sri lanka (2)

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Introduction

Sri Lankas external trade policy has undergone several key changes, in which turning

towards regional trading arrangements is an important element. While adhering to the

obligations under WTO, Sri Lanka has thought of changing the direction of trade and

actively involved in trading with countries in Asia. Since 1977 the countrys external trade

policy has become increasingly liberal and open, tariffs were rationalized and simplified at

the beginning of trade policy reforms in the early 1980s. Non-tariffs especially quotas were

reduced and many other restrictions were largely brought in to the tariffication process.

The Ministries of: Finance and Planning; and Trade are the major decision making bodies.

The Government recognizes the role of the private sector in export development and

continues to have a dialogue with them to ensure support infrastructure and policy

regimes for the growth of private sector led economic activities.

Sri Lanka is a signatory to many bilateral and multilateral agreements relating to trade and

environment aspects. Trade related agreements were signed under the World TradeOrganization (WTO) provisions. All bilateral and multilateral preferential trade agreements

fulfilled the requirements under the WTO Article XXIV. Hence, Sri Lankas international

trade obligations are very much transparent and trading activities have been conducting

under the global rules. Many programs (support Programs and incentives) and institutions

(e.g. Sri Lanka Export Development Board, Sri Lanka export Credit Insurance Corporation,

etc) were established to promote countrys exports. Sri Lanka has achieved substantial

export growth in garments, tea, ceramics, leather products, etc. However at present most

exports are confined to EU and USA markets.

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Summary of Sri Lankas trade policy

Sri Lanka has identified international trade as one of the substantialmacroeconomic tools to achieve the countrys development goals. It isdeveloping necessary frameworks and policies to facilitate the fair tradingenvironment and encouragement of both domestic and foreign investment. It is also working on the integration of trade promotion in the nationaldevelopment framework by further rationalization of trade and tariff policies.

Following the WTO principles

Sri Lanka is following the policy frameworks according to the principles of WTO. It is supporting its outward-oriented trade attitude by enhancingoverseas market access for its products and achieving greater integration intothe world economy. Towards achieving the desired objectives, Sri Lankacontinues to simplify her tariff structure and encourage foreign direct investment into the country for infrastructure development and expandingthe output while generating employment opportunities.

Three band tariff structure

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.

Multilateral trade

Sri Lanka also actively engages in negotiations at regional and bilateral levelswhile maintaining her multilateral commitments and obligations. At multilateral level, Sri Lanka remains committed to a fair, equitable,transparent and progressively liberalized multilateral trading system, withdue consideration given to the needs of all developing countries, whilepreserving adequate policy space for their future development. Sri Lanka hasactively participated in the negotiations on the Doha Development Agenda

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(DDA), particularly in areas such as Agriculture, NAMA, TRIPS, and TradeFacilitation. Sri Lanka has placed great importance on the tariff reductionsanticipated at the conclusion of DDA.

Regional trade

Sri Lanka strongly believes that increased levels of regional trade andeconomic cooperation, should eventually pave the way for trade liberalizationat multilateral level. At regional level Sri Lanka is a member of

T he South Asian Free T rade Area (SAF T A) and

T he Asia-Pacific T rade Agreement (AP T A)

She is also a member of the Global System of Trade Preferences (GSTP). SriLanka has also entered into two bilateral trade agreements:

T he Indo-Sri Lanka Free T rade Agreement (ISF T A) -1998 and

T he Pakistan-Sri Lanka Free T rade Agreement (PSF T A)-2002

Sri Lanka is a founding member of Bay of Bengal Initiative for Multi-SectoralTechnical and Economic Cooperation (BIMSTEC) and Indian Ocean RimAssociation for Regional Cooperation (IOR-RAC).

Sri Lanka has identified three priority areas for Aid-for-Trade assistance, namely assistancefor trade policy analysis, negotiation and implementation, export diversification andimproving competitiveness.

Assistance for tradepolicy analysis

Export diversificationand improving

competitiveness

Negotiation andimplementation

Priority areas for Aid-for-Trade

assistance

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Tariff barriers

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.

Preferential tariffs

Preferential tariffs are granted for agreed products under regional andbilateral trade agreements namely; South Asian Preferential Trade Agreement (SAPTA) South Asia Free Trade Agreement (SAFTA), Asia-Pacific TradeAgreement (APTA), India-Sri Lanka Free Trade Agreement (ISFTA), andPakistan-Sri Lanka Free Trade Agreement (PSFTA) and also under the GlobalSystem of Trade Preferences (GSTP).

Value based policy

Sri Lanka's trade policy focused on value based measures rather than non-tariff measures thereby maintaining greater transparency.

