The International Monetary Fund (IMF) is urging Asian economies to improve regional trade collaboration and lower non-tariff barriers. This strategy aims to protect the region from global financial instability and volatile situations such as US tariffs.
In Sri Lanka, addressing these barriers still remains a challenge, with many experts urging implementation of proposals raised over the years, while also emphasising the need to look East.
In the context of trade facilitation, Sri Lanka’s Budget 2026 has incorporated two key aspects. These include the proposals and allocations made regarding the development of the National Single Window (NSW) and the introduction of a new tariff policy that would phase out para-tariffs.
Tariff policy and NSW implementation
Speaking to The Sunday Morning Business, Ministry of Trade Secretary K.A. Vimalenthirarajah stated that the country was taking measures to update parameters and lower barriers that had been disrupting the export sector and trade, as well as to integrate into the Asian market.
He also pointed to the Budget policy regarding the implementation of the National Tariff Policy and gradually phasing out para-tariffs without any negative impacts on revenue targets.
According to Budget 2026, the implementation of the National Tariff Policy has been proposed to revise Customs Import Duty rates to 0%, 10%, 20%, and 30%, with a phased plan to gradually eliminate para-tariffs while minimising revenue loss. A gradual phase-out of para-tariffs will help achieve increased competitiveness in external trade and support economic growth.
Furthermore, Vimalenthirarajah highlighted the Government’s efforts to bring the direct and indirect tax rates to a 60:40 ratio, where para-tariffs would also be lowered.
Optimising trade in Asia
About 60% of Asia’s exports are intermediate goods traded within the region, while only 30% of final goods are sold regionally, indicating notable reliance on US and European markets. This trend is visible in Sri Lanka as well, whose single largest export destination remains the US.
During the cumulative period from January to July 2025, the US accounted for 23% of the country’s merchandise exports, increasing by 2.64% to $ 274.07 million in July 2025 compared to July 2024. Furthermore, exports to the US increased by 4.29% over the cumulative period from January to July 2025, reaching $ 1,709.06 million.
While the US is generally followed by the European markets, in this period, India has continued to be Sri Lanka’s second-largest export destination, surpassing the UK. Exports to India increased by 28.87% to $ 118.69 million in July 2025, primarily driven by higher shipments of petroleum oil and animal feed, while cumulative exports from January to July 2025 surged by 26.97%, reaching $ 624.31 million compared to the same period in 2024.
Exports to the UK increased by 9.37% to $ 81.37 million in July 2025 compared to the same month in 2024. During the cumulative period from January to July 2025, exports to the UK recorded a growth of 7.26%, reaching $ 565.29 million compared to the corresponding period in 2024.
Optimising trade within the Asian region has long been highlighted by analysts in light of recent events concerning trade vulnerability. During the period from January to July 2025, exports to Free Trade Agreement (FTA) partners – India and Pakistan – accounted for 8.2% of Sri Lanka’s total merchandise exports, recording a substantial increase of 24.38% to reach $ 666.82 million compared to the same period in the previous year.
Speaking to The Sunday Morning Business, University of Colombo (UOC) Department of Economics Professor Priyanga Dunusinghe noted that Sri Lanka faced several non-tariff barriers, emphasising the importance of thinking in terms of the Asian region.
He explained that while the tariff levels remained low in Sri Lanka, there were several non-tariff barriers affecting exports, such as para-tariffs and regulatory bottlenecks. He also noted that Sri Lanka faced these barriers in Asian regions.
For instance, among exporters trading under the Indo-Sri Lanka FTA, one key concern is that in India, state-wise, there are separate regulations governing international trade, as well as other barriers. As a result, he noted that the tariff alone could not facilitate trade between countries. Thus, he highlighted non-tariff barriers as a significant bottleneck in many Asian regions, while pointing to the need to lower them to leverage the sizeable potential in the region to engage in more intra-regional trade.
Prof. Dunusinghe highlighted several key areas that Sri Lanka could approach. “Sri Lanka can engage in trade significantly with countries in the region, especially the South Asian region, in agricultural commodities in particular, which is a major area. Exports can be made to the Asian region with relatively limited difficulties, given that required measures and standards are aligned. In addition to this, there is much to look to in component trade,” he added.
Furthermore, Prof. Dunusinghe observed that other parts of the world worked collectively to promote trade within a particular region. However, he pointed out that in Asia, this was only prominent in the Southeast Asian countries. He added that trade potential would be high if the Asian countries moved together in removing non-tariff barriers despite political tensions. He further noted that geopolitical reasons were preventing countries tapping into this potential.
