• Achieves parity with countries that have already signed trade agreements with US
• 10% tariff added on top of normal product duty
• Only 17 countries face lower 10% rate; remaining 43 face higher 12.5%

Sri Lanka’s introduction of regulations prohibiting the importation of goods produced using forced labour has enabled the country to secure the lower 10% US tariff rate, placing it on par with economies that have already signed trade agreements with the United States. 

The outcome followed sustained consultations between Sri Lankan officials and their US counterparts.

Speaking to The Sunday Morning Business, Ministry of Trade Secretary K.A. Vimalenthirarajah said that the lower 10% rate proposed by the Office of the United States Trade Representative had been reserved for countries that had signed trade agreements with the US, while Sri Lanka had initially been told it would be subjected to a higher 12.5% tariff.

“Because of the measures we took, and since we justified our case, they accepted our argument. Similar to the countries that had signed trade agreements, we were brought under the 10% tariff,” he stated.

The higher 12.5% rate had been proposed for Sri Lanka after it was informed, in April, that investigations conducted under Section 301 of the US Trade Act of 1974 had found that the country did not possess laws and regulations to prevent trade linked to forced labour. This was announced while the temporary flat 10% US import surcharge introduced in February was in effect and was slated to be replaced from 24 July.

“We explained that we have a strong legal framework domestically prohibiting forced labour and that we are taking measures to counter this in relation to imports. However, they were not receptive to this and announced that Sri Lanka would be subjected to a 12.5% tariff, while countries that had signed trade agreements with them would be subject to 10%,” he stated.

In response, the Cabinet approved the Ministry of Trade’s involvement in consultations with US counterparts, following which a committee was formed. 

After carrying out its investigations, the committee concluded that since even the European Union (EU) may raise concerns over the lack of forced labour trade regulations in Sri Lanka, the country must necessarily introduce such regulations. 

The proposal was subsequently approved by the Cabinet.

Sri Lanka was given a deadline until 22 June to submit its position by way of a ‘summary of testimony’ to the US Trade Representative, which was duly submitted, following which the US granted the Sri Lankan delegation a public hearing on 9 July, in which it participated.

“Parallel to this, we introduced regulations under the Imports and Exports (Control) Act requiring that declarations should be made to Customs in relation to forced labour and that Customs must investigate accordingly,” Vimalenthirarajah stated.

The regulations, gazetted on 10 July by the Minister of Finance, Planning, and Economic Development under Section 20 read together with Section 14 of the Imports and Exports (Control) Act No.1 of 1969, and cited as the Imports and Exports (Control) Regulations on Prohibition of Importation of Goods No.7 of 2026, prohibit the importation of any goods that are mined, produced, or manufactured wholly or partly through forced labour.

Under the regulations, the minister may, taking into account determinations of the International Labour Organization (ILO), notify the goods, entities, or countries to which the regulations apply. 

Importers of goods originating from any notified entity or country are required to furnish such documentary evidence, declarations, or certification as may be prescribed by the director general of Customs to establish that the goods were not made using forced labour, with the director general of Customs designated as the responsible regulatory authority for enforcement.

Together, these measures have secured Sri Lanka a place among a small group of economies granted the lower 10% rate.

This 10% tariff is added on top of the normal product duty, meaning the total cost for most goods is the regular rate plus 10%, and out of 60 economies, only 17, including Sri Lanka, face the lower 10% rate, while the remaining 43 face the higher 12.5%.

However, Vimalenthirarajah cautioned that the favourable treatment was not yet assured over the long term. 

He admitted that, going forward, Sri Lanka would have to continue its negotiations and reach an agreement on reciprocal trade with the US in order to secure the concession, describing the outcome achieved so far as the culmination of the hard work and effort of the Government and its officials.

This tariff dispute dates back to 2025, when the US first imposed high reciprocal tariffs on Sri Lankan goods under emergency powers, beginning at 44% and later reduced to 30% following negotiations by the Government, before being brought down to 20% for Sri Lanka, while countries that had reached a trade agreement with the US received 19%.

On 20 February this year, the US Supreme Court ruled the emergency power tariffs illegal and cancelled them, with the US Government thereafter replacing them with the temporary flat 10% ad valorem import surcharge, imposed under Section 122 of the US trade law on most imports, which ran from 24 February for 150 days, expiring on 24 July.