WT/TPR/S/237 Trade Policy Review 
Page 16 
 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) OVERVIEW  
1. Sri Lanka's trade policy continues to be aimed at  achieving a greater integration into the world 
economy.  In particular, Sri Lanka is seeking to attr act foreign direct investment into the country to 
expand output and employment, and to enhance foreign market access for its products.  These 
objectives have been pursued through multilateral, re gional, and bilateral trade negotiations, through 
an incentives regime geared at fostering producti on for export and encouraging investment, and 
through a number of development programmes to e nhance productivity and improve infrastructure.  
Sri Lanka is progressing towards simplifying its bu siness and trade regime with the objective of 
establishing a more business-oriented institutional framework, but some shortcomings remain.   
2. Fiscal revenue considerations have played a ro le in the determination of trade policy during 
the period under review, as witnessed by the gene ral increase in tariffs, and the introduction or 
increase in the rates of other charges on imports;  on the other hand, VAT rates have been reduced.  
Supply and cost considerations have also been taken into account in trade policy decisions:  for 
example, with the introduction of a Special Commodi ty Levy to replace the different duties and taxes 
applicable on 11 essential food commodities, whic h lowered overall protection for these products.  
The end of the conflict and the high economic growth  rates achieved offer the opportunity to step up 
economic, trade, and institutional reform.  In June 2010, an overall re duction in tariffs was 
implemented, lowering many tariff rates to zero, and eliminating a 15% import surcharge applied on 
most imports.  The Government is also envisaging unifying and further reforming its incentives 
regime and introducing comprehensiv e competition policy legislation. 
3. Sri Lanka's investment regime is  relatively open to foreigners, with a few exceptions, where 
investment is either subject to non-automatic appr oval, or is reserved for Sri Lanka nationals.  Full 
foreign ownership is permitted in  most industrial and a number of services activities (including 
banking, insurance, finance, construction, mass transportation, telecommunications and information 
technology, and petroleum distribution). 
4. Foreign investment is not permitted in:  money lending, retail trade where investment is lower 
than US$1 million, and coastal fishing, among ot hers.  Foreign investment requires case-by-case 
non-automatic approval if foreign ownership exceeds 40% of total investment in various activities, 
including:  growing and primary processing of tea, rubber, coconut, cocoa, rice, sugar, and spices;  mining;  timber-based industries using local timber;  and shipping agencies.  In areas where foreign 
investment is permitted, there is no discriminati on against foreign investors, who receive national 
treatment and may benefit from the wide range of in centives provided by the Board of Investment of 
Sri Lanka (BOI) or from the Treasury. 
5. Sri Lanka has been an active participant in  the Doha Development Agenda and in WTO 
activities in general, having launc hed, together with other countries, proposals on areas such as:  
technical barriers to trade;  geographical indicati ons;  labelling of textiles, clothing, footwear, and 
travel goods;  preferences erosion;  and trade fac ilitation.  Sri Lanka has ha d some difficulties meeting 
its notification obligations in certain areas, partic ularly agriculture;  during the period under review, 
Sri Lanka has not been involved in a any dispute under WTO rules. 
6. Sri Lanka participates in two regional trade agreements:  the South Asian Free Trade Area 
(SAFTA) Agreement, and the Asia-Pacific Trade Agreement (APTA);  as well as in two bilateral 
agreements:  the Indo-Sri Lanka Free Trade Agre ement (ISFTA), and the Pakistan-Sri Lanka Free Sri Lanka WT/TPR/S/237 
 Page 17 
 
 
Trade Agreement (PSFTA).  Preferences are grante d mainly to Bangladesh, Bhutan, India, Laos, 
Maldives, Nepal, and Pakistan;  among these, trade with India is the most significant.  
7. Sri Lanka received a total of US$1.77 billion in  assistance in aid-for-trade categories between 
2004 and 2008.  Japan and multilateral donors have been the major providers of this trade assistance.  
Other bilateral donors focus on humanitarian relief and reconstruction efforts.  South-South partners 
have increased in importance, with both India an d China becoming increasingly active in providing 
development finance to support the Government's ambitious infrastructure development programme.  
One potential issue to manage is the negative impact  on long-term debt sustainability and balance of 
payments of this large injection of loan finance.   Sri Lanka's ten-year hor izon development framework 
2006-16  (TYHDF) aims to accelerate economic growth with  special considerati on given to pro-poor 
growth strategies.  Trade is included as a ma croeconomic strategy to achieve the national 
development plan and is operationally integrated into sectoral strategies. 
(2) TRADE POLICY FORMULATION AND IMPLEMENTATION  
(i) Institutional and legal framework 
8. The Constitution of 1978, last amended on 3 Oct ober 2001, spells out Sr i Lanka's institutional 
and legal framework, which consists of the ex ecutive, the legislature, and the judiciary.1 
9. The Head of State is the President, who is direct ly elected through popular vote for a term of 
six years and may be re-elected.  The last preside ntial elections were held in January 2010.  The 
President is also the Head of the Executiv e, the Head of the Government, and the 
Commander-in-Chief of the Armed Forces.2  The President has the right  to attend, address, and send 
messages to Parliament at any time.  The President is also entitled to all the privileges, immunities, 
and powers of a Member of Parliament other than th e right to vote, and is not  liable for any breach of 
the privileges of Parliament, or of its Members. 
10. The President as Head of the Cabinet of Ministers appoints the Prime Minister from among 
the members elected to Parliament, and has the right to choose who holds any portfolio in the Cabinet.  
The Constitution confers upon an elected President the power to summon, prorogue, and dissolve 
Parliament and to call for a referendum, in keeping w ith the relevant provisions of law.  Presidential 
decisions cannot be challenged at th e judicial level and, under the im munities granted to the President, 
no legal proceedings may be initiated or continued with regard to official or private matters against 
the President while in office.  
11. Parliament comprises 225 members, elected by preferential popular vote for a period of 
six years, but may be dissolved by the President befo re this term is over.  Parliament has control over 
public finances, including the power to modify the du ties levied on imports.  However, the Minister of 
Finance may issue a Revenue Protection Order to modify customs duties at any time;  this Order is valid for four months with immediate legal effect  pending the Bill becoming an Act of Parliament.  
Amendments to the Constitution require endorsement by a two-thirds majority in Parliament.  
Parliamentary procedures are governed by the Par liament (Powers and Privileges) Act No. 21 of 
1953, as amended.
3 
                                                      
1 For the text of the Constitution see Sri Lanka's Parliament online information.  Viewed at:  
http://www.parliament.lk/about_us/constitution.pdf. 
2 Sri Lanka's presidency online information.  Viewed at:  http://www.president.gov.lk/about_ 
presidency.asp. 
3 Act No. 21 viewed at:  http://www.parlia ment.lk/about_us/powers_privileges.pdf. WT/TPR/S/237 Trade Policy Review 
Page 18 
 