For Sri Lanka’s key exports within Asia, tapping into the Japanese, Korean, Malaysian, and Chinese markets is considered important, with the current amount of trade with these countries remaining a relatively smaller share, especially due to the traditional focus on the West.
In this regard, Prof. Dunusinghe highlighted that it was now the opportune moment for Sri Lanka to consider the East. With many channels existing in the East for labour exports, he noted the need to tap into them and transform them into a trade channel as well.
Among other factors, Prof. Dunusinghe stressed that many language and culture-related barriers also contributed to preventing exporters from penetrating into certain Eastern markets, a gap that must be bridged.
“If the Government can encourage exporters to look East more than they do at present, it can facilitate these exporters while also employing a strategy for universities and NGOs to provide necessary support wherever needed in terms of exposure to new markets. The purchasing power of certain countries and regions in Asia is now equivalent to the European and US markets. In this context, penetrating into these consumer sections is integral, paving the way for many new opportunities,” he added.
Addressing bottlenecks
Addressing non-tariff barriers, Ceylon National Chamber of Industries (CNCI) Chairman Pradeep Kahawalage emphasised the attempts made by chambers regarding the NSW framework, which had been lacking for many years and required prompt implementation. This will increase efficiency, reduce costs, and lead to many benefits from transparency, resulting in good pricing and competitive products.
Budget 2026 has allocated Rs. 2,500 million to implement the NSW framework for trade.
Furthermore, Kahawalage noted certain technical requirements and regulation-related bottlenecks that caused delays and imposed limitations and barriers. He highlighted issues related to raw materials across sectors, especially in the apparel industry, noting that if not for non-tariff barriers, competitive pricing could be better implemented.
Budget 2026 has allocated Rs. 1,000 million for the development of services related to investment zones, and Rs. 250 million to the Export Development Board to promote and facilitate exports.
Export industry stakeholder and former President of the National Chamber of Exporters (NCE) Jayantha Karunaratne noted that in certain markets, there were tariff and non-tariff barriers preventing exports, resulting in high costs. He noted the need for the Government to conduct a comprehensive study on these barriers.
Linking up with shifting supply chains
Meanwhile, speaking to The Sunday Morning Business, Verité Research Director of Research Subhashini Abeysinghe, an economist with expertise in trade and global value chains, commented on whether Sri Lanka had really addressed lowering non-tariff barriers.
She pointed out that non-tariff barriers were hidden obstacles that made trade slower and more expensive, such as cumbersome manual paperwork for permits and approvals, or delays at Customs and ports due to the lack of automation. The heavy reliance on physical inspections alone adds time and cost to moving goods across borders.
“We have known about these issues for years and have proposed many fixes. One of the most talked-about is the single window system, which would connect all border agencies online and spare traders the hassle of visiting multiple offices. But progress has been painfully slow. The same promise has appeared in budget after budget, including the 2026 one,” she added.
Abeysinghe noted that what was missing now was follow-through, adding that if Sri Lanka wanted to be part of regional supply chains, the country needed to stand out as a reliable trading partner by removing these barriers and making trade faster, cheaper, and more predictable.
She outlined trade areas that Sri Lanka could integrate with further within the Asian region, noting that the country had a chance to connect with Asian trade by linking up with supply chains that were beginning to shift towards South Asia. She further noted that most of Asia’s major networks were still focused on sectors like electronics and automobiles, and South Asia had not been part of this story as much as Southeast Asia.
“However, that could be changing. With global firms now showing increased interest in India, thanks to its rapidly growing markets and lower labour costs, along with changing geopolitics, there is an opportunity for Sri Lanka to benefit from this trend. Given its proximity to major sea routes and India, Sri Lanka could play a significant supporting role by offering value-added logistics and related services,” Abeysinghe added.
Tapping into the young Asian consumer base
Meanwhile, Arutha Co-Founder Rehana Thowfeek pointed out that the Asian region had the fastest growing middle-income population, and unlike the European market which was ageing, the Asian demographic was still young. Thus, she stressed that Sri Lanka must lean into the products and services that these markets were interested in.
“We have otherwise traditionally relied on the US, UK, and European Union (EU) markets for our exports. But the world has changed now. The South Asian region must look at integration similar to the Association of Southeast Asian Nations (ASEAN) region – even though there are political differences, the ASEAN region is one of the most integrated regions. South Asia is still lagging behind despite having many similarities,” she added.