INVESTMENT

1. 100% foreign ownership is permitted in most industrial and a number of servicesector activities

2. There is no restriction on repatriation of profits/dividends of foreign companies.

3. Remittance of management fees, royalties and licensing fees are also permitted forcompanies with majority foreign investment

4. Stock market investments can be remitted without prior approval from the CentralBank

5. Investment returns can be remitted in any convertible currency at the market ratewhile foreign investors may invest in foreign-currency denominated bonds.

Sri Lanka has signed investment protection agreements with a number of developed anddeveloping countries of the world. This provides further safeguard against expropriationand non commercial risk.

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Trade relation with Bangladesh

Bilateral Trade agreements of Sri Lanka with Bangladesh

1. Free-trade agreement duty rates for South Asian Free Trade Agreement (SAFTA)

2. Generalized System of Preferences (GSP) scheme

3. Preferential duty rates for Asia Pacific Trade Agreement (APTA)

4. Preferential duty rates for Bangladesh

5. Preferential duty rates for Least Developed Countries under the Asia Pacific Trade

Agreement (APTA)

6. Preferential duty rates for Least Developed Countries under the South Asia Free Trade

Agreement (SAFTA)

7. Preferential duty rates for South Asian Association for Regional Cooperation (SAARC)

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Tariff Regimes Granted

Name of the Agreements1. Preferential duty rates for the Bangkok Preferential Agreement partners

2. Preferential duty rates for South Asian Preferential Trade Agreement (SAPTA)member countries under the South Asian Association for Regional Cooperation(SAARC) Preferential Agreement

3. Preferential duty rates for South Asian Association for Regional Cooperation(SAARC)

4. Preferential duty rates for Least Developed Countries under the South Asia FreeTrade Agreement (SAFTA)

5. Preferential duty rates for Least Developed Countries under the Asia Pacific TradeAgreement (APTA)

6. Preferential duty rates for Bangladesh

7. Preferential duty rates for Asia Pacific Trade Agreement (APTA)

8. Generalized System of Preferences (GSP) scheme

9. Preferential duty rate for India under the Indo-Sri Lanka Free Trade Arrangement (ISFTA)

10. Preferential duty rates for Least Developed Countries under the South Asia FreeTrade Agreement (SAFTA)

11. Free-trade agreement duty rates for South Asian Free Trade Agreement (SAFTA)

12. Free-trade agreement duty rates for Pakistan

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Rules of origin

Agreement

Asia-Pacific Trade Agreement (APTA)

Foreign content must not exceed 55% of f.o.b. value (65% for LDCs). Cumulative rules of

origin: products that comply with origin requirements and are used by a participating

State as input for a finished product eligible for preferential treatment by another

participating State are considered as a product originating in the territory of the

participating State where working or processing of the finished product has taken place,

provided that the aggregate content originating in the territory of the participating States

is not less than 60% of its f.o.b. value (50% for LDCs)

South Asia Preferential Trading Agreement (SAPTA)

Foreign content should not exceed 60% of the f.o.b. value of the finished good if produced

in a single country, (70% for LDCs); and 50% if several members are involved (40% for

LDCs). Cumulative rules of origin: products that comply with origin requirements and are

used by a contracting State as input for a finished product eligible for preferential

treatment by another contracting State are considered as a product originating in the

territory of the contracting State where working or processing of the finished product has

taken place provided that the aggregate content originating in the territory of thecontracting States is not less than 60% of its f.o.b. value (50% for LDCs)

South Asian Free Trade Area (SAFTA)

Change in tariff heading at the HS 4-digit level. Foreign content should not exceed 60% of

the f.o.b. value of the finished good if produced in a single country, (70% for LDCs); and

50% if several members are involved (40% for LDCs). Regional accumulation allowed if

the aggregate content (value of inputs plus domestic value added in further manufacture)

is not less than 50% of the f.o.b. value; and the domestic value content (value of inputs

originating in the exporting contracting State plus domestic value added in further

manufacture in the exporting contracting State), is not less than 20% of the f.o.b. value;

and there is change of tariff heading

IndoSri Lanka Free Trade Agreement

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Import duties collected, 2004-09

2004 2005 2006 2007 2008 2009

Import dutycollected (Rsbillion)

41.1 45.4 52.7 56.3 64.0 79.6

Imports (Rsbillion)

811.

1

891.

4

1,066.7 1,250.

4

1,516.

7

1,163.