 
12. The judicial system consists of the Supreme Court, the Court of Appeal, the High Court, 
district courts, magistrates' courts, and primary cour ts.  The latter two are courts of first instance;  
appeals are handled by the Court of Appeals and, if  necessary, questions of law are dealt with by the 
Supreme Court.  The High Court deals with criminal cases and the district courts with civil cases.  
There are labour tribunals to decide on labour dis putes.  The Supreme Court is the highest and final 
superior court and has jurisdiction in respect of constitutional matters;  the Supreme Court has sole 
jurisdiction to determine the constitutionality of an y Bill or its consistency with the Constitution.  
13. Bills are divided into two categories:  Gove rnment bills, drafted by the Cabinet, and 
submitted to Parliament for assent, and Private Memb er's bills introduced by Members of Parliament.  
A bill or a motion to impose, repeal, augment or redu ce any tax must be introduced by a minister with 
the approval of the Cabinet of Ministers.   
14. Government bills may be classified as Ordinary Bills, which are published in the Gazette  and 
become effective seven days after the publication or as Urgent Bills, which are not gazetted.  Bills 
undergo three readings in Parliament as well as consid eration by an appropriate Committee.  Bills in 
respect of matters listed in the Constitution as aff ecting Provincial Councils, are referred to these  
Councils for their views.  Private Member's B ills also undergo three readings in Parliament.4 
(ii) Trade policy formulation, implementation, and objectives 
15. Sri Lanka's trade policy regime continues to be aimed at achieving greater integration into the 
world economy.  Its general trade policy objectives include moving towards a more outward-oriented 
trade regime, strengthening and increasing overseas ma rket access for Sri Lankan products, attracting 
foreign direct investment into Sri Lanka, and furt her integrating Sri Lanka into the world economy.  
These objectives have been pursued through multilatera l, regional, and bilateral trade negotiations.  
There has also been an attempt to shift the Govern ment's role away from control and regulation and 
into facilitation of private-sector development.   
16. Fiscal revenue considerations have played a ro le in the determination of trade policy during 
the review period, for example, through the gene ral increase in tariffs, and the introduction of other 
charges on imports, such as the Nation Building tax, while rates of other taxes on imports have been 
increased, or their scope widened, as in the case of th e cess (Chapter III(2)(iv)).  On the other hand, a 
Special Commodity Levy, introduced in 2007 on 11 essential food commodities, to replace the 
different applicable duties and taxes, has resulted in lower import protection for these products.  Also, 
the standard VAT rate was reduced from 15% to  12% with effect from 1 January 2009.   
17. Trade policy has continued to target the expor t sector, as shown in the ten-year development 
plan 2006-16.5  In the Plan, the Government seeks to enhance productivity and improve the links 
between rural and urban areas and the global econo my.  The Plan seeks to improve international 
competitiveness in the industrial sector by foster ing technological innovation, facilitating private 
investment in new industrial zones, upgrad ing public service delivery, and promoting the 
development of small and me dium-sized enterprises (SMEs).  It ai ms to promote global integration by 
strengthening bilateral and regional trade and investment relationships. 
18. Sri Lanka has continued to promote regional trade liberalization during the period under 
review, particularly through the South Asian Free  Trade Area (SAFTA), and the implementation of 
the India-Sri Lanka Free Trade Agreement, and the Pakistan-Sri Lanka Free Trade Agreement.  Sri 
Lanka considers these arrangements as instrumental in  facilitating broader trade liberalization.  Sri 
                                                      
4 Sri Lanka's Parliament online information.  Vi ewed at:  http://www.parliament.lk/ListContent.do. 
5 Ministry of Finance and Planning (2006). Sri Lanka WT/TPR/S/237 
 Page 19 
 
 
Lanka attaches great importance to strengthening re lations with its neighbours and in playing a lead 
role in fostering greater regional cooperation, but is also seeking to enhance its trade relations with 
China, Japan, and South Korea.6  However, and despite its commitment to regional trade and 
economic cooperation, Sri Lanka remains committe d to a stable and increasingly liberalized 
multilateral trading system, which takes into cons ideration the needs of developing nations.   
19. The main responsibility for trade-related issues lies with the Department  of Commerce of the 
Ministry of Industry and Commerce.  The Depart ment plays an important role in trade policy 
formulation, coordination, and negotiations as the implementation arm of the Ministry.  The 
Department is also responsible for:  conducting Sri Lanka's international trade relations, including 
trade representation abroad, trade information a nd export promotion;  conducting Sri Lanka's trade 
relations at the bilateral, regional, and multilatera l level;  and coordinating with other agencies for 
trade policy formulation and implementation.  In th is respect, the Department's main mission is to 
develop and promote Sri Lanka's foreign trade relati ons at all levels by the effective implementation 
of government trade policy, with a view to raising the standard of living and realizing a higher quality 
of life through increased production, income, and employment levels.  
20. The Department of Commerce is the nationa l focal point for all WTO and WTO-related 
affairs in Sri Lanka, and is the central coordina ting agency for all the WTO agreements through the 
work of ten sub-committees.  These sub-commi ttees, with members from other Ministries, 
Departments, institutions, and trade chambers, are also in charge of draf ting national legislation 
related to WTO issues.  The Department of Co mmerce functions as the focal point for the joint 
commissions on trade and economic cooperation establis hed under trade agreements.  It performs all 
functions related to bilateral trad e negotiations.  The Department is the focal point for Sri Lanka's 
regional trade relations and is the monitoring and implementation agency for the operationalization of 
the Indo-Sri Lanka Free-Trade Agreement and the Pa kistan-Sri Lanka Free-Trade Agreement.  It 
issues certificates of origin issued under th ese agreements and under the SAFTA/SAPTA, Asia 
Pacific Trade Agreement, GSTP, and GSP.   
21. Other ministries involved in the formulation and implementation of trade policy include:  
Finance and Planning, in particular through the Treasu ry and Sri Lanka Customs;  External Affairs;  
Economic Development;  Agriculture;  Cooperatives and In ternal Trade;  Health;  Plantation Industry;  
Fisheries and Aquatic Resources;  and Technology a nd Research.  Other interagency bodies that deal 
with trade policy issues, include the Macro/Trade Framework Steering Committ ee, led by the Central 
Bank;  and the Trade and Tariff Cluster of the National Council for Economic  Development (NCED), 
appointed by the Minister of Finance to advise on requests from industry for tariff changes, and on an appropriate tariff structure in accord ance with fiscal revenue needs.  
(3) T
RADE REGIME  
(i) World Trade Organization 
22. Sri Lanka is an original Member of the WTO and grants at least MFN treatment to all its 
trading partners.  Sri Lanka participated in the extended WTO negotiations on basic 
telecommunications and on financial services;  it  accepted and ratified the Fourth Protocol in 
November 1997 and the Fifth Protocol in January  1999 (Chapter IV(4)).  Sri Lanka does not 
participate in the Agreement on Government Procur ement.  As a developing country Sri Lanka has 
benefited from transition periods to implement commitments under various WTO Agreements, for 
instance, in relation to customs valuati on, import licensing procedures, and TRIPS. 
                                                      
6 Ministry of Foreign Affairs online information.  Viewed at:  http://www.slmfa.gov.lk/index.php? 
option=com_content&task=v iew&id=337&Itemid=104. WT/TPR/S/237 Trade Policy Review 
Page 20 
 
