**27 |** P a g e

competitive and external suppliers, who do face duties on inputs, competitive as Sri Lankan exporters do not pay duties on these imports.

**Table 9: Highlights of the structure of border charges on imports of goods in 2009 (in natural units and percent)**

||No. of lines|Average<br>MFN rate(%)|Average para-<br>tariff rate|TNP(%)|Ratio of TNP<br>to MFN(%)|
|---|---|---|---|---|---|
|All tariff lines|6,509|12.0|19.0|31.0|258|
|Agriculture (HS 01-24)|968|24.2|28.0|52.2|216|
|Industrialproducts(HS 25-97)|5,541|9.9|17.5|27.4|277|
|_Memorandum:_Selected manufacturingsect|ors|||||
|Transport equipment|290|15.7|52.5|68.2|434|
|Textiles and clothing|863|7.3|20.1|27.4|375|
|Chemicals and photographic supplies|1,095|5.9|12.2|18.1|307|
|Non-electric machinery|762|6.8|13.9|20.7|304|
|Manufacturing excluding food processing|5,356|9.9|17.8|27.7|280|
|Electric machinery|357|12.2|18.3|30.5|250|
|_Memorandum:_stage ofprocessing||||||
|First stage of processing|837|14.9|17.5|32.4|217|
|Semi-processed products|2,010|5.4|10.9|16.3|302|
|Fully processedproducts|3,662|14.9|23.8|38.7|260|

Source: Derived from data in Table III. 8 of _Trade Policy Review Sri Lanka_ WT/TPR/S/237 29 September 2010.

Sri Lanka’s TNP tariff schedule has even stronger deficiencies than its MFN applied tariff schedule that were discussed earlier. TNP rates are exorbitant by the standards of countries at a similar level of economic development. Dispersion is significantly larger than that in the MFN tariff schedule. High and dispersed rates fatally distort production and investment decisions. They also make very difficult, if not impossible, for Sri Lankan businesses to launch new production in line with comparative advantage and to step into more advanced forms of global division of labor.

# **2.2. Border charges on exports: A revived leftover from the managed trade era?**

As of December 2011, Sri Lanka continues imposing border charges, duties and Cesses, on exports of some raw materials. The declared intent is to provide incentive to local processing of domestically available raw materials through suppressing their exports and thus lowering their domestic prices. This was tried by many countries pursuing import-substitution strategy without much success. As the international experience suggests the consequence of taxes on exports is usually a lower output and lower investments as profits are artificially suppressed by the size of export taxes. In contrast to TNP on import duties that raise domestic prices, export taxes lower them by limiting the amounts that can be profitably exported. Unless offset by black market sales and smuggling, over a longer time horizon, border charges on exports may lower production as their profitability falls and investments dry up.

According to the 2010 WTO’s _Trade Policy Review for Sri Lanka_ , export duties are imposed on valueadded vein quartz (HS 2506.10.90), and raw vein quartz (HS 2506.10.10) with the rates varying depending on the price: zero if the price exceeds US$300 per ton, and 14 percent of the fob value if the price is below that threshold.

As in the case of imports protection, however, the real action is in para-tariffs or Cess rates and coverage. Under the Export Development Board (EDB) Act No. 4 of 1979,<sup>28</sup> the _de facto_ coverage of

> 28 Policy and Planning Division / EDB 31.01.2011