0

Import dutiesas a % of imports

5.1 5.1 4.9 4.5 4.2 6.8

Import dutiesas a % of GDP

2.0 1.9 1.8 1.6 1.5 1.6

Source: WTO Secretariat, based on information provided by the Sri Lankan authorities

Change in tariff heading at the HS 4-digit level. Minimum national content 35% of the f.o.b.

value; foreign content should not exceed 65% of the f.o.b. value of the product. Cumulative

Rules of origin

Pakistan Sri Lanka Free Trade Agreement (PSFTA)

The domestic value added (DVA) in the exporting country must not be less than 35% of the

f.o.b. value of the finished product and HS Codes of the imported raw materials and the

finished products should be different at the 6-digit level (Change of Tariff Heading criteria)

Global System of Trade Preferences (GSTP)

No less than 50% of the f.o.b. value of the final good if it originates from a single member

State, (60% for LDCs); 60% if several members are involved (50% for LDCs)

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Loss of revenue due

The overall value of the waivers on import duties and other import taxes in 2008,

calculated as revenue forgone, is estimated at some Rs 52 billion (US$465 million) or 1.2%of GDP (Table III.5). The total loss of taxes was Rs 83 billion (US$740 million), or some1.9% of GDP; this loss was partly offset by revenue from the Special Commodity Levy (SCL)

Item Total loss of taxes

(Rs million)

Revenue forgone

(Rs million)

Rice, edible oil, fish and other food

items

60676 29964

Petrol 5,499 5,499

Motor vehicles 16,975 16,975

Total 83,150 52,438

Tariff rates

Total WTO agricultureWTO non-

agricultureTextiles and

clothing

Average (%)

Dutiablerates (%)

Average (%)

Dutiablerates (%)

Average (%)

Dutiablerates (%)

Average (%)

Dutiablerates (%)

SAFTA 10.2 55.7 24.4 88.7 7.9 50.1 6.2 43.8

SAARC 11.5 55.7 25.5 88.7 9.2 50.1 7.4 43.8

Bangladeshpreferential

11.5 55.7 25.6 88.7 9.2 50.1 7.4 43.8

Indo-Sri LankaFTA (ISFTA)

6.9 27.6 22.7 74.3 4.3 19.7 1.6 6.0

Pakistan-SriLanka FTA(PSFTA)

5.8 54.1 12.4 86.2 4.8 48.7 2.4 43.0

Bangladesh 7.6 55.6 22.3 88.6 5.2 50.0 3.3 43.8India 6.6 27.6 22.3 74.3 4.1 19.7 1.6 6.0

Laos 11.3 55.7 25.5 88.7 9.0 50.1 7.2 43.8

Pakistan 5.7 54.1 12.4 86.2 4.6 48.7 2.4 43.0

Bhutan, theMaldives, Nepal

7.7 55.6 22.3 88.6 5.3 50.0 3.3 43.8

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Charges affecting imports

Value added tax;

VAT is levied on the customs value of imports plus 10% plus the import duty

Ports and Airports Development Levy

Imports are also subject to the Ports and Airports Development Levy (PAL) at a rate of 5%

or a concessionary rate for imports used solely for processing and re-exporting purposes.

Special Commodity Levy

These increase the cost of importing considerably and in some cases by more than 100%

Excise duties

An imputed profit margin of 15% is added to the import price before calculation of the

duty, and the duty is applied on the value including most other import duties. The highest rates are applied on automobiles and some machinery.

Import surcharge

Most imports, with the exception of some basic goods, were subject to a 15% surcharge.The surcharge was applied on the customs duty.

A Social Responsibility Levy

A Social Responsibility Levy is charged on imports. The rate is 1.5% assessed on the value

of imports including tariffs, import surcharge and excise duties.

Nation Building T ax

Since early 2009, imports must pay the Nation Building Tax (NBT). The NBT rate was

increased from 1%, charged from 1 February to 30 April 2009, to 3%.

Export Development Board (EDB) Levy (Cess)

The Government has been charging a Cess on imports of a relatively large range of

products. ; it ranges from 1% to 35%. The Cess totalled Rs23,383 million (US$209 million)

in 2008, a 36% increase over 2007, and Rs 28,521 million (US$255 million) in 2009, 17%

more than in 2008. Revenue from the Cess represented 0.6% of GDP and 2.4% of total

imports in 2009

Others

Sri Lanka charges a 5% Regional Infrastructure Fee on imports of some automobiles.

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The policy framework

The policy framework developed by the Sri Lanka Export Development Board for the

purpose of promoting exports requiring, among other things, the government to:

i) ensure for exporters (direct and indirect) unrestricted and duty/tax free access

to imported inputs (raw materials, packing materials, consumables, raw

materials and finished product samples, technologies including design

specifications, machinery, equipment, accessories, technical advice, training

etc.);

ii) work towards making available finance (medium and long term as well as short

term) at internationally competitive rates;

iii) provide expanded access to financing particularly by developing substitutes for

physical collateral and strengthening the capabilities of financial institutions to

evaluate projects on the basis of viability;

iv) adopt all measures necessary to develop the capital market including thepopularization of Unit Trusts, Venture Capital Companies and the provision of

incentives for the purchase of stocks and shares; and

v) take steps to ensure that the export sector is as competitive as the other sectors

of the economy by constantly reviewing and lowering the import tariff and

phasing out export tariffs (except where there is need to promote further

processing of local materials) so that resources may flow into the export sector

and other sectors on the basis of competitive advantages.