 
23. In relation to notification requirements unde r the WTO Agreements, Sri Lanka is lagging 
behind in certain areas, for example, agricultu re, where its last notification dates from 1999 
(Table AII.1). 
24. The Department of Commerce acts as the nationa l focal point for all WTO-related affairs.  
The authorities have noted that, as a small tr ade-dependent country, Sri Lanka attaches high 
importance to the multilateral trading system and to  the WTO, which remains the main institutional 
framework through which Sri Lanka conducts its trade relations with some of its principal trading 
partners, including the United States, the European  Union, Canada, Australia, New Zealand, and 
Japan.7  
25. Sri Lanka has submitted, together with other WTO Members, proposals for the ongoing 
negotiations in the DDA.  One of these proposals re lates to the Interpretation of the Agreement on 
Technical Barriers to Trade with respect to the Labe lling of Textiles, Clothing, Footwear, and Travel 
Goods.8  Other proposals refer to draft modalities with respect to TRIPS-related issues9;  protection of 
geographical indications10;  and trade facilitation.11  
26. During the 2009 Ministerial Meeting in Geneva, Sri Lanka stated that a strong rules-based 
multilateral trading system embodying transparency  and equality could be a strong mechanism by 
which its various challenges could be addressed.  Sr i Lanka placed great importance on the tariff cuts 
anticipated at the conclusion of DDA, but considered  that the resulting problem of preference erosion 
should be dealt with, including through a faster  phasing out period and more enhanced product 
coverage.  In agriculture, Sri Lanka, as a net fo od importing developing countries (NFIDC), placed 
great importance on the need for flexibilities to safeguard rural development, the livelihood of 
farmers, and food security.  Noting the importance of preferential market access under GSP schemes 
to build up sustainable trade, Sri Lanka stated its strong belief that any such special incentive 
arrangement should respond positively to the devel opment, financial, and trade needs of developing 
countries, and should not be used as a means to pursue foreign policy objectives of the GSP-granting countries.  On aid for trade, Sri Lanka stated that  it required enhanced facilities both in infrastructure 
development and trade-related adju stment.  Sri Lanka trusted that development partners would come 
forward to assist in meeting these challenges.
12 
27. During the period under review, Sri Lanka has not been involved in any disputes under the 
WTO dispute settlement mechanism.  Since the inception of the WTO, Sri Lanka has not been 
involved in any dispute as a respondent, and in only one as a complainant, in 1996;  however no panel 
was established.13  Sri Lanka has reserved its right as a thir d party to three disputes, all before the 
review period.14 
                                                      
7 Department of Commerce online information.  Vi ewed at:  http://www.doc.gov.lk/web/ wto.php. 
8 WTO document TN/MA/W/123, 27 November 2009 . 
9 WTO document TN/C/W/52, 19 July 2008. 
10 WTO document WT/GC/W/587,TN/C/W/48, 19 February 2008. 
11 WTO document TN/TF/W/123/Rev.3, 6 November 2009. 
12 WTO document WT/MIN(09)/ST/111, 2 December 2009. 
13 Brazil — Countervailing Duties on Imports of De siccated Coconut and Coc onut Milk Powder from 
Sri Lanka.  WTO online information.  Viewed at:  http://www.wto.org/english /tratop_e/dispu_e/cases_e/ 
ds30_e.htm. 
14 WTO documents WT/DS30/1, 5 March 1996;  WT/DS22/6, 18 April 1996;  WT/DS58/9, 
17 April 1997;  WT/DS246/5, 6 March 2003. Sri Lanka WT/TPR/S/237 
 Page 21 
 
 
(ii) Regional trade agreements 
28. Sri Lanka participates in two regional agre ements:  the South Asian Free Trade Area 
(SAFTA) Agreement and the Asia-Pacific Trade Agreement (APTA), and two bilateral agreements:  the Indo-Sri Lanka Free Trade Agreement (ISFTA ), and the Pakistan-Sri Lanka Free Trade 
Agreement (PSFTA).  Over all, preferences are gran ted mainly to Bangladesh, Bhutan, India, Laos, 
Maldives, Nepal, and Pakistan.  Sri Lanka also gr ants preferences under the GSTP, but only to a small 
number of countries and on a very limited number of  tariff lines, and margins with respect to MFN 
rates are small.  Sri Lanka also grants preferentia l market access to China and the Republic of Korea 
for a moderate number of products under the APTA.  The authorities note that new offers are on the 
table. 
29. Only preferences under the ISFTA and th e PSFTA, and for LDCs under SAFTA are 
significantly below the simple average applied MFN of 12% (Chapter III and Table III.6).  Estimates 
by the Ministry of Finance indicate that tariff preferences under Sri Lanka's four major FTAs resulted 
in a Rs 5,962 million loss of re venue in 2009 (Table III.7). 
30. Sri Lanka is a member of the South Asian A ssociation for Regional Cooperation (SAARC).  
The seven members (Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka) signed 
the South Asian Preferential Trade Arrangement (SAPTA) in 1993.  The objective of the SAPTA was 
to promote and sustain mutual trade and econom ic cooperation among the member states through 
exchange of trade concessions.  It was agreed that SAPTA would be a first step to higher levels of 
trade liberalization and economic cooperation am ong the members.  In 1997, SAARC members 
reiterated their commitment to the creation of th e South Asian Free-Trade Area (SAFTA) not later 
than 2005.  Four rounds of trade liberaliza tion were completed with in SAPTA covering over 
5,000 tariff subheadings.  Each Round contributed to increased product coverage and deeper tariff 
concessions. 
31. The SAFTA was signed in January 2004 and impl emented with effect from 1 January 2006;  
it superseded the SAPTA.  SAFTA was notified to the WTO in April 2008.
15  SAFTA aims at further 
enhancing regional economic integration through pr omotion of preferential trade.  Under SAFTA, 
Sri Lanka grants tariff concessions  on 4,059 HS tariff lines at the si x-digit level;  LDCs under SAFTA 
(Afghanistan, Bangladesh, Bhutan, and the Maldiv es) are granted concessions on 4,103 tariff 
subheadings.16  Most concessions are reductions on the MFN rate:  only 11.7% of tariff lines are duty 
free.  The average tariff faced by non-LDCs under SAFTA is 10.6%, compared with an MFN average 
of 12%, the average rate for LDCs is 7.8%.  E ach SAFTA country maintains a list of exceptions 
(Sensitive List or Negative List).  Sri Lanka's lis t contains 1,707 HS 2007 tariff lines covering a wide 
range of products.17  Imports from SAFTA countries totalled US$3.1 billion in 2008, or some 22.7% 
of total imports;  imports from India represented 93% of the total, and most of the rest were imports from Pakistan, the Maldives, and Bangladesh.  Exports to SAFTA totalled US$560 million, 
three quarters of which were destined  to India, and the rest to Pakistan, the Maldives, and Bangladesh.  
Trade with Bhutan and Nepal was below 1% of total trade. 
                                                     
 
15 WTO document WT/COMTD/N/26, 24 April 2008. 
16 LDCs also enjoy SAPTA (or SAA RC) preferences on six tariff he adings, which are included in 
Sri Lanka's Sensitive List.  In the process of conver ting SAPTA into SAFTA concessions, it was agreed that 
items for which SAPTA concessions were available to LDCs, appearing in the sensitive lists of non-LDCs under 
SAFTA, would maintain the same level of SAPTA concessions. 
17 SAARC online information.  Viewed at:  http://www.saarc-sec.org/data/agenda/economic/ 
safta/Annex-I%20of%20SAFTA%20Agreement%20-%2 0Sensitive%20Lists%20%20of%20Member%20States/ 
Sri%20Lanka_Sensitive_List%20_30_Oct_2009.pdf.  For some 700 HS tariff subheadings, not included in the Sensitive List, the MFN rate is actually applied. WT/TPR/S/237 Trade Policy Review 
Page 22 
 
