SriLanka WT/TPR/S/6
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IV. TRADE POLICIES AND PRACTICES BYMEASURE
(1) Overview
1. Responding tosevere macroeconomic difficulties -lowgrowth, mounting budget deficits,
increasing unemployment andrising public debt-SriLanka embarked onaseries ofeconomic reforms
inthelate1970s. Trade liberalization wasintegral tothese reforms. Broadly following theadvice
ofPresidential Tariff Commissions (Chapter II(3)), quantitative restrictions were abolished, tariffs
streamlined andrationalized, andaverage tariffprotection reduced. Long-entrenched trademonopolies
weredisbanded andanumber ofStateholdings privatized. However, despite substantial progress over
thepastsixyears, significant import barriers, mainly intheformoftariffs andtariff escalation, have
remained. Thecurrent Government iscommitted tofurther tradeliberalization andaimstointroduce
aunified import tariff by1997 or1998.
2. Inconjunction withcontinued import protection, measures havebeeninplace since thelate
1970s toeaseexporters 'access tocapital goods, rawmaterials andintermediate inputs atworld market
prices. Owing toseveral concessionary import schemes, non-traditional industries havetaken advantage
ofSriLanka 'sfavourable geographic location, itswell-trained labour force (relative towage levels)
aswellasitsaccess under theMFA tomajor export markets suchastheUnited States andtheEU.
Export diversification intonewmarkets andnewproducts hasbeenencouraged through various policy
schemes funded through a"cess", anadditional taxonhigh-tariff imports. With theestablishment
ofnewexport industries, thepolitical basefortrade liberalization hasbroadened. Backward linkages
ofexport industries have, however, remained weak todate.
3. TheGovernmentseekstoensurethatliberalizationbenefitsarepassedontodomesticconsumers.
Intellectual property legislation, inconjunction withstandardization, isaimed atprotecting users from
counterfeits andother low-quality products. Market concentration isgradually falling astheshare
ofsmaller firms inproduction increases. While abuse ofmarket power maybecounteracted under
SriLanka 'scompetition legislation withfurther tariff reductions, there hasbeenonlyonesuchcase
todate. Effective action inareas ofcompetition policy appears hampered bythelimited mandate and
staffing oftheresponsible body (Fair Trading Commission).
(2) Measures Directly Affecting Imports
4. Although avariety ofmeasures operate onimports, tariffs havethestrongest impact, overall,
onmarket access, relative prices andresource allocation. Table IV.1 gives anoverview ofall
obligations, including documentation requirements, currently applied attheborder.WT/TPR/S/6
Page 34Trade Policy Review
Table IV.1
Border measures applied toimports
Measure Costs Application criteria/product coverage
Importer 'sregistration Registration fee(SLRs1,000) Each importer hastoberegistered
(commercial imports only)
Customs forms Free -
Customs computer
maintenance feeSLRs200pertransaction -
Customs cargo examination
chargeSLRs300pertransaction -
Quality certificate Costs ofissuing aquality certificate Some 55items subject totechnical
regulations require acertificate of
conformity
Letter ofcredit Bank charges Importers areobliged tohavealetter of
credit onwhich stamp duties aredue
Stamp duty 2percentofimport value asreported inthe
letter ofcreditImposed byController ofExchange
(Central Bank ofSriLanka)
Import tariffs Relevant dutyrate Most imports aresubject toadvalorem
duties of10,20or35percenta
Import surcharge (on
agricultural products)While nomaximum rateisset,thecombined
value ofimport dutyandsurcharge on
agricultural products islimited bya
GATT-bound ceiling rateof50percentNotcurrently appliedb
Import licence Free Products subject tolicensing requirementsc
Cess Upto10percentofimport duties Applies tomotor vehicles, alcoholic
beverages, tobacco andtobacco products
Turnover tax(tobereplaced
byvalue-added taxin
October 1995)Upto20percentoftheduty-inclusive import
price, increased bya25percentmark upApplies tobothimports anddomestic
production
Defence levy 4.5percentoftheduty-inclusive import price,
increased bya25percentmark upApplies tobothimports anddomestic
production
Excise duty Upto200percent(105percentofc.i.f. value
+customs duty+surcharge +turnover tax+
cess+defence levy)Applies tobothimports anddomestic
production ofspecified "luxury" products
(261items)
a Fordetails seesection (ii)(a).
b While import surcharges mayalsobelevied onindustrial products, thispossibility exists onlyinthecontext ofanti-dumping
orcountervailing actions (section (xii)).
c Section (iv).
Source: WTO Secretariat based oninformation provided bytheGovernment ofSriLanka.