Country profile

In 1977, Colombo abandoned statist- and import substitution-policies for more market-

and export-oriented policies, including encouragement of foreign investment. Sri Lanka

suffered through a brutal civil war from 1983 to 2009. Despite the war, Sri Lanka saw GDP

growth average nearly 5% in the last 10 years. Government spending on development and

fighting the LTTE drove GDP growth to around 6-7% per year in 2006-08. Growth was

3.5% in 2009, still high despite the world recession. Sri Lanka's most dynamic sectors are

now food processing, textiles and apparel, food and beverages, port construction,telecommunications, and insurance and banking. About 1.5 million Sri Lankans work

abroad, 90% of them in the Middle East. They send home more than $3 billion a year.

President RAJAPAKSA's reelection in 2010 means that the Government of Sri Lanka will

likely continue its more statist economic approach, that seeks to reduce poverty by steering

investment to disadvantaged areas, developing small and medium enterprises, promoting

agriculture, and expanding the already enormous civil service. The end of the 26-year

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conflict with the LTTE has opened the door for reconstruction and development projects in

the north and east. Funding these projects will be difficult, as the government already is

faced with high debt interest payments, a bloated civil service, and high budget deficits. The

2008-09 global financial crisis and recession exposed Sri Lanka's economic vulnerabilities

and nearly caused a balance of payments crisis, which was alleviated by a $2.6 billion IMF

standby agreement in July 2009. But the end of the civil war and the IMF loan restored

investors' confidence. The Sri Lankan stock market gained over 100% in 2009, one of the

best performing markets in the world. Official foreign reserves improved to more than $5

billion by November 2009, providing over 6 months of imports cover.

TRADE AGREEMENTS ENHANCE MARK ET ACCESS TO SOUTH ASIA AND

EUROPE:

A preferential trade agreement, the Indo-Lanka Free Trade Agreement (ILFTA) between Sri

Lanka and India, is now in effect. Under this agreement, most products manufactured in Sri

Lanka with at least 35% domestic value addition (if raw materials are imported from India,

domestic value addition required is only 25%), qualify for duty free entry to the Indian

market. Tariff concessions for Sri Lankan products include zero tariffs on 4,235 items; 50 to

100% reduction for tea and garments under quota; 25% reduction for 553 textile items;

and no reduction for 431 items on India's "negative list." Discussions are underway to

reduce the negative lists of both countries. The two countries are also discussing services

sector liberalization, under a proposed Comprehensive Economic Partnership Agreement (CEPA). Other areas potentially covered by the CEPA are investment and economic

cooperation. Because production constitutes a portion of value addition, ILFTA and the

proposed CEPA enables foreign firms operating in Sri Lanka to gain preferential entry into

the Indian market. The CEPA negotiations have stalled, however, and it is not clear that Sri

Lanka is interested in finalizing the deal.

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Export

Types of outward cargo effected from Sri Lanka

1. Exports originating from Sri Lanka(a) Local produces or goods manufactured using local raw materials.(b) Goods manufactured in Free Trade Zones using imported raw materials.

2. Transshipment Cargo(a) General Transshipment Cargo

(b) Cargo under Multi Country Cargo Consolidation (MCC) Operation.

3. Cargo under Entrepot Trade

Legal Control of Exports

All commercial exports must be exported on submission of a duly completed goodsdeclaration to the Customs Department along with other relevant documents such asinvoice, Bill of Lading, Boat Note, Cargo Dispatch Note etc. The Exchange Control Act requires earnings on exports be brought into the country through banking channels. Theexportation of certain item has been restricted under various laws and the respectivegovernment institutions have been empowered to issue permits/licenses for exportation of such items.

Some of the Acts/Ordinances and the relevant government agency empowered to enforcesuch laws are given below.(i) Department of Animal Production & Health Animal diseases Act

(ii) Import & Export Control Department Import & Export Control Act (iii) Environmental Authority Environmental Authority Act

(iv) Department of Archaeology Antiquities Ordinance

(v) Department of Agriculture Plant Protection Act

(vi) Department of Wildlife Conservation Fauna & Flora Protection

Ordinance

(vii) Department of Fisheries and Aquatic Resources Fisheries & Aquatic

Resources Act

(viii) Department of Forest Conservation Forest Ordinance

(ix) Geological Survey & Mines Bureau Mines & Minerals Act

(x) National Dangerous Drugs Control Board Poisons, Opium and Dangerous Drugs

Ordinance

(xi) Registrar of Motor Vehicle - Motor Vehicles Act

(xii) Sri Lanka Tea Board Tea Control Act

The provisions of the aforesaid Acts/Ordinances pertaining to control of relevant exportsare enforced by the Customs Department at the point of exit, since the Customs

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Department is empowered to enforce such restrictions and prohibitions under theprovisions of the Customs Ordinance as well.