 
32. Sri Lanka participates in the Asia-Pacific Trade Agreement (APTA), formerly known as 
Bangkok Agreement.  The APTA was signed in November 2005 and entered into force on 
1 September 2006;  it was notified to the WTO in July 2007.18  The other members of APTA are 
Bangladesh, China, India, Laos, and the Republic of Korea.  Sri Lanka's cons olidated national list of 
concessions (general) covers 427 tariff lines and the lis t of special concessions offered to the least 
developed countries covers 72 tariff lines.  Only 11.7 % of lines are duty free.  As a result, the average 
margin of preference for countries participating in  the APTA is very small:  the average tariff is 
11.8%, compared with an MFN rate of 12%.  Sri La nka's major exports to APTA countries are natural 
rubber, desiccated coconut, coconut fibre, copra, coconut oil, tea, cloves, and crude glycerine.  
Sri Lanka is granted tariff concessions from other members of APTA for products such as spices 
(pepper, nutmeg, mace), cashew nuts, essential oils, natural graphite, activat e carbon, rubber products, 
floor tiles, ceramic, tableware/kitchenware, glassware, semi-precious stones, gems and jewellery, stuffed toys, brooms and brushes, cut flowers, foot wear, biscuits, chocolates, apparel, fresh fruits and 
juices, wooden furniture, mattress, electric lamps, ornamental fish , fresh/frozen fish, and fishery 
products.
19  Imports from APTA countries in 2008 totalled US$4.15 billion, or 30.4% of total imports.  
India accounted for 68% of total imports, China for 27%, and Korea accounted for most of the 
remaining 5%.  Exports to APTA countries reach ed US$524 million in 2008, of which 80% were 
directed to India, 9% to China, 7% to Korea, and the rest mostly to Bangladesh. 
33. Sri Lanka also has a free-trade agreement with India.  The Indo Sri Lanka Free Trade 
Agreement (ISFTA) was signed on 28 December 1998 and entered into force on 1 March 2000.  The 
ISFTA was notified to the WTO in 2002.20  The ISFTA aims at promoting economic links between 
India and Sri Lanka through enhancement of bilate ral trade and investment.  The agreement covers 
only trade in goods and requires the two countries to offer market access for each other's exports on a 
duty-free basis and concessionary tariffs.  The I SFTA does not provide for elimination of non-tariff 
barriers.  If either party faces balance-of-payment s difficulties or critical circumstances and invokes 
safeguard measures, they may provisionally suspen d the preferential treatment and notify the other 
partner.21 
34. Tariff reductions were made in stages, over eight years by Sri Lanka and in three years by 
India.  Sri Lanka retained some 1,180 items (22.5% of total tariff lines at the six-digit level) on the 
negative list (Annex D), which includes agricultural goods as well as some industrial items of national 
significance.22  Upon entry into force of the agreement, Sri Lanka granted duty-free access to all 
goods included in Annex F-1 (342 tariff lines, 6.5% of total tariff lines), and a 50% preference margin 
for items in Annex F-II (880 tariff lines at the six-dig it level).  The margins of preference on the items 
included in Annex F-II were increased to 70%, 90%, and 100%, at the end of the first, second, and 
                                                      
18 WTO document WT/COMTD/N/22, 27 July 2007. 
19 Department of Commerce online information.  Viewed at:  http://www.doc.gov.lk/web/asia_pacific_ 
trade_introduction.php. 
20 WTO document WT/COMTD/N/16, 27 June 2002. 
21 For more information on this agreement, see De partment of Commerce online information.  Viewed 
at:  http://www.doc.gov.lk/ web/indusrilanka_freetrade_dutycon.php. 
22 The negative list contains items under HS Chapters:  25;  27 (e.g. mineral fuels, mineral oils);  30;  
32 (e.g. paints and varnishes);  33 (e.g. preparation for oral or dental hygiene);  34 (e.g. soap and organic 
surface-active products and preparations);   35;  36 (e.g. matches other than pyrotechnic articles);  38;  39;  and 
40 (items of plastics and rubber section);  41 (raw hides and skins);  46;  48 (paper and paperboard and articles 
thereof);  49 (e.g. printed or illustrated postcards);  53;  56;  58;  59 (some textiles articles);  64 (footwear);  
66 (umbrellas);  68 (articles of stone and cement);  69 (cer amic products);  70;  71;  72;  73;  74;  76 (items of 
iron and steel; copper;  aluminium and their articles);  82 (t ools e.g. spades, shovels, fork s, axes, razors, knives);  
83 (misc. articles of base metals);  84 (e.g. filtering or pu rifying machinery;  fire extinguishers;  lawn mowers);  
85 (e.g. storage heating radiators, radi o broadcast receivers, reception apparatu s for television);  87 (vehicles);  
89;  90 (e.g. spectacle lenses);  94;  95 (e.g. dolls representing human beings);  96 (e.g. ball point pens). Sri Lanka WT/TPR/S/237 
 Page 23 
 
 
third years of the agreement, respectively.  For th e remaining items (2,822 lines at the six-digit level, 
54.2% of total tariff lines), except those on the nega tive list (Annex D), duty concessions of 70% were 
implemented with effect 1 March 2006, and of 100% with effect 31 March 2008, concluding the 
liberalization process.   
35. India granted duty-free concessions to 1,415 tariff lines with effect 31 March 2000.  On 
18 March 2003, it granted duty-free concessions to a nother 2,818 tariff lines thus completing its trade 
liberalization programme.  India also retained a nega tive list.  However, concessions are available for 
tea and garments despite their appearance on this list.  Under Annex A, paragraph 1(b) of the 
Agreement India grants a margin of preference of 25% for Sri Lankan textile exports, and a standard 
rate of 7.5% for 15 million kg of tea.  A preferential tariff rate quota, with a 50% margin of 
preference, applies on 8 million pieces of garments.  
36. The Framework Agreement of the Pakistan Sri Lanka Free Trade Agreement (PSFTA) was 
signed on 1 August 2002 and entered into force on 12 June 2005.  The PSFTA was notified to the 
WTO in 2008.23  Following the signing of the PSFTA, several  rounds of bilateral negotiations were 
held to finalize the annexes in December 2004.  In  February 2005, the two governments confirmed the 
finalization of the Annexes and si gned a Protocol to expand the scope  of the FTA and move towards a 
comprehensive Economic Partnership Agreement, c overing trade in services and investment.  Upon 
signing the Agreement, Pakistan granted Sri Lanka immediate duty-free access for 206 HS tariff 
headings at the six-digit level.  Both countri es introduced "no concession" lists, for products not 
entitled to any tariff concessions.  Pakistan's list consis ts of 540 HS tariff lines at a six-digit level.  
Products listed in Attachment IV to the agreemen t receive a preferential duty margin of 20% on the 
applied MFN duty rate.  Annex D contains the phasing-out list for the remaining items.   
37. Under the PSFTA, Sri Lanka also obtained preferential tariff rate quotas (TRQ) for tea and 
apparel.  Sri Lanka has duty-free access to Pakistan fo r a total of 10,000 tonnes of tea every financial 
year (July/June).  Pakistan also granted Sri Lanka  a TRQ of 3 million pieces of garments per financial 
year for 21 product categories of apparel with a preferential duty margin of 35%.  However, the 
maximum quantity that can be exported under any of these categories is 200,000 pieces. 
38. Sri Lanka's "no concession" list contains 697 HS ta riff lines (products) at the six-digit level.  
In Attachment II, Sri Lanka listed 102 lines on which Pakistan received immediate duty-free access.24  
Sri Lanka granted Pakistan a TRQ for 6,000 tonnes of  Basmati rice and 1,000 tonnes of potatoes per 
calendar year on a duty-free basis.  However, potato imports are permitted only during Sri Lanka's off 
season (2/3 to be imported during June-July and 1/ 3 during October-November each year).  Products 
not included in the "no concession" list or in Attachment II of the Agreement are subject to tariff reductions as per Sri Lanka's phasing-out schedule (Annex D). 
39. According to WTO estimates, Sri Lanka h as granted Pakistan tariff concessions on 
4,629 HS subheadings at the eight-digit level (t he Agreement presents information at a six-digit 
level).  Pakistan's exports face a tariff of 7.2% , compared with a 12% MFN rate.  Some 13.8% of 
tariff lines at the eight-digit level are granted duty -free access to Sri Lanka.  The authorities note that, 
by 12 June 2010, Pakistan will enjoy duty-free access for 5,705 tariff lines at six-digit level. 
40. Sri Lanka is a member of the Indian Ocean Rim Association for Regional Cooperation 
(IOR-ARC) established in 1997.  It is a party to  the Bay of Bengal Initiative for Multi-Sectoral 
Technical and Economic Cooperation (BIMSTEC) Agreem ent, which entered into force in 1997 as a 
                                                     
