• Exporters caution against complacency
• Apparel industry welcomes competitive relief amid 6% decline in export revenue

Sri Lanka has been placed under a 10% Section 301 tariff by the United States, a rate lower than the default 12.5% duty applied to other non-compliant economies, after the island nation moved to prohibit the import of goods produced using forced labour. The decision was formalised through a US Executive directive issued under Section 301 of the Trade Act of 1974.

The Ministry of Finance said that the revised rate was expected to benefit exporters and reflected Sri Lanka’s continued commitment to fair trade, responsible business practices, and internationally recognised labour standards, adding that it would strengthen the competitiveness of Sri Lankan exports in the US market and signal to investors and buyers the country’s commitment to sustainable economic reform.

Minister of Industry and Entrepreneurship Development Sunil Handunnetti, speaking to The Sunday Morning, traced the rate back to a 44% tariff imposed on Sri Lanka on 2 April last year, which was later reduced to 20% through the combined efforts of the Export Development Board, Ministry of Industry, Ministry of Trade and Commerce, Finance Ministry, and the President. 

“This is not a newly imposed tax,” he said, instead describing the current 10% figure as the formalisation of a rate that had been under negotiation for over a year.

He explained that a US court ruling in February found the earlier tariffs unfair and struck them down, after which Washington imposed a temporary 10% floor tariff on all countries from February until 24 July, while it finalised individual rates. 

Sri Lanka was asked to submit its proposals by 21 July. “There were concerns among our exporters that this 10% tariff might be increased to 20% or 30%,” Handunnetti said, adding that the Government had worked to keep the rate as low as possible to preserve the country’s competitiveness.

That effort placed Sri Lanka among 17 countries granted the lower 10% rate, while 43 others face 12.5%. 

Handunnetti attributed the outcome to increased Sri Lankan imports from the US, particularly in the gas and water sectors, and to Government guarantees that child labour was not used in the country’s export or import supply chains. 

“From Sri Lanka’s perspective, this is a very positive outcome because it ensures a fair competitive environment; for instance, India and Bangladesh also have a 10% rate,” he said, noting that a gap with those competitors would have created serious difficulties for local exporters.

Joint Apparel Association Forum Sri Lanka (JAAFSL) Chairman Felix A. Fernando gave The Sunday Morning a similar account, saying that the development had been widely misunderstood but was in fact favourable for Sri Lanka. 

“The US has decided that starting from 24 July, a specific group of 17 countries, including Sri Lanka, will continue to pay a 10% tariff, while all other countries will be required to pay 12.5%. This removes a major fear we had regarding our competitiveness,” he said, noting that key rivals Bangladesh, India, Cambodia, and Pakistan were also on the 10% list, while Vietnam and Myanmar would face the higher rate.

Fernando said that the tariff decisions were rooted in strict US rules on forced labour: no component of a product – including raw materials sourced from third countries – can involve forced labour, even where a country’s own domestic labour practices are not in question.

He also flagged broader strain on the apparel sector, with export revenue down around 6% as of June this year amid a global oversupply and economic pressure linked to the Russia-Ukraine conflict and instability in the Middle East. He called for Sri Lanka to reduce its reliance on the US, European Union (EU), and UK markets, which together account for roughly 85% of exports, and to pursue new Free Trade Agreements and emerging markets such as Japan, India, China, Australia, and Canada.

In a statement on the White House website, US President Donald Trump said that Sri Lanka was among several economies – including Cambodia, Guatemala, Honduras, India, and Trinidad and Tobago – that had introduced forced labour import prohibitions, and that the Trade Representative had recommended the 10% rate “to further encourage these economies to effectively enforce such prohibitions”. The tariff applies as an additional duty stacked on top of existing baseline US import tariffs.

Sri Lanka’s Ambassador to the United States Mahinda Samarasinghe, posting on Facebook, described the outcome as a trade victory resulting from coordinated national efforts, crediting strong bilateral relations, timely intervention by President Anura Kumara Dissanayake, and negotiations led by a high-level delegation comprising Finance Ministry Secretary Harshana Suriyapperuma, Central Bank of Sri Lanka Governor Dr. Nandalal Weerasinghe, Trade Ministry Secretary K.A. Vimalenthirarajah, and Senior Economic Adviser to the President and Board of Investment (BOI) Chairman Duminda Hulangamuwa. He nonetheless cautioned against complacency, stressing the need for continued engagement to protect Sri Lanka’s standing in the US market.

The US remains Sri Lanka’s largest export destination, led by garments. According to the Export Development Board (EDB), Sri Lanka exported $ 1,436.85 million worth of goods to the US in the first half of 2026, a 20.31% share of total merchandise exports of $ 7,073.31 million – broadly in line with the US’s historical share of around 22% of the island’s exports.

Under the new prohibition, issued by President Dissanayake in his capacity as Minister of Finance, Planning, and Economic Development, the import of goods wholly or partly mined, manufactured, or produced using forced labour has been banned with effect from 10 July. The order requires the Minister to periodically identify affected goods or countries with reference to International Labour Organization (ILO) determinations and mandates that importers submit documentation to the Director General of Customs confirming their goods are free of forced labour.