Exports Originating from Sri Lanka

Every exporter has to deliver to the Customs Department a goods declaration in order toeffect an export consignment out of Sri Lanka. The declarations could be lodged eithermanually or using the Direct Trade Input (DTI) facility or Electronic Data Interchange(EDI).The examination of export cargo, based on risk management, are done either at theexporters go down or at the nominated Container Freight Stations. These examinationsbasically involve random checks or test checks while a 100% examination is done in cases

where such examination is warranted depending on the circumstance. These examinationsare conducted by the Customs Department. In the case of goods originating from the FreeTrade Zone, such goods would be examined by the officers of Board of Investment of SriLanka while the goods originating from the manufacturing plants which enjoy duty freeconcessions which are stationed outside the Free Trade Zones, would be examined byCustoms or BOI officers of selectivity criteria. All export cargo in full container loadsexamined or passed without examination would arrive in the Colombo Port with an agent seal, which are opened up for security checks by Sri Lanka navy at the point of entry to theColombo Port. These containers are re-sealed after the security check with agents sealwhich would remain intact until the departure from Sri Lanka. In case of Air Cargo exports,the cargo will be examined at the Air Cargo Village- Katunayake by the Customs Officers

prior to taking over by the cargo handling agent for loading in to the Aircraft.

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EXPORT PROCEDURE OF SRI LANKA

A person exporting any article of commercial value from Sri Lanka is required to register

with following institutions.1. Sri Lanka Export Development Board (EDB Reg. Number)2. Inland Revenue Department Obtain Tax Identification No. (TIN & VAT Number)3. Sri Lanka Customs (Registration of TIN & VAT Number)

Sri Lanka Customs has an exclusive export division for export activities. The main features

of Sri Lanka Customs Export Procedure can be categorized under following headings.

Legal Aspects:

Export of goods is subject to certain legal requirements, which are specified under various

legislative enactment and regulations. The related Ordinance and Acts include RevenueProtection, Export and Exchange Controls (now much relaxed), Rubber Control, Tea Board,

Coconut Development Authority, Fauna and Flora Protection, Antiquities, Forest, Wild Life,

Fire Arms, Opium and Dangerous Drugs, Export Development Board, Sri Lanka Standards

Institute, Textiles, Minerals and Mineral Sands, Excise Fisheries and Aquatic Resources etc.

besides the Customs Ordinance.

Statistical Aspects:

Every Exporter is required to file a statistical copy to the set of goods declaration for every

shipment. Statistical data and information published by Sri Lanka Customs are vital for

policy makers to study, evaluate and analyze the development of the country. Sri LankaCustoms makes available this information in annual publications.

Procedural Aspects:

The person exporting any goods is required to deliver a goods declaration to the Director

General of Customs under Section: 57 of the Customs Ordinance. With the computerization

of the Export Division on January, 2nd 1995, the term 'Bill of Entry' has been replaced by

the term 'Goods Declaration' which is code-named Customs Declaration (CUSDEC) in

accordance with the International Standard Codes used in communication with computers.

Financial Aspects:

Section 10(a) of the Customs Ordinance provide for the levying of export duties while

Section 10(c) provides for the levying of any Royalty or Cess leviable on the exportation of

such goods under any written law other than Customs Ordinance. Presently Export duty is

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levied only on 2 items but Customs Department has to collect Cess and Royalty on some

other items on behalf of other institutions.

Customs Declaration (CUSDEC)

This should be submitted in 4 copies with an additional copy each for bonded cargo and

airfreight cargo. These copies are named as Warrant copy, Statistical copy, Security copy,

Parties copy, CBD copy and Air cargo copy. When exporting liquor and coconut products

excise copy and CDA (Coconut Development Authority) copy should be attached

respectively. This declaration requires to be submitted along with the other documents

mentioned above for processing.

Export Control Permits:

Export Control Permits are required for the following items:

4. For Coral Chanks, permit issued by Department of Wild Life is required.

5. For Timber, i.e. Wood (including logs and sawn timber) classified under H.S. Chapter

44 excluding coconut shell charcoal, household utensils of wood and rubber wood

permit issued by Forest Department is required.

Exports:

$6.983 billion (2009 est.)Country comparison to the world: 92 $8.137 billion (2008 est.)