 
23 WTO document WT/COMTD/N/27, 18 June 2008. 
24 List viewed at:  http://www.doc.gov.lk/ PSFTA/Annex%20%27A%27%20Attachment%20II%20 
(Pakistan%27s%20offer%20list%20for%20100%25%20Duty%20Concession).xls. WT/TPR/S/237 Trade Policy Review 
Page 24 
 
 
forum to facilitate and promote trade, investme nt, and technical cooperation among participating 
countries.25  BIMSTEC aims at:  creating an enabling environment for rapid economic development;  
accelerating social progress;  promoting active collaboration and mutual assistance on matters of common interest;  and enhancing cooperation in de velopment issues, particularly in sub-regional 
projects.
26  BIMSTEC covers 13 priority sectors:  trade and investment;  technology;  energy;  
transport and communications;  tourism;  fisheries;   agriculture;  cultural cooperation;  environment 
and disaster management;  public health;  people-to-p eople contract;  poverty alleviation; and counter-
terrorism and transnational crimes.  BIMSTEC 's Trade Negotiating Committee (BIMTEC TNC) 
meets regularly and is currently working on a list  of goods for liberalization among members, and 
finally conducive to a free-trade agreement, in line with the framework agreement signed in 2004. 
41. Sri Lanka  participates in the Global System of Tr ade Preferences (GSTP) among developing 
countries.  It offers tariff concessions with ma rgins of preference ranging from 50% to 3.85% on 
23 tariff lines at the HS four-digit level.  Sri Lanka 's list of concessions under the GSTP includes fruit, 
prepared fish, rum, prepared explosives, film in rolls, wall paper, sewing machines, and four-wheel-drive vehicles.  In 2010, Sri Lankan products received preferential treatment under the 
Generalized System of Preferences (GSP) schemes of Australia, Canada, Japan, Korea, Norway, 
Switzerland, and the United States.  In February 2010, the EU announced that it would temporarily 
withdraw GSP+ trade benefits from Sri Lanka with e ffect six months after the announcement.  At that 
time, Sri Lankan exports would reve rt to standard GSP preferences.
27 
(4) FOREIGN INVESTMENT REGIME  
42. Sri Lanka's foreign investment regime has not undergone any significant changes since 2004, 
except as regards the new regulations on incentives in troduced in 2006.  The investment regime is 
generally open to foreigners, with a few exceptions, where foreign investment is either subjected to 
non-automatic approval, or is reserved for Sri Lanka nationals.  Where foreign investment is 
permitted, foreign investors receive national treat ment and may benefit from the incentives provided 
by the Board of Investment of Sri Lanka (BOI) (Table AIII.5).28  For some sectors, investors must 
meet minimum investment and export requirement s to qualify for BOI incentives.  Despite the 
incentives granted, foreign investors have reporte d some remaining challenges, including occasional 
difficulties in clearing products through custom s and in obtaining land to build factories.29  The BOI 
encourages investors to locate their factories in  BOI-managed industrial processing zones to avoid 
land allocation difficulties. 
43. 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;   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, as well 
as foreign exchange regulati ons and immigration laws. 
44. The BOI, an autonomous statutory agency operating under the Ministry of Economic 
Development, is the government entity responsible fo r foreign investment.  The BOI is structured to 
                                                      
25 The participating countries are Bangladesh, Bh utan, India, Myanmar, Nepal, Sri Lanka, and 
Thailand.  Bhutan and Nepal joined in 2003. 
26 BIMSTEC online information.  Viewed at:  http://www.bimstec.org/about_bimstec.html. 
27 European Commission online information.  View ed at:  http://trade.ec.europa.eu/doclib/press/ 
index.cfm?id=515. 
28 For more information on the incentives provided by the BOI, see:  http://www.boi.lk/2009/pdf/ 
Incentives.pdf. 
29 United States Trade Representative (2010), pp. 469-470. Sri Lanka WT/TPR/S/237 
 Page 25 
 
 
function as a central facilitation point for investors;   it aims at being a "one-stop" shop for foreign 
investors but, in practice, investment in certain se ctors require the approval of several agencies.  The 
BOI approves projects, grants licences, establishe s eligibility for tax incentives, and assists in 
procurement.  It is also responsible for admini stering a number of tax incentives for the so-called 
"BOI companies", and for managing export-processing zones and industrial parks.30  BOI companies 
employ over 400,000 workers and account for near ly 65% of Sri Lankan exports and 85% of 
industrial exports.  An inter-ministerial sub-co mmittee was established in 2006 to strengthen the BOI 
and ensure speedy clearance of investment approvals .  The Public-Private Partnership Unit, a division 
of BOI, has responsibility for coordinating all public-private infrastructure projects.   
45. FDI must receive government approval;  this is  generally granted by the BOI and is, with 
some exceptions, automatic.  The BOI Act provid es for two types of investment approvals.  Under 
Section 17 of the Act, the BOI may undertake agreements to grant concessions to companies satisfying certain eligibility criteria on minimu m investment, exports or employment (the BOI 
companies).  These companies obtain an exempti on from specific laws, or a modification of the 
application of such laws.
31  Investment approval under Section 16 of the Act permits entry for foreign 
investment to operate under the "normal" laws of the country and applies to investments that do not 
satisfy eligibility criteria for BO I incentives (Table AIII.6).  In certain sectors, FDI requires approval 
from other government agencies.  In some ca ses, proposals must be evaluated by several 
ministries/agencies, which grant a "special approval" ;  the percentage of equity participation is 
decided on a case-by-case basis.  In other sectors, the BOI may approve FDI up to a certain limit;  
above that limit, approval is granted on a case-by-case b asis in consultation with the relevant ministry.  
Foreign companies must also apply for registration with the Registrar of Companies to establish a 
presence in Sri Lanka;  this process has been  reported to be cumbersome, on occasions.32 
46. A wide range of incentives is offered to both elig ible local and foreign investors.  Eligibility 
criteria are determined by the BOI.  They include minimum investment, export, and labour 
requirements, which vary according to sector (Table AIII.6).   
47. Sri Lanka restricts or forbids foreign investme nt on certain business activities, while others 
require approval by statutory agencies other than th e BOI.  The authorities consider Sri Lanka's list of 
restricted activities to be relatively small compared with other Asian countries.  They pointed out that 
the Government is committed to reducing this lis t further to broaden opportunities for foreign 
investors.33  Full (100%) foreign ownership is permitted in  most industrial and in a number of services 
activities (including banking, insurance, fi nance, construction, mass transportation, 
telecommunications and information t echnology, and petroleum distribution). 
48. Foreign investment is not permitted in:  money lending;  pawnbroking;  retail trade, where 
investment is lower than US$1 million34;  the provision of personal services other than in export or 
tourism activities;  coastal fishing;  education of students who are citizens of Sri Lanka and not over 
                                                      