(i) Registration andcertification requirements
5. Inorder forconsignments tobecleared bycustoms, importers musttoproduce theinvoice,
adelivery order suchasthebilloflading andtheirtaxidentification number. Customs maycarry
outrandom checks toverify whether consignments areclassified correctly. Thecompleted import
declaration form, indicating import tariffs andother import charges, isthenendorsed andthegoods
arereleased onpayment ofduties andcharges. Imports ofBOI-approved firms (Chapter III)arechecked
onlyintheeventofspecificreasonsorinstructionsfromtheDirector-GeneraloftheCustomsDepartment
(Ministry ofFinance). ASpecial Investigating UnitoftheDepartment ofCustoms monitors these
imports.SriLanka WT/TPR/S/6
Page 35
6. While theThird Presidential Tariff Commission noted delays caused bycustoms procedures
andregulations1,according totheauthorities, customs clearance doesnotnormally takemore than
afewhours. Tofacilitate procedures andprevent leakages ofduty-exempt imports intothelocal
economy,theCommissionrecommendedtheestablishmentofaprivatelyoperatedpreshipmentinspection
scheme, provided itiscosteffective.
(ii) Tariffs
(a) General structure
7. SriLanka 'scurrent tariff structure wasannounced intheBudget Speech ofFebruary 1995,
following substantial reforms inrecent years. Today, tariffs aregenerally applied atadvalorem rates
of10,20and35percent; 124items arezero-rated; andtariffs onmotor vehicles range from50to
100percent,depending onengine size.2Alimited range ofitems -alcoholic beverages andtobacco
products -aresubject toeither specific oradvalorem duties, whichever ishigher. (Forexample,
cigarettes enter under aspecific rateofSLRs1,370 perkg.or,ifhigher, anadvalorem tariff of
250percent.) Inearly 1995, theunweighted tariff average across all6,050 tariff items stood at
20percent.3Thisissignificantly higher thantheratioofactual dutyrevenue toimports, some 11to
11.5percentinboth1993and1994; thedifference maybeduetotheoperation oftariff exemptions
andwaivers andthedeterrent effect ofhightariffs ontrade intherelevant items.
8. TheGovernment iscommitted tocontinued tariff reform withthestated aimofprogressively
reducing andharmonizing tariffs towards asingle rateoverthemedium term.4Atwo-pronged import
tariffof10and20percent(1996) andasingle 15percenttariff(1997 or1998) areunder consideration.
9. Given theimportance ofcustoms duties forgovernment revenue -representing some23percent
oftotalrevenue in1994-thescope forfurther tariffreductions depends notleastonmeasures tobroaden
thetaxbaseandmobilize alternative income sources, possibly including avalue-added tax(section (iii)).
Tariff preferences provided forunder theBangkok Agreement, theSouth Asian Preferential Trade
Arrangement (SAPTA) andtheTreaty ontheGlobal System ofTrade Preferences (GSTP) aretoremain
inplace or,asaresult ofcurrent discussions, might bewidened (section (e)).
1Presidential Commission onTariffs andTrade (1994).
2Additional high-tariff items arealcoholic beverages, tobacco andtobacco products. Among theimports
entering dutyfreearepharmaceuticals, fertilizers andvarious printed materials.
3Excluding 24items subject tospecific duties. Inthecaseofalternate duties, theadvalorem rates were
taken.
4Government ofSriLanka (1995).WT/TPR/S/6
Page 36Trade Policy Review
(b) Tariff escalation
10. Averagetariffprotectiondoesnotdiffersignificantlybetweenrawmaterials,includingagricultural
products, andfullyprocessed goods (Table IV.2). However, thisisduemainly tohightariffs ona
range offarmitems; mostmaterials destined forindustrial production enterunder significantly lower
rates, mostly 10percent,thanthefinalproducts. Amore detailed analysis onthebasisofinputs and
outputs ofspecific industries, using 1994data,reveals strong tariffescalation across virtually allsectors,
indicating thateffective protection ishigher thanthenominal ratessuggest (Chart IV.1). Theonly
major exceptions arethedairy, teaandrubber sectors where bothinputs andthefinalproducts enter
atworld market prices.5
Table IV.2
Tariffs bystage ofprocessing, 1995
(Number oftariff linesandpercent)
Description Tariff lines Average tariff
(Unweighted)Tariff range Standard
deviation
Rawmaterials 652 20.0 0-70 12.5
Semi-processed goods 1,995 15.6 0-35 15.6
Fully processed goods 3,403 22.5 0-250 22.5
Source: WTO Secretariat based oninformation provided bytheGovernment ofSriLanka.
