Trade and Investment Policy Framework of Sri Lanka
Sri Lanka’s trade policy objectives include moving towards a more outward oriented trade regime and improving market access for its exports. In recent years, however, the focus of its trade policy has seemingly shifted towards regionalism, which Sri Lanka considers a springboard for broader trade liberalization. Nevertheless, Sri Lanka recognizes that its long-term trade and other economic interests are best served by a stable and liberalized multilateral trading system that supports the needs of developing nations. Thus, Sri Lanka, an original Member of the WTO, continues to play an active role in the organization. It grants at least MFN treatment to all its trading partners.
Policies have been aimed at enhancing production and productivity through a continuous process of economic reform, with a view to promoting a more efficient allocation of resources, while improving the environment for private domestic and foreign investment.
Sri Lanka’s institutional and legal framework has remained largely unchanged since 1995. The Government has attempted to facilitate private sector development with less reliance on control and regulation.
Sri Lanka’s investment regime has undergone major changes since 1978. Foreign equity restrictions were relaxed in key services, such as finance, mass transport, telecommunications and professional services. Incentives are available to national and foreign investors.
The tariff, which involves 11 rates, remains a major instrument of trade policy and source of government revenue. A planned two-band tariff system has not been attained mainly because of revenue considerations and other interest groups. The current average applied MFN tariff is 9.8%, up from 9.2% in 2001. Furthermore, in 2001, an import surcharge of 40% based on the c.i.f. value and the import duty (i.e. c.i.f. value times import duty) was introduced to increase tax revenues, but then lowered to 20% in 2002.
Tax and non-tax incentives remain in place to promote the establishment of export oriented industries, industrial diversification and industrialization in specific regions.
Agriculture remains an important sector in Sri Lanka with a third of the population engaged in agricultural or related activities; it contributed some 20% to GDP in 2002. The sector is also a major source of raw materials and earner of foreign exchange. Government intervention in agriculture, as in the other sectors, remains substantial. Less protection on agricultural goods and other forms of assistance together with the adoption of a more predictable trade policy regime has led to a better allocation of resources, thus raising productivity and increasing living standards.
Industrial policy has aimed at diversifying the industrial base; regional industrialization has also been promoted. To this end, attempts have been made by the Government to create an environment conducive to investment, with incentives to encourage both domestic and foreign investment.
This page was last updated on 10/25/07.