30 BOI companies are those that sign an agreement w ith the BOI.  This status guarantees benefits and 
stability to the companies' investments, since the provis ions of the agreement remain valid for the life of the 
enterprise, and may not be changed by successive Governments.  For more information on the BOI, see BOI 
online information.  Viewed at:  http://www.boi.lk. 
31 These laws include:  the Inland Revenue Act, the Customs Ordinance, the Exchange Control Act, the 
Companies Ordinance, the Merchant Shipping Act, the Finance Act, the Air Navigation Act (Section 17), and 
Schedule B of the Board of Investment Act of Sri Lanka Law, No. 4 of 1978. 
32 U.S. Department of Commerce (2010). 
33 BOI online information.  Viewed at:  ht tp://www.boi.lk/2009/rese rved_for_reguler.asp. 
34 However, the BOI allows retail and wholesale trading by reputed international brand names and 
franchises with an initial investment of not less than US$150,000. WT/TPR/S/237 Trade Policy Review 
Page 26 
 
 
14 years of age;  and award of local educational de grees.  Other activities are subject to automatic or 
conditional approval.  These include:  production of goods  for which Sri Lanka's exports are subject to 
internationally determined quota restrictions;  grow ing and primary processing of tea, rubber, coconut, 
cocoa, rice, sugar, and spices;  mining and prim ary processing of non-renewable national resources;  
timber-based industries using local timber;  deep-sea fishing;  mass communications;  education;  
freight forwarding;  travel agenci es;  and shipping agencies.  Fo reign investment in these areas is 
approved automatically where the investment repres ents a maximum of 40% of total investment.  
Foreign ownership in excess of 40% is approved by the BOI on a case-by-case basis. 
49. There are a number of regulated areas, in which foreign investment needs to be approved by 
the respective government agency or the BOI (up to the percentage of foreign equity specified by 
BOI).  The BOI assists potential investors by referri ng applications to the appropriate agency.  These 
areas include:  air transportation;  coastal shippi ng;  industrial undertakings  listed in the Second 
Schedule of the Industrial Promotion Act No. 46 of  1990:  (a) any industry manufacturing arms, 
ammunitions, explosives, military ve hicles and equipment aircraft a nd other military hardware;  (b) 
any industry manufacturing poisons, narcotics, alc ohols, dangerous drugs and toxic, hazardous or 
carcinogenic materials;  or (c) any industry producing currency, coins or security documents;  large-scale mechanized mining of gems;  and lotteries.  
50. In 2000, Sri Lanka notified to the WTO that its investment regime does not provide for 
local-content requirements, trade-balancing requireme nts, foreign exchange balancing requirements, 
exchange restrictions resulting in import restric tions or domestic sales requirements involving 
restrictions on exports.
35  However, as indicated above, some of the benefits provided by the BOI 
incentives schemes are contingent upon export performance requirements (see Table AIII.6). 
51. There are no restrictions to the remittance of corporate profits and dividends of foreign 
companies operating in Sri Lanka.  The remittance of  management fees, royalties and licensing fees is 
also permitted for companies with majority fore ign investment approved under Section 17 of the BOI 
Act.  Repatriation of funds is pe rmitted for debt service and capital gains of companies exempted by 
the BOI from exchange control regulations;  forei gn companies not granted this exemption require 
Central Bank approval.  Stock-market investme nts may be remitted without prior Central Bank 
approval.  Investment returns may be remitted in an y convertible currency at the legal market rate.  
Foreign investors may invest in foreign-currency-denominated bonds, but not, in principle, in domestic-currency-denomina ted government debt instruments, although it has been reported that the 
Government has, in practice, allowed lim ited access to foreigners to this market.
36   
52. Foreign investment protection is guaranteed by  the Constitution.  The Sri Lankan Government 
has not expropriated a foreign investment since the 1970s;  the last expropriation dispute was resolved 
in 1998.  The Government of Sri Lanka has signed investment protection agreements with Australia, 
Belgium-Luxembourg, China, Denmark, Egypt, Finland, France, Germany, India, Indonesia, Iran, Italy, Japan, Korea, Kuwait, Malaysia, the Neth erlands, Norway, Pakistan, Romania, Singapore, 
Sweden, Switzerland, Thailand, the United Kingdom, th e United States, and Viet Nam.  Sri Lanka is a 
founding member of the Multilateral Investment Guar antee Agency (MIGA) of the World Bank, and 
has ratified the Convention on Settlement of Invest ment Disputes.  Under Sri Lanka's Constitution, 
investment protection agreements have the force of  law.  Sri Lanka has double-taxation agreements 
with Australia, Bangladesh, Belgium, Canada, Chin a, ex-Czechoslovakia, Denmark, Finland, France, 
Germany, Hong Kong China, India, Indonesia, Iran,  Italy, Japan, Korea, Kuwait, Malaysia, Mauritius, 
Nepal, Netherlands, Norway, Pakistan, the Phi lippines, Poland, Qatar, Romania, Russia, 
                                                     
 
35 WTO document G/TRIMS/N/1/LKA/1, 31 March 2000. 
36 U.S. Department of Commerce (2010). Sri Lanka WT/TPR/S/237 
 Page 27 
 
 
Saudi Arabia, Singapore, Sweden, Switzerland,  Thailand, the UAE, the United Kingdom, the 
United States, and Viet Nam.37  
53. Arbitration Act No. 11 of 1995 implemented th e New York Convention on Recognition and 
Enforcement of Foreign Arbitral Awards.  As a result,  arbitral awards made abroad are enforceable in 
Sri Lanka if the other party is also a party to  the New York Convention, and awards made in 
Sri Lanka are enforceable abroad, subject to the pr ovisions of Arbitration Act No. 11 of 1995.  At 
present there are four arbitration centres in Sri La nka:  the Ceylon International Arbitration Centre 
(CIAC), the Sri Lanka National Arbitration Centre (SLNAC), the Arbitration Centre of the National 
Chamber of Commerce, and the Institute for th e Development of Commercial Law and Practice 
(ICLP).38 
(5) AID FOR TRADE39 
(i) Mainstreaming trade into national development strategies 
54. The Government's development strategy, the The Mahinda Chintana:  Vision for a New 
Sri Lanka:  A Ten Year Hori zon Development Framework 2006-2016 (TYHDF), aims to accelerate 
economic growth with special consideration given to pro-poor growth strategies.  It targets a 
sustainable rate of 6-8% growth in real income.  Achieving an investment rate of around 35% of GDP 
from both domestic (public and private) and fore ign sources underpins this target.  The ultimate 
objective is for Sri Lanka to progress towards uppe r-middle-income country status by 2017.   
55. The TYHDF outlines key constraints to developm ent and proposes a plan of action to address 
them.40   Trade is identified as one of the macroe conomic means to achieve the Government's 
development strategy.  The TYHDF seeks to promot e exports by encouraging further rationalization 
of tariff and trade policies, facilitation of a fair trading environment, and trade and investment arrangements with partner countries.  The trade objectives within the document focus on increasing 
integration of the Sri Lankan economy with global mark ets.  Particular focus is given to strengthening 
standards in health, environment, labour, and safet y standards to comply with international best 
practices.   
56. Strengthening of trade performance is identifie d as a macroeconomic objective, but it is not 
mainstreamed at an operational level in the nationa l development strategy as a tool for pro-poor 
growth.  In its reply to the joint OECD-WTO Aid-for-Trade questionnaire in 2009, Sri Lanka stated that the operational objectives and action plans for trade mainstreaming are given in sectoral strategies and budget-related documents, such as the Action Plans of the Department of Commerce, the 
Sri Lanka Export Development Board (EDB), the BOI, the Tea Board, and the Joint Apparel 
Association Forum (JAAF). 
                                                     