Exports - commodities:

textiles and apparel, tea and spices; diamonds, emeralds, rubies; coconut products,rubber manufactures, fish

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Exports - partners:

S. L. Country % of Export (2009) Import*

1. US 20.59% Not Significant (Less than 4 %)

2. UK 12.87% N. S.

3. Italy 5.51% N. S.

4. Germany 5.29% N. S.

5. India 4.54% N. S.

6. Belgium 4.43% N. S.

*Here the last column denotes percentage of total imports of the respective country

from Sri Lanka which is also exports for Sri Lanka.

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Import

S. L. Country % of Import (2009) Exports*

(Reciprocal)

1. India 20.73% Not Significant

(Less than 5 %)

2. China 13.45% N. S.

3. Singapore 7.26% N. S.

4. Iran 6.7% N. S.

5. South Korea 5.23% Not Available

*Here the last column denotes percentage of total exports for the respective country to

Sri Lanka which is also imports of Sri Lanka.

Imports:

$9.7 billion (2009 est.)

country comparison to the world: 87$12.61 billion (2008 est.)

Imports - commodities:

Textile fabrics, mineral products, petroleum, foodstuffs, machinery and transportationequipment

Imports - partners:

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Historical data: Trading Across Borders in Sri Lanka

Trading AcrossBorders data

Doing Business

2008

Doing Business

2009

Doing Business

2010

Rank .. 62 65

Cost to export (US$ percontainer)

660 715 715

Cost to import (US$ percontainer)

694 745 745

Documents to export (number)

8 8 8

Documents to import (number)

6 6 6

Time to export (days)21 21 21

Time to import (days)20 20 20

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Import procedure

Sri Lanka had been primarily an agricultural and self-dependant sovereign nation in the

ancient past. Due to historical, political and economical changes it has ceased to be a self-

dependant nation. Today it is mainly dependent on trade and the Imports Division of the

Sri Lanka Customs Department plays a vital role in this regard in the economy.

To ensure this task the Imports division consists of three separate units namely Long

Room, "D" branch and Postal Appraising unit according to the functions, headed by

Director (Imports and Tariff).

Long Room

The Long Room, being the Import Goods Declaration Processing Center for sea cargo, those

are subject to Customs duty and other levies, is the highest revenue collecting point in theCustoms. From the inception of the Department, the entire import documents processing

exercise has been carried on here. With the expansion of import trade over the years the

import document process was computerized and Automated Systems for Customs Data

(ASYCUDA) system was implemented in January 1994 to minimize delays, errors and

irregularities and provide efficient and effective service to the trading community.

Postal Appraising Unit

Documentation and delivery of all mail cargo are processed in this office. There are

separate counters for Air, Sea, Packets and Express mail. Once the POD (Post OfficeDocument issued by the Postal Department) is submitted the parcel/packet will be

examined and appraised by the Customs staff in the presence of the recipient or a nominee

and Customs duty and other levies will be collected by the Postal Department.

"D" Branch

The "D" branch is the secretariat of the Imports Division and plays a vital role in the

Department. This is the final authority for all the classification disputes, exchange and

import control violations and all the documents related to these discrepancies are referred

to "D" branch for final decision. Duty waivers, concessions and exemptions are registered

and provisional Customs Documents (CUSDECS) and refunds documents are processed

here. Registration of Customs house agents, investigations and inquires arising on matters

related to the Imports are also conducted in the "D" branch.

Pre-Imports ClassificationRulings

As a measure of facilitation to the trade, the Imports Division gives pre import classification

ruling on commodities. Importers who desire to have the HS Classification of any

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commodity that they intend to import, could make an application to the D Branch of the

Imports Division and obtain such a ruling. At the time of submitting such an application, all

particulars of the commodity to be imported, including relevant literature, chemical

composition if applicable, the end use of the commodity, etc. will have to be provided. It

would be useful if a sample also could be made available to the Customs. Once an

application is in order, and had been accepted, a fee of Rs. 300/- has to be paid. Based on

the details given by the Importer, the Customs would decide the HS No. applicable to that

commodity. This ruling would be binding on the Customs for a period of six months from

the date of the ruling.

