**29 |** P a g e

South Asian comparators, but was well below other higher-income comparators like Mauritius and Thailand.

Rankings, however, tell very little about transaction costs incurred by traders. But information used to derive the ranking of a country in the ease of cross-border trading does.<sup>30</sup> Foreign trade transaction has two major cost and time components: one relates to the cost and time needed to comply with procedural or red tape requirement (a policy-induced barrier) and another to costs and time needed to handle and transport a shipment (logistics-related barrier). The former stem from bureaucratic procedures in place and the latter is the result of infrastructural bottlenecks. As can be seen from data collected in Table 11, the bulk of transaction cost is related to fees levied by the government. They take more time and resources than logistic operations related to the movement of goods. Completing import procedures is more expensive than exports but takes less time.

**Table 11: Costs related to regulations and logistics in Sri Lanka in 2011 (in dollars, days, and percent)**

||Expo<br>Procedu|rt<br>res|Composit<br>perce|ion in<br>nt|Impor<br>Procedu|t<br>res|Composi<br>perce|tion in<br>nt|
|---|---|---|---|---|---|---|---|---|
||Duration<br>(days)|US$ Cost|Duration|Cost|Duration<br>(days)|US$ Cost|Duration|Cost|
|**Policy-induced barriers**|**15**|**445**|**71**|**62**|**14**|**475**|**74**|**64**|
|Documents preparation|12|160|57|22|12|190|63|26|
|Customs clearance and technical control|3|285|14|40|2|285|11|38|
|**Logistics-related barriers**|**6**|**270**|**29**|**38**|**5**|**270**|**26**|**36**|
|Ports and terminal handling|3|155|14|22|3|155|16|21|
|Inland transportation and handling|3|115|14|16|2|115|11|15|
|**Totals:**|**21**|**715**|**100**|**100**|**19**|**745**|**100**|**100**|

Source: Source: data downloaded from <u>http://www.doingbusiness.org/</u> accessed on November 10, 2011.

Thus, administrative requirements rather than inland transportation and ports and terminal handling unnecessarily raise transaction cost of foreign trade.<sup>31</sup> While not much can be done in a short time perspective about a weakly developed infrastructure contributing to high costs through high transportation and cargo handling cost (including inland transportation), bureaucratically induced barriers can be easily addressed, although political economy may erect difficult to overcome obstacles. In terms of time, dealing with policy-induced barriers accounts for the bulk of total time—71 percent in exports and 75 percent in imports—needed to complete export or import transaction in Sri Lanka (see Table 11). As far as the cost is concerned, the share of the cost related to policy-induced barriers is smaller: 62 percent for exports and 64 percent for imports.

# **Conclusions**

Since border charges, as opposed to non-tariff barriers, are the major instrument of the Sri Lankan foreign trade regime, an assessment of the Sri Lankan foreign trade regime had to take into account not only the structure of MFN tariff and preferential tariff schedules but also all other measures with similar 30 The survey identifies every official procedural requirement for exporting and importing a standardized cargo of goods by ocean transport together with the time and cost necessary for completion.

31 According to the Lloyds Register, the Colombo Port ranks as No. 1 port of South Asia and the 26th in the World with 23 major shipping lines and 7 feeder services operating out of Colombo. It is also computerized and linked to all major freight stations. http://www.sltda.gov.lk/why_invest_in_sri_lanka accessed on 11/30/2011. According to the same source, there are plans to turn Sri Lanka into a major Global Logistics Hub in the South Asian region for trade, investment, communications, and financial services. Known as the Colombo Freeport, it will provide integrated air, sea and road services linked to state of the art distribution parks.