 
37 BOI online information.  Viewed at:  http://www.boi.lk/2009/investment_protection.asp;  and 
http://www.boi.lk/2009/Double_Taxation_Relief.asp. 
38 For more information on the ICPL, see IC PL online information.  Viewed at:  
http://www.iclparbitration centre.com/history.htm. 
39 This section was prepared by the WTO Development Division. 
40 Constraints to development identified in the TY HDF include:  domestic resource limitations;  
infrastructure deficiencies in electri city, roads, and transport, which have become a major impediment to 
investment and regionally balanced development activit ies;  the internal conflict, which suppressed domestic 
investment;  monetization of successive fiscal deficits;  the high cost of finance, which discouraged private 
investment, especially in small and medium-sized enterprises (SME);  and the decline in the tax to GDP ratio, 
which increased the public debt and narrowed the fiscal  space to accommodate development expenditure in the 
budget.  See Sri Lanka New Development Strategy:  http://www.recoverlanka.ne t/data/SLDF05/SLNDS.pdf. WT/TPR/S/237 Trade Policy Review 
Page 28 
 
 
57. At the core of the TYHDF strategy is the target to achieve high growth rates through 
investment in large-scale infrastructure and the knowledge economy, and to focus on rural 
development to help lagging regions.  In its reply to the questionnaire, Sri Lanka identified 
three priority areas for aid-for-trade assistance:  tr ade policy analysis, negotiation and implementation;  
export diversification;  and competitiveness. 
(ii) Aid-for-trade support to Sri Lanka 
58. The deterioration in Sri Lanka's balance-of-payments over 2006-08 prompted the need to 
resort to IMF financing in the form of a St and-by Arrangement worth US$2.6 billion in mid 2009 
(see Chapter I).  The situation was aggravated by th e global financial crisis, wh ich, together with the 
fact that Sri Lanka was recognized as a lower-middle- income country, resulted in a decline in exports, 
and by the shift in the financing mix from concessi onary external borrowing to more costly domestic 
and non-concessionary foreign borrowing.41  Futhermore, Sri Lanka does not qualify for the Heavily 
Indebted Poor Countries (HIPC) Initiative or  the Multilateral Debt Relief Initiative.42 
59. The TYHDF has been used by multilateral deve lopment partners as the basis on which to 
align their assistance.  Bilateral Official Development Assistance (ODA) in the review period was 
focused on the response of partners to the intensif ication of the armed conflict, and the subsequent 
focus on reconstruction in affected areas after the end of hostilities.  Another challenge in this period 
was post-Tsunami reconstruction, in  particular absorbing a large temporary inflow of foreign funds 
and directing them efficiently to  emergency relief, and then to rehabilitation and reconstruction of 
damaged assets and infrastructure.  The initial assu mption that foreign financing was more than 
adequate for reconstruction was quickly dispe lled as the large-scale reconstruction programme 
quickly raised demand for construction inputs that pr oduced steep increases in construction costs.  In 
turn, this produced funding gaps that had to be f illed either by the government or by additional foreign 
assistance.43 
(a) Overview of aid-for-trade assistance 
60. According to figures provided by the OECD, Sri Lanka received a total of US$1.77 billion in 
assistance in aid-for-trade categories between 2004 and 2008 (Table II.1).  Japan was the largest 
aid-for-trade development partner, providing US $806.5 million in support (or 45% of the total).  
Assistance was concentrated in the transport a nd storage sector, where Japan provided concessional 
loans worth a total of US$614 million.  Assistance ha s focused on three main infrastructure projects:  
the Galle Port Development Project, the Pro-Poor Eastern Infrastructure Development Project, and the 
Greater Colombo Urban Transport Development Project.44 
61. Multilateral donors provided a further US$565 million in concessional financing during 
2004-08 (or 32% of the total).  The Asian Developm ent Bank (ADB) Country Partnership Strategy for 
Sri Lanka (2009-11), is aligned with the TYHDF  and focuses on two pillars:  strengthening the 
investment climate, and achieving socially inclus ive development.  The first pillar is aimed at 
improving infrastructure and stabilizing the macroe conomic environment.  Under the second, the 
                                                      
41 ADB (2010b). 
42 For more information, see:  http://www .imf.org/external/np/exr/facts/mdri.htm. 
43 See:  http://www.adbi.org/files/dp75.sri.lanka.post. tsunami.reconstruction.pdf.  For more information 
on the international response to the Tsunami, see Ts unami Evaluation Coalition (2006);  and Government of 
Sri Lanka and Development Partners (2005). 
44 Japan International Cooperation Agency (J ICA) online information.  Viewed at:  
http://www.jica.go.jp/english/news/jbic_archive/autocontents/english/news/2006/000030/index.html;  and http://www.jica.go.jp/english/news/jbic_archive/autocontents/english/news/2007/000052/index.html. Sri Lanka WT/TPR/S/237 
 Page 29 
 
 
ADB seeks to expand access to high-quality services in  water supply, power, and transport, and to 
improve education in lagging regions.  With the en d of the conflict in May 2009, the ADB updated its 
country strategy paper to respond to government re quests for more resources for rehabilitation and 
reconstruction, especially in the Northern and Eastern provinces.45  The ADB's 2010 and 2011 
pipeline will focus on these provinces by building in frastructure, improving the business climate, and 
fostering socially inclusive development.   
Table II.1 
Aid-for-trade flows to Sri Lanka, 2004-08  
(US$ million)  
 2004 2005 2006 2007 2008 2004-08 
Transport & storage 40.24 177.75 199.31 213.15 391.82 1,022.27 
Communications 38.96 2.44 3.32 1.02 7.79 53.53 
Energy 10.51 50.29 3.23 40.69 18.78 123.5 
Banking & financial services  26.64 63.32 17.77 3.13 26.8 137.66 
Business & other services 5.29 8.52 3.79 5.67 8.57 31.84 
Agriculture 103.28 40.70 27.23 9.79 5.38 186.38 
Forestry 0.04 0.64 0.00 0.68 0.43 1.79 
Fishing 1.46 20.93 11.04 5.64 8.11 47.18 
Industry 106.83 17.29 2.23 6.47 3.86 136.68 
Mineral resources & mining 0.00 0.00 1.11 0.47 0.0 1.58 
Trade policies & regulations 5.72 0.07 2.35 1.21 0.05 9.4 
Tourism 0.03 0.04 22.72 0.32 0.86 23.97 
Total 339.00 381.99 294.10 288.24 472.45 1,775.78 
Source :  OECD Creditor Reporting System.  Fi gures are in constant 2008 prices.  
62. The ADB's total programme for Sri Lanka  for the next three years amounts to 
US$938.4 million, of which US$660 million is in  non-concessional lending from ordinary capital 
resources (OCR) and US$268 million is on concessi onal terms from the Asian Development Fund 
(ADF).  The average lending programme per year will be US$312 million, consisting of US$220 million from OCR and US$90 million from the ADF.  The focus of the ADB's programme is in line with the Country Partnership Strategy, wi th transport (US$364.4 million for three years, or 
39% of the total programme), water (US$240 million,  or 26% of the total programme), and power 
(US$190 million, or 20% of the total prog ramme) absorbing 85% of the assistance.  
63. The World Bank Group's Country Assistance Strategy for Sri Lanka (2008-12) has an annual 
lending envelope of around US$200 million.  As Sr i Lanka is a lower-middl e-income country, lending 
is on International Development A ssociation (IDA) "hardened" terms.
46  The Bank's strategy has 
three main objectives:  to create opportunities for equitable growth and economic development;  to 
help Sri Lanka accelerate economic growth by improvi ng competitiveness and the investment climate;  
and to help the country ensure that service de livery is effective and accountable to citizens.47  
                                                      