Indicator Score Rank

Financial Standards Index 30.00 out of 100 69

Business Indicator Index 5.15 out of 12 83

Business Indicators Summary

With an overall score of 5.15 out of 12, Sri Lanka is below standard on the economic, legal,

and political indicators that make up our Business Indicator Index. Sri Lanka is a market-

based mixed economy. In principle, foreign investments are guaranteed protection by theConstitution of Sri Lanka; nevertheless, security concerns, inconsistent and non-

transparent regulation, burdensome labor laws, inadequate infrastructure, and

cumbersome bureaucracy are generally viewed as impediments to investment. Although

the legal system in general protects property rights and new penalties and avenues of

redress were established, enforcement has been sporadic in the past, and penalties

imposed have been minimal. Counterfeiting and piracy of goods remains a widespread

practice. Sri Lanka's anticorruption framework is generally adequate, but enforcement is

lacking. Corruption is particularly problematic in large-project investment and government

procurement practices. Corruption appears to be on the rise, and anecdotal evidence

discloses that bribery for public-sector contracts may have tripled. Nevertheless, overall

corruption is perceived as manageable as reflected in Sri Lankas average ranking in

Transparency Internationals Corruption Perceptions Index.

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Protective Tariffs

The Heritage Foundation's 2010 Index of Economic Freedom reports that Sri Lankas

simple average tariff rate was 11.4 percent as of 2007. Acknowledging that every country

has a tariff system, it is assumed that a tariff of 4.0 percent or less signifies a

nondistortionary tariff system, whereas higher tariffs indicate increasing levels of trade

distortions. The 2010 U.S. Department of Commerce (DoC) report states that Sri Lanka has

a multi-band import tariff schedule, and that exporters should be aware that fees incurred

when exporting to Sri Lanka include the customs-import tariff, import-duty surcharge,

Export Development Board levy, Value Added Tax, Social Responsibility Levy, Port and

Airport Tax, Nation Building Tax, Port Handling charges, and agent commissions, as well as

a 0.1 percent tax on bank debits, all of which could add up to more than 100 percent of the

cost, insurance, and freight value for items at the higher tariff bands. A tariff of 28 percent

is applied to most imported agricultural, food product, chemicals, and consumer goods if they are also produced locally. Imports of particular agricultural products, including rice,

onions, potatoes, and chilies, have crop-specific tariffs. Tariffs on footwear and ceramics

apply, also to protect local manufacturers. On the other hand, imported materials needed

for the garment industry, as well as "related intermediate and capital goods" are duty-free,

as are a number of specifically identified import products: gold, gems, seeds, farm

machinery and equipment, medical and dental equipment, computers and software,

telecom equipment, and sports equipment. Tobacco products and alcohol are subject to

high taxes. The DoC notes that although most of Sri Lanka's agricultural tariffs and some of

its nonagricultural tariffs are bound at 50 percent , as required by the World TradeOrganization, liquor and cigarette tariffs exceed the WTO requirement. An additional tax

was imposed on several "nonessential" imports in 2004. Affected items include processed

and unprocessed foods, fruits and vegetables, shoes, bags, finished textiles, rubber and

plastic products, ceramics and glassware, electrical goods, and luxury goods such as toiletry

and perfume. The DoC states that "these taxes, together with other charges applicable on

imports... have moved Sri Lanka's tariff structure steeply upwards."

Particulars T ariff

Imported agricultural 28%

Imported food product 28%

Chemicals 28%

Capital goods Duty-Free

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Sri Lanka has a two-band import tariff schedule based on the Harmonized System

of Classification. In 2002, the standard import tariff rates were 10% or 25%,

although a few items carried tariffs of 5% or 35%. T he tariff on automobiles is

25%. All imports of textile materials, yarn, and all related intermediate and

capital goods required for the garment export industry are free of import duty as

are a number of products critical to economic development like computers,

medical and dental equipment, telecommunications equipment, and agricultural

seeds and machinery. Within Sri Lanka's free trade zone, imports of industrial

and construction equipment, base metals, and coal and coke are duty-free. Export

duties are levied on tea, rubber, and coconut products.

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Balance of Payments

Current Account -265

Balance on goods -554

Balance on services -390

Balance on income -281

Current transfers 959

Capital Account 49

Financial Account 380

Direct investment abroad «

Direct investment in Sri Lanka 172

Portfolio investment assets 24

Portfolio investment liabilities -35

Other investment assets 13

Other investment liabilities 207

Net Errors and Omissions 165

Reserves and Related Items -329

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GDP in Sri Lanka from 2002 to 2008 (in Rs Million)

Major Division/Year 2004 2005 2006 2007 2008

Agriculture, Livestock &

Forestry 262,271 289,906 333,137 418,104 589,998

Mining and quarrying 30,129 35,932 46,202 56,645 71,768

Manufacturing 391,421 478,611 564,987 661,983 791,898

Export processing

(Tea,rubber and coconut)

15,810 16,199 17,715 21,553 32,261

Factory industry 351,517 434,970 516,372 605,544 720,979

Cottage industry 24,094 27,442 30,900 34,886 38,658

Electricity,gas and water 49,116 57,908 72,457 88,005 104,666

Construction 127,692 167,999 216,833 264,104 327,138

Wholesale and retail trade 513,498 569,255 659,597 790,628 949,372

Restaurants and Hotels 11,763 14,218 16,646 18,367 20,611

Transport andCommunication

240,307 287,491 344,909 423,820 530,980

Banking, insurance and

real

estate etc.

