• SL lacks economic capacity to match Vietnam, the Philippines: Deputy Minister
• Trade talks ongoing; final decision rests with Washington, expected in Aug. 
• MP Karunanayake urges immediate zero-duty access to boost trade flows
• IMF commitments constrain SL’s flexibility on tax concessions

While the Government remains hopeful of reaching an agreement with the United States before August, it is not in a position to offer zero-tariff access to Sri Lanka similar to Vietnam and the Philippines, according to the Deputy Minister of Trade, Commerce, and Food Security.

Speaking to The Sunday Morning Business, Deputy Minister of Trade, Commerce, and Food Security R.M. Jayawardana stated that the Government had continuously negotiated with the US delegation in the hopes of reaching an agreement on the proposed trade agreement.

He further said that they were hopeful of reaching this proposed trade agreement by August.  

However, he noted: “It ultimately depends on the decision of the US. We expressed our needs and the relief we are seeking, which are presently being discussed. We are hoping to come to a mutual understanding on this.”

Responding to a question by The Sunday Morning Business on where the Government would consider granting zero-tariff access to US imports, similar to Vietnam and the Philippines, in order to achieve the proposed trade agreement, Jayawardana said that such a measure was not possible as Sri Lanka did not have the economic capabilities to follow such a path. 

“We are unable to offer zero-tariff access. Other countries may have the economic capability to do so, but we are unable to go for such discussions,” he stated. 

Speaking in Parliament last week, New Democratic Front (NDF) MP Ravi Karunanayake stated that Sri Lanka must immediately offer zero-tariff access to US exports. 

He pointed out that Sri Lanka’s access to the US market was around $ 3.1 billion, while its US imports amounted to approximately $ 300 million. Therefore, he opined that Sri Lanka could afford to provide zero-tariff access to US exports.

Speaking at the Committee on Public Finance (COPF) on 7 March 2024, Ministry of Finance Deputy Secretary A.K. Seneviratne revealed that Sri Lanka would completely phase out the Ports and Airports Development Levy (PAL) within the next five years, while CESS would be phased out in the next three years.

However, in the Letter of Intent to the International Monetary Fund (IMF) at the First Review completed in December 2023, Sri Lanka said that throughout the IMF programme, it would refrain from any tax policy and administrative measures that may erode tax revenue, notwithstanding its commitments under the World Bank Development Policy Operation (DPO). 

These commitments include phasing out para-tariffs in a budget-neutral manner and consulting with the IMF on any new tax proposals, including on providing new tax incentives.

“We are fully committed to trade liberalisation, which is critical for attracting investment and boosting productivity growth. We have adopted regulations to rationalise the para-tariffs and will carefully implement the plan with due consideration given to its revenue implications and be complemented with measures to support local businesses in enhancing their competitiveness. 

“We will pursue further trade reforms with technical assistance from development partners,” the Government said at the time.