45 Asian Development Bank (2010a). 
46 The IDA hardened terms are applied to countrie s with Gross National Income per capita above a 
determined operational cut-off for more than two consec utive years.  The conditions include a repayment period 
of 20 years, with a grace period of 10, and equal 10% instalments in the next 10 years.  For further information 
on IDA hardened terms, see World Bank online informati on.  Viewed at:  http://siteresources.worldbank.org/ 
IDA/Resources/IDATerms09.pdf and http://web.worldbank.org/WBS ITE/EXTERNAL/EXTABOUTUS/IDA/ 
0,,contentMDK:21206704~menuPK:83991~pagePK:51236175~piPK:437394~theSitePK:73154,00.html. 
47 For more information on the Country Assistance Strategy, see World Bank online information.  
Viewed at:  http://www.worldbank.lk/WBSITE/ EXTERNAL/COUNTRIES/S OUTHASIAEXT/SRILANKA 
EXTN/0,,menuPK:232812~pagePK:141159~piPK:141110~theSitePK:233047,00.html. WT/TPR/S/237 Trade Policy Review 
Page 30 
 
 
64. The European Union manages approximately €200 million of ongoing  assistance programmes 
to Sri Lanka.  This is in addition to the emergency relief assistance provided by the EU's humanitarian 
office ECHO, which is also well established in Sri Lanka and continues to provide significant 
humanitarian support for both conflict and Tsunami victims.  The latter is being phased out as the 
major post-Tsunami rehabilitation pr ogrammes gets under way.  For the period 2007-10, the European 
Commission is focusing its assistance on supporting the return of internally displaced populations, 
returning refugees as well as their host commun ities, and good governance and human rights issues.  
The Commission also aims to support economic grow th through its trade policy and trade-related 
assistance programmes:  the SWITCH Asia Programme – Promoting Sustainable Consumption and 
Production48;  the EU – Sri Lanka Trade Development Proj ect;  the Asia Invest Programme – Building 
EU-Asia business partners;  the Asia Link Pr ogramme – A programme for higher education 
networking;  the Asia Urbs Programme – F unding local government partnerships for urban 
development;  and the EU – Sri Lanka Sma ll Projects Facility and the Asia Trust Fund.49   
65. Other development partners active in Sri Lanka include:  Australia, Canada, Germany, Korea, 
Norway, the United Kingdom, and the United States.50  Assistance from these donors is primarily 
focused on humanitarian relief a nd post-conflict reconstruction.  
66. Some development partners have withdraw n from Sri Lanka.  In June 2008, Sweden 
announced that it would progressively phase out assistan ce to Sri Lanka by the end of 2010 in line 
with a decision to refocus on certain countries.51  In April 2009, the Netherlands informed Parliament 
it would end development cooperati on with seven countries as part of a rationalization of the 
Netherlands aid programme.52  
(b) South-South partners 
67. Sri Lanka has strengthened its South-South relati onships, notably with China and India.  In 
December 2009, the China-Sri Lanka Economic and Technical Cooperation Agreement was signed in 
Beijing.53  In 2010, China agreed to  loan US$290 million to Sri Lanka to build a new airport and 
revive its railway network.  The development of port facilities in Hamb antota is also being financed 
by China.  China was the largest foreign funding sour ce for Sri Lanka in 2009 with US$1.2 billion.  In 
2009, China agreed to provide a concessional lo an of US$891 million for Phase II of the Puttalum 
Coal Power Project, as well as buyer's credit for th e construction of an expressway from Colombo to 
Katunayake (US$248 million) and for the developmen t of bunkering facilities at the Hambantota port 
(US$65 million). 
68. India has also expanded its development finance to Sri Lanka.  In June 2010, India agreed to 
lend US$1 billion to fund Sri Lanka's infrastructure projects, mainly in former war zones in the north 
                                                      
48 The Delegation of the European Union to Sri Lanka and the Maldives overlooks 2 SWITCH Asia 
Projects currently:  Food and Beverage Sri Lanka;  and  Key Export Sectors Sri Lanka.  More information on these programmes may be found at:  http://www.dellka.ec .europa.eu/en/eu_and_srilank a/trade/eu-sl_trade.htm. 
49 The EU has a strategy paper for Sri Lanka 2007-13.  For more information see: 
http://www.dellka.ec.europa.eu/en/eu_ and_srilanka/trade/eu-sl_trade.htm. 
50 For more information, see:  http://www.sr ilanka.embassy.gov.au/clmb/cooperation.html;  
http://www.acdi-cida.gc.ca/srilanka-e ;  http://www.auswaertiges-amt.de/ diplo/en/Laenderinformationen/01-
Laender/SriLanka.html#t3;  http://www .odakorea.go.kr/eng/operations/Asia/Srilanka.php;  http://www.norway. 
lk/Embassy/Cooperation-with-Sri-Lanka/Developme nt-Co-operation-between-Norway-and-Sri-Lanka/;  
http://ukinsrilanka.fco.gov.uk/en/about-us/working-with-s ri-lanka/humanitarian-assistance/;  http://www.dfid. 
gov.uk/Where-we-work/Asia-South/Sri-La nka/;  and http://srilanka.usaid.gov/. 
51 See:  http://www.sweden.gov.se/content/1/c6/09/39/92/f59a8502.pdf. 
52 See:  http://www.netherlandsmission.org/article.asp?articleref=AR00000621EN. 
53 See:  http://english.mofcom.gov.cn/aarticle/p hotogallery/chenjian/200912/20091206699498.html. Sri Lanka WT/TPR/S/237 
 Page 31 
 
 
and east.  These projects include US$800 million for railway reconstruction and a further 
US$200 million for energy generation projects.   
(c) Specific trade-related technical assistance offered by WTO 
69. In 2010, Sri Lanka will host the Regional Workshop on the WTO Agreement on SPS for 
some Asian Economies.  Between 2008 and 2010, Sri Lanka benefited from a national workshop on 
Trade Facilitation Needs Assessment.  Sri Lankan offici als were invited to participate in 20 regional 
seminars and training events and 14 Geneva-based ac tivities;  65 officials also completed eTraining 
modules.  Sri Lanka also received assistance to operate a WTO Reference Centre.