By: Staff Writer
April 13, Colombo (LNW): Sri Lanka is exploring measures such as energy imports and tariff reforms in response to the 44 percent tariff imposed by former US President Donald Trump, according to Deputy Economic Minister Anil Jayantha. Energy remains one of the country’s largest imports, and a shift in this area could yield significant change.
Before the suspension of the tariff, Sri Lanka had held two virtual meetings with US officials. Although the US does not directly engage in government-to-government transactions, Minister Jayantha indicated that private firms in the US could become potential partners for Sri Lanka. A mission to Washington or Colombo to negotiate details was also discussed, with the goal of resolving tariff-related issues.
In an effort to address the matter, President Anura Kumara Dissanayake sent a letter to President Trump, while the Treasury submitted a more comprehensive document to the US Trade Representative and the White House.
Regarding tariffs, Sri Lanka’s highest rate was 20 percent, with some goods already exempt. However, the country also imposes additional charges through para-tariffs, such as the CESS and Port and Airport Levy, which contribute to overall import costs.
Sri Lanka’s trade policies have faced criticism over the years. In 2004, the country embarked on a ‘de-liberalization journey’ by issuing a gazette that imposed taxes on various products without parliamentary approval, resembling a move similar to Trump’s executive orders. This shift toward protectionism led to the emergence of oligarchs who hindered free trade agreements by financing political figures.
Economic experts often resort to measures like interest rate cuts or refinancing bank credits when foreign exchange shortages arise. These actions have historically prompted Sri Lankan politicians to impose trade or exchange controls. The US Trade Representative (USTR) noted that Sri Lanka had reversed its course and was moving toward self-sufficiency rather than embracing global free trade policies.
In a 2005 report, the USTR expressed concern over Sri Lanka’s abandonment of the trade liberalization strategy that had been championed by previous governments. The government’s new approach focused on protecting small and medium-sized enterprises and agriculture, which led to the introduction of a new import tax on specific items. Despite improvements in foreign reserves, the government did not repeal the tax.
The shift toward protectionism also resulted in controversial policies, such as restricting maize imports, which drove up prices for chicken and eggs, according to critics. This move was perceived as a way to favor certain political interests. Critics also pointed out that the taxation of dairy products benefitted a single company, further raising concerns about the impact on the public.As the country navigates these economic challenges, the USTR continued to highlight the negative effects of such protectionist measures, particularly on apparel and food products. During the Yahapalana era, when Sri Lanka faced forex shortages due to increased money printing and flexible inflation targeting, the USTR flagged further trade controls that hindered economic stability.
