The most consequential part of Sri Lanka’s trade negotiations with the United States may now lie in the final 10% of the agreement. Although officials say 90% of the proposed text has been completed, the unresolved provisions could determine whether the country converts temporary tariff relief into a stable export advantage or remains exposed to sudden shifts in American trade policy.
The negotiations have already revealed the price of vulnerability. In June 2026, Sri Lanka faced the prospect of a 12.5% blanket additional tariff under Section 301 over forced-labour import risks. The threat included concerns about supply-chain exposure to Chinese Xinjiang cotton. President Anura Kumara Dissanayake’s decision to gazette an immediate ban on forced-labour imports on July 10 helped secure a lower 10% additional tariff from July 24.
That reduction was important, but it should not be mistaken for a permanent settlement.
The current tariff is layered over existing MFN duties. In apparel, Sri Lanka’s effective tariff burden is estimated at between 26.5% and 29.9%. This leaves exporters vulnerable in a market where buyers can redirect orders across countries in response to very small cost differences. Bangladesh and India have secured parity with Sri Lanka under the present additional tariff arrangement, while non-compliant competitors such as Vietnam and China face the higher 12.5% rate.
The apparent advantage could therefore disappear if Sri Lanka fails to complete the agreement.
Former Sri Lankan Ambassador to the United States Mahinda Samarasinghe, speaking at the Sri Lanka Institute of Directors Annual Members Meeting, said negotiations had reached 90% of the content. He stressed that agreement in principle would still need to be followed by domestic procedures, legal formalities, signing and implementation.
That distinction is critical. A nearly completed text does not provide exporters with the same certainty as a signed and enforceable agreement.
Samarasinghe said he had strongly recommended an early conclusion to lock in the favourable tariff rate and provide assurance that the US market would remain accessible in the future. He also noted that countries concluding similar agreements had generally offered complete or near-complete duty-free access for American exports.
This is where the unresolved negotiations become more complicated. Sri Lanka may be required to progressively dismantle domestic para-tariffs, including the CESS and Ports and Airports Development Levy (PAL), on selected US imports in exchange for a stabilized reciprocal tariff structure reportedly centred on 15%.
Such concessions could improve export access, but they also raise questions about domestic revenue, industrial protection and the competitive position of local producers. The Government must weigh the immediate benefits of American market access against the long-term consequences of reducing border-based taxation.
The alternative is costly. IPS modelling estimates that sustained tariff exposure could cause a US$634 million industrial loss, reduce real GDP by up to 0.222%, cut apparel exports by 12.1%, and eliminate nearly 16,000 jobs. Rubber exports could fall by as much as 42%.
The burden would extend beyond large exporters. Smaller firms face rising documentation and verification costs to demonstrate forced-labour-free supply chains. Investors, meanwhile, may delay capital commitments until the tariff regime is legally settled.
The final 10% is therefore not a technical footnote. It is the dividing line between temporary relief and lasting economic security.
