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Sri Lanka resorted to phased para-tariffs reduction to promote exports  

Sri Lanka has resorted to the phased reduction of para-tariffs and unification with existing customs tariff structures could boost domestic production, promote exports, raise employment and GDP while simplifying tariff administration, finance ministry sources said. 

In an era of global trade dominated by global value chains, much of the recent empirical analysis has focused on the impacts of non-tariff barriers, behind-the-border measures, and other transaction costs on integration. 

Though most countries have substantially lowered their Most Favored Nation tariffs, the evidence is surfacing from developing countries that other border taxes are on the rise, increasing the level and complexity of protection. Para-tariffs are often disguised, under-reported, and, in some cases, total protection levels exceed committed tariff bindings under the WTO.

 Increasing the transparency of border taxes requires full implementation of WTO Article II on reporting tariff schedules, including para-tariffs, together with institutional capacity building of developing countries across their respective customs and other related agencies

Despite global market volatility that is prevalent for the longest time, affecting Sri Lanka’s revenue generation amidst its economic crisis, apparel exports has also faced the wrath of policies such as para tariffs hindering its competitiveness.   

Consultant for Joint Apparel Association Forum (JAAF) Sri Lanka Yohan Lawrence said: “These (paratariff for apparel material imports) are hindrances for trade making Sri Lanka more expensive than it should be.” 

He added that Sri Lanka needs to be more competitive as a destination for investment and the major part of such investment is the Ease of Doing Business.

Lawrence pointed out that the island’s apparel industry faces further pricing pressure due to the fact such as strengthening if the Sri Lankan Rupee (LKR) and it is mandatory to foreign exchange conversion yet by the exporters 

“This takes away any flexibility that the exporter had in terms of timing and rates of conversion having a direct impact on the profitability of the exporter and will be a particular concern for apparel exporters in the SME sector,” he elaborated. 

According to the Central Bank of Sri Lanka (CBSL), in February 2024, the apparel export revenue value has declined due to excess supply relative to the global demand.

At the same time, the apparel export revenue during the same month has declined year-on-year by 2.06%, states the CBSL.

In January 2024, Sri Lanka’s garment exports decreased by 10 per cent to $349.1 million YoY.Textile exports fell by 16.1 per cent, while exports of other manufactured textile articles rose by 12.5 per cent.

Textiles, garments, and related products constituted 49.41 per cent of Sri Lanka’s industrial exports.Imports of textiles increased slightly

Stressing the predicament of the apparel exports in Sri Lanka, Lawrence noted that overall the first couple of months in 2022 were down about 3%  from 2023 and it is still at around 20% less than 2022 which was one of their best years.

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