11. Given recent tariffreductions andmoves towards tariffunification, nominal andeffective rates
ofprotection arelikely tobelower atpresent thanthe1994 estimates suggest. While theenvisaged
single import tariff would remove allnominal escalation, effective ratesofprotection would stillvary
among sectors depending ontheshare ofvalue added intotalturnover.
5Presidential Commission onTariffs andTrade (1994).SriLanka WT/TPR/S/6
Page 37
WT/TPR/S/6
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(c) Tariff concessions (exemptions andwaivers)
12. Avariety oftariff concessions areintended tobenefit consumers orstimulate production and
exports ofspecified goods.6Inthelatter context, concessions maybegranted forcapital goods as
wellasrawmaterials andintermediate production inputs. Toqualify, imports ofcapital goods must
havebeenapproved bytheBoard ofInvestment. Allimports ofcapital goods worth overUS$1 million
anddestined forinfrastructure projects arealsodutyfree.
13. Themajority ofconcessions apply toinputs entirely usedforexport production; theyare
implemented through various instruments (section (3)(ix)). Other concessions (exemptions andwaivers)
notlinked toexport activities aremotivated byindustrial andsocial policy considerations.7TheImport
Tariff Guide published bytheCustoms Department (1994) provides forfulltariff exemption on
34products aswellaspartial exemptions on19items. Thenumber products withfullexemption was
subsequently narrowed down to22(Annex IV.1).
14. During1994,fullwaiversweregrantedontractors,agriculturalequipment,stationery,electrical
generating sets,fibres, lentils, dried fish,andgenerators; partial waivers weregranted foritems such
asfullcream milkpowder, sugar, edible oilandsome construction equipment. Allmeasures expired
byFebruary 1995; initiatives arenowsubject toCabinet approval.
15. Under Section 19AoftheCustoms Ordinance, theMinister ofFinance isempowered togrant
tariffexemptions byOrder ifthesearedeemed tobeinthepublic interest. TheOrder istobepublished
intheGovernment Gazette andmust, assoonaspossible afterpublication, beassented tobyParliament.
Toensure transparency, theGovernment alsoissues apress release indicating theproducts involved,
recipients andtimeframe, ifany,ofallnewtariff waivers andexemptions.
16. While recent waivers wereusedincases where international prices ofessential consumer items
(sugar, lentils, milkpowder, etc.)reached exceptionally highlevels, theauthorities haveacknowledged
thatsuchmeasures arenottargeted atneedy individuals -animportant welfare policy objective8-and
mayhaveadverse income effects ondomestic farmers. Inturn, these income effects havetriggered
intervention purchases bythePaddy Marketing Board. TheCentral Bank ofSriLanka hascriticized
thegranting ofconcessions oninputs which tends toerode tariff protection provided fordomestically
producedrawmaterialsandcomponents,"thusunderminingtheincentivestructureforbackwardlinkages
inindustrial development".9
6Theconcessions have generally been incorporated intheestimates ofeffective protection presented in
Chart IV.1.
7While there appears tobenoclear, systematic distinction between tariff exemptions andwaivers, the
WTO Secretariat understands thatexemptions aregenerally granted inthecontext oflonger-term industrial or
social policy objectives, while waivers often reflect short-term policy decisions, based ontheperceived need
toprovide relief forspecified industries orenterprises.
8Government ofSriLanka (1995).
9Central Bank ofSriLanka (1995).SriLanka WT/TPR/S/6
Page 39
(d) Tariff bindings
17. Likeotherparticipants intheUruguay Round, SriLanka bound allimport tariffs onagricultural
items; thebindings areat50percentceiling rates.10Inaddition, SriLanka widened therange of
bindings intheindustrial sphere -alsoat50percent-from4to8percentoftarifflines(some 7and
11percentofimports, respectively).
(e) Tariff preferences
18. Preferential tariffs aregranted under theBangkok Agreement, theAgreement ontheGlobal
System ofTrade Preferences (GSTP) and,from December 1995, theSouth Asian Preferential Trade
AreaArrangement (SAPTA). Thepreferential margins varywidely among theproducts covered, but
arethesame forallparticipants. There arenofulltariff exemptions. Therelevant rules oforigin
hinge onavalue-added criterion (Table IV.3).
19. Theproduct coverage oftheBangkok Agreement waswidened in1985, 1986and1990tosome
260items atpresent.11Under theGSTP, SriLanka grants tariff preferences on78items toallGSTP
members; additional preferences exist forBangladesh (42items), Brazil (1),Cuba (1),Laos (2),
Papua NewGuinea (14)and,currently suspended, theformer Yugoslavia (2).Asecond round of
negotiations under thesystem iscurrently under way. Under anagreement reached intheSAPTA
context, SriLanka iscommitted togranting preferential tariffs on31items toallmember States from
December 1995.
