee, Puttalam, Ampara, Hambanthota and Batticaloa districts. 
e. Sri Lanka Institute of Nanotechnology (SLI NTec) has designed a mega scale project 
to establish a Nano-Technology Park at Homagama through Public-Private 
Partnership with an estimated cost of Rs. 55,000 million.  
f. Lankaputhra Development Bank (LDB) whic h was established for the purpose of 
facilitating the development of SMEs conti nues to provide financial and technical 
assistance in collaboration with the Indus trial Development Board of Sri Lanka 
(IDB).  Together, they have launched a concessionary "Lakkam" Loan Scheme for 
village level SMEs or self employment ve ntures.  The IDB also introduced another 
loan scheme to empower young entrepreneurs in the SME sector known as "Siyapath Pubuduwa". 
g. Under the Trade Finance Facilitation Progr amme of the Asian Development Bank 
(ADB), facilities are available for trade financing for local firms and entrepreneurs in 
the SME sector.  Sri Lanka WT/TPR/G/237 
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h. The Central Bank of Sri Lanka (CBSL)  introduced a special loan scheme, 
"Awakening North", to provide financial assi stance to entrepreneurs in the Northern 
Province to resume economic activities. 
i. The Industrial Development Board (ID B) conducted a number of training 
programmes for SMEs in the Northern and Eastern provinces to improve the 
production process. 
55. Under the Regional Industrial Development Programme implemented by the Government, 
23 new industrial estates have been established so  far generating 15,250 employment opportunities. 
Construction works of five industrial estates at Embilipitiya, Buttala, Kappalthurai, Galigamuwa and 
Pallegodawatte are currently under way.  Constructi on of three new Investment Promotion Zones at 
Puttalam, Trincomalee, and Hambantota has been star ted by the BOI. MAS Fabric Park, an integrated 
textile zone was established at Thulhiriya with pr ivate sector participation in 2008, strengthening the 
backward integration in the apparel industry.  A nother private sector operated Textile Industrial Zone 
(TIZ) is being planned to set up in the Perth Estate at Horana with an investment of Rs. 3,000 mn.  
56. Preliminary works on establishment of an In formation Technology Park at Malabe in 
Colombo District (Rs. 8,500 million) and a Knowledge  City at Henegama in  the Gampaha District 
(Rs.10,000 million) have b een initiated on Public-Private Partnership basis.  
57. The Government is presently developing major trade related infrastructure projects including 
development of Hambantota International Sea Port, located on a strategic international shipping route 
and new International Air Port at Mattala in s outhern Sri Lanka and a Coal Power Plant in the 
North-Western province.  Further, development of  Colombo South Harbor will significantly expand 
the container handling capacity at the Colombo Port.  
SERVICES  
58. Services sector contributes 57.7% to GDP ( 2009) and 42% of employment as the dominant 
sector in the Sri Lankan economy.  This sector has ma intained an annual growth  rate of 6% during the 
period under review.  From the development pe rspective, Sri Lanka looks to service sectors 
liberalization in order to attract foreign investments and develop infrastructure.  Market access 
conditions have been improved beyond Sri Lanka's initial schedule of the GATS commitments, 
particularly in the banking and insurance sector s.  Although Sri Lanka's specific commitments under 
the GATS covered only tourism in the Uruguay Round, it has subsequently accepted the GATS 
Fourth and Fifth Protocols on basic telecommunications and financial services respectively.  The 
major sub-sectors in the service sector are wholesale and retail trade, transport and communication, 
banking, insurance and real estat e and Government services that contributed 19.6%, 12.6%, 10.3%, 
and 9.2% to GDP 2009, respectively.  Telecommunication, trading, financial services and port services in Sri Lanka have been the driving force of the service sector growth in the recent past. 
VII. CONCLUSION 
59. Sri Lanka introduced her outward looking economic policies comparatively early, in 1977.  
Successive governments have demonstrated their co mmitments towards market oriented strategies 
placing confidence on the multilateral trading system.  The policies implemented by the government, 
inter alia,  included import liberalization, relaxation of exchange controls, facilitating foreign direct 
investment and private sector driven economic strategies.  These policy initiatives and the country's conducive business environment have been able to divert the economy into a dynamic and attractive 
location for international business.  The developm ent pace of the economy, however, was disrupted 
due to the prolonged conflict in the country .  Even under such circumstances,  Sri Lanka has been able WT/TPR/G/237 Trade Policy Review 
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to achieve an average economic growth rate of 6% , which resulted in nearly doubling the per-capita 
income from US$1,062 to US$2,053 during the period under review. 
60. With the elimination of terrorism and restoration of peace and normalcy, a new era of 
development leading to prosperity of the country has begun.  The adversely affected Northern and 
Eastern regions have now been integrated to the ma instream of economic development in the country.  
Strategic location, technological advancement combined with well established Information 
Technology and Communication facilities, productive la bour force and resourcefulness, together with 
political and economic stability, predictable and tr ansparent economic and trade policies as well as 
mega infrastructure development projects including new international sea ports and air ports, high 
ways and power plants will transform Sri Lanka in to an attractive destination for world's leading 
investment and business ventures.  Sri Lanka has now become a land of opportunity with great potential for trade and investment.  
 
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