178,119 205,322 266,972 328,158 413,322

Ownership of dwellings 77,676 88,759 103,201 126,212 141,794

Government services 163,474 206,497 257,837 333,758 380,765

Private services 45,375 50,886 55,902 68,905 88,255

Gross Domestic Product 2,090,841 2,452,782 2,938,680 3,578,688 4,410,567

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Major sources of export and import

Sri Lankan economy recorded a positive growth rate of 3.5 percent for the year 2009.This

economic performance has to be considered as a very satisfactory achievement considering

the global economic recession. The major division of economic activities, namely,

Agriculture, Industry and Services registered positive growth rates of 3.2 percent, 4.2

percent and 3.3 percent respectively. The percentage share of the three major sectors, the

agriculture, industry and services to the total National Income more or less remained

unchanged being 12.0 percent, 28.6 percent and 59.3 per cent.

Agriculture Sector

Overall agriculture sector grew by 3.2 percent in 2009. The growth achieved is remarkableas it achieved amidst decrease of earnings from agricultural exports and prevailed drought weather conditions.

Industrial Sector

The real terms value added of the Industry sector grew by 4.2 percent in 2009 comparedwith a 5.9 percent growth in the previous year. The manufacturing sector whichcontributes 60.9 percent of the Industry sector grew by 3.3 percent in the year 2009.Electricity, Gas & Water increased by 3.7 percent and Construction industry indicated 5.6percent growth rate for year 2009.

Service Sector

This sector grew by 3.3 percent in 2009.

Gross National Income Per Capita in Sri Lanka from 2004 to 2008

Year Gross National Income Per Capita (US

Dollars $)

2004 1010

2005 1160

2006 1310

2007 15402008 1780

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Foreign direct investment (FDI)

Sri Lanka's foreign direct investment (FDI) flows in the first six months of 2008 reached

425 million US dollars. According to Board of Investment estimates, in 2008, the services

sector attracted 362.3 million dollars worth of investments, with telecom leading with

290.7 million dollars followed by power generation with 46 million dollars. Property

development had brought in 7.2 million dollars, hotels 2.07 million, other services 7.5

million and business process outsourcing (BPO) and information technology 9.05 million

dollars. Sri Lanka expects foreign direct investment to more than quadruple to $4 billion by

2012.

Foreign Exchange Management in Sri Lanka

Foreign exchange is the purchase or sale of one national currency in exchange for anothernation's currency, usually conducted in a market setting. Foreign exchange makes possibleinternational transactions such as imports and exports and the movement of capitalbetween countries. The value of one foreign currency in relation to another is defined bythe exchange rate.

Foreign Currency Accounts Resident individuals and companies are free to open the following foreign currencyaccounts in the Domestic Banking Unit (DBU).

y Non-Resident Foreign Currency (NRFC) Accountsy Resident Foreign Currency (RFC) Accountsy Exporters Foreign Currency Accounts (EFCA)y Foreign Currency Account for Professional Services Providers (FCAPS)

Exchange rates:

Sri Lankan rupees (LKR) per US dollar - 115 (2009), 108.33 (2008), 110.78 (2007), 103.99(2006), 100.498 (2005)

Conclusion

Sri Lankans trade atmosphere is becoming friendly and favorable for both the exporters

and importers. Trade agreement with developed countries will maximize its welfare and

open the door to competitive advantage. Sri Lanka should try to minimize deficit its balance

of trade. It also should strengthen its trade with neighboring countries. Tariff rate is still

very high and Sri Lankan administrator should come forward to reduce tariff in many

prospective fields.

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Bibliography

http://www.customs.gov.lk/ordinance.htm

http://www.customs.gov.lk/docs/25325.pdf

http://www.doc.gov.lk/web/indusrilanka_freetrade.php

http://www.customs.gov.lk/tariff/duty_ changes_2007_august.pdf

http://www.customs.gov.lk/news/ rpoweb10.pdf

http://documents.gov.lk/Extgzt/2008/pdf/Nov/1574_15/1574_15E.pdf

Works Cited

Ministry of Finance and Planning Sri Lanka

Sri Lanka Department of Fiscal Policy and Sri Lanka Customs

WTO documents G/ADP/N/193/LKA,23 December 2009

WTO document G/TBT/ENQ/36, 5 February 2010

Sri Lanka Export Development Board online information

Customs Act of Sri Lanka

WTO Secretariat, based on data provided by the Sri Lankan authorities