Table IV.3
Preferential trading agreements
Agreement Participants Coverage Rules oforigin
Bangkok Agreement Bangladesh, India, Republic of
Korea, Laos, Papua NewGuinea
(People 'sRepublic ofChina,
Indonesia, Malaysia, Nepal,
Thailand, Philippines as
observers)263items 50percentvalue added in
general; 40percentforthe
least-developed countries
(Bangladesh, Bhutan and
Nepal)
South Asian
Preferential Trade
Arrangement
(SAPTA)Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan, and
SriLanka31items 50percentvalue added ifa
product originates from asingle
member State; 60percentif
several members areinvolved
Global System of
Trade Preferences
(GSTP)37developing countries 78items forallparticipants,
some additional items for
individual members50percentvalue added ifa
product originates from asingle
member State; 60percentif
several members areinvolved
Source: WTO Secretariat based oninformation provided bytheGovernment ofSriLanka; Presidential Commission onTariffs andTrade
(1994); SriLanka Customs Department (1994); andJournal ofCommerce, 4May1995.
10SriLanka 'sagricultural tariffs were previously unbound.
11Theitems have been selected from awide range ofproduct areas; incertain cases, recent m.f.n. tariff
reductions have rendered thepreferences superfluous.WT/TPR/S/6
Page 40Trade Policy Review
(f) Customs valuation
20. SriLanka hadnotsigned, butwasanobserver to,theTokyo Round Agreement onCustoms
Valuation. Itscurrent valuation ofimports isbased onthe"true value", defined astheprice atwhich
goods aresoldoroffered forsaleatthetimeandplaceofimportation. Thevalue ofintellectual property
rights (patents, protected designs ortrademarks) linked toaproduct istobeincluded intheprice.
According totheauthorities, inpractice, import duties arelevied onac.i.f. basis. SriLanka intends
toalign itslegislation withtherelevant WTO provisions by1January 2000.12
(iii) Import-related levies andcharges
Customs computer maintenance feeandcargo examination charge
21. Acustoms computer maintenance feeofSLRs200pertransaction andacustoms cargo
examination charge ofSLRs300areapplied toallimports, except those forBOI-approved firms.
Stamp dutyoncompulsory letters ofcredit
22. Allimports require aletter ofcredit issued byacommercial bank. Oneachletter, a2percent
stamp dutyislevied bytheDepartment ofExchange Control oftheCentral Bank. Exemptions are
available toBOI-approved firms andforconsignments whose c.i.f. value doesnotexceed US$7,500;
therelevant documents must berouted through thenormal banking channels.
Special surcharge (cess) tofinance theExport Development Board
23. Goods carrying tariffs of45percentandhigher aresubject toasurcharge (cess) of10percent
onthedutyvalue; revenue isdestined fortheExport Development Board (EDB). Since thelatest
tariff reductions inFebruary 1995, onlymotor vehicles, alcoholic beverages, tobacco andtobacco
products haveduties exceeding thethreshold.
Customs surcharges
24. Under Section 10AoftheCustoms Law, surcharges maybelevied onanyproduct asan
instrument ofemergency trade protection. There were17cases in1994 (section (x)(a)). According
tothe1995BudgetSpeech,theGovernmentintendstousesurchargesinparticulartoprovide"reasonable
protection" foragricultural commodities. Therelevant ratesmayfluctuate overtheyearwithpeaks
duringharvestseasons(specifiedbytheMinisterofAgriculturebasedonproductionduringthepreceding
year). Thetariffbindings made bySriLanka intheUruguay Round forallfarmproducts andselected
industrial items impose acommon ceiling of50percentontariffs andsurcharges.
Sales taxes andlevies affecting imports anddomestic production
25. Aturnover taxapplies atratesof6percent(onservices), 10percent, 15percentand,on
luxury products, 20percent. Some agricultural products andintermediate goods areexempt. The
taxonimports islevied onthec.i.f. price plusimport duty, cessandahypothetical 25percentsales
12Developing countries notparticipating intherelevant Tokyo Round Agreement arerequired toconform
totheAgreement onImplementation ofArticle VIIoftheGeneral Agreement onTariffs andTrade 1994
(Customs Valuation) byend-1999.SriLanka WT/TPR/S/6
Page 41
margin (Table IV.1). Imports byBOI-approved firms areexempt. Thecascading impact ofthetax,
whichisimposedateachproductionstage,discouragessubcontracting;theintroductionofavalue-added
taxisscheduled forOctober 1995.
26. Liketheturnover tax,thedefence levyisimposed ontheduty-inclusive import price plusa
25percentmark up.Tofinance thecivilwarinnorthern andnorth