Thowfeek pointed out that ASEAN was centred on three pillars, which were political security, economics, and socio-cultural. She stated that the South Asian region must also find similar pillars to integrate on. Accordingly, there are many areas Sri Lanka can integrate with India. For instance, trade, electricity, and socio-cultural aspects are several key areas, but she observed that Sri Lanka was not doing enough in this regard.
Discussing viable markets for key exports and for exploring any emerging trends, she said: “We must move value chains and transition towards high-tech exports similar to countries like Vietnam, Cambodia, and Malaysia. For tea, this can mean moving towards value-added teas like bottled tea, flavoured teas, and premium teas. At present, we are mainly exporting bulk black tea.”
Furthermore, Thowfeek highlighted the tourism industry, noting that while it was a major service export, much needed to be done to improve public infrastructure to cater to all kinds of tourists. For Sri Lanka to target higher spending tourists, she observed the need to have the essential facilities to cater to them.
When questioned whether Sri Lanka had effectively addressed lowering non-tariff barriers, Thowfeek disagreed, saying: “No, I don’t think so. There has to be a sustained attempt to resolve these. Generally it is done by an institution like an office for trade which has the resources and capacity to look into these. However, in Sri Lanka we generally appoint ad hoc committees to do it, and that leads nowhere.”
Furthermore, she pointed to several Non-Tariff Barriers (NTBs) in relation to the Indo-Sri Lanka FTA that were yet to be resolved, such as on mutual recognition of standards. She also noted that Sri Lanka had cumbersome licensing and permit systems which bred corruption, which must be done away with.
Strong potential for trade within Asia
Meanwhile, Sri Lanka Shippers’ Council Chairperson Trisherman Frink noted that Sri Lanka had strong potential to deepen integration within Asia across several areas.
These include regional value chains. Greater participation in Asian supply chains, especially in apparel, rubber-based products, processed foods, and packaging materials, will improve resilience and reduce dependency on distant markets and logistics.
Another aspect is maritime connectivity: as a key transshipment hub in the Indian Ocean, Sri Lanka can strengthen feeder and coastal shipping links with India, Bangladesh, and ASEAN ports, improving turnaround times and reducing freight costs.
Frink also highlighted digital trade facilitation, such as adoption of electronic documentation, including e-bills of lading and e-certificates of origin, which would allow smoother regional trade and align with cross-border paperless-trade initiatives led by the Economic and Social Commission for Asia and the Pacific (ESCAP) and ASEAN.
Moreover, he noted that standards and regulatory cooperation, such as mutual recognition of product standards, testing, and certification across Asian partners, would help exporters reduce redundant compliance costs, especially for food and agricultural and industrial goods.
“Sri Lanka’s most viable markets in Asia continue to be India, China, Bangladesh, and ASEAN member states. The new FTA with Thailand and ongoing negotiations with India under the Economic and Technology Co-operation Agreement (ETCA) framework provide opportunities for deeper regional penetration. Moreover, key export opportunities include tea, coconut-based products, spices, seafood, and rubber goods, alongside IT and logistics services,” he added.
Further, Frink explained that emerging regional trends such as sustainable supply chains, low-carbon production, and digital commerce would increasingly define competitiveness.
He noted that Asian consumer markets were rapidly expanding for ethical, traceable, and branded products, areas where Sri Lanka could differentiate through quality, sustainability, and origin value. Further, strengthening regional logistics infrastructure, particularly port efficiency and connectivity, will enable exporters to access these markets faster and more cost-effectively.
On lowering non-tariff barriers, Frink believes progress has been made, but more remains to be done. “Positive steps include introduction of digital certificates of origin and gradual movement toward paperless Customs documentation, as well as efforts to streamline port and border procedures through trade facilitation reforms and the NSW initiative. Lifting of several temporary import restrictions that were in place during recent foreign exchange constraints is another step,” he observed.
However, Frink explained that several non-tariff barriers still persisted, such as lengthy Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) testing and approvals, especially for food and agri-exports, as well as lack of Mutual Recognition Agreements (MRAs) for standards and certification with regional partners and high logistics and port-related charges, including container detention and storage costs, which acted as indirect trade barriers. He also noted that limited legal recognition of e-trade documents, such as e-bills of lading, obstructed full digital trade facilitation.
“The Sri Lanka Shippers’ Council continues to advocate for removing these procedural and regulatory frictions. Aligning with the IMF’s call for greater regional integration, our focus is on simplifying border processes, improving digital trade readiness, and promoting closer regional cooperation to make Sri Lanka a more competitive trading hub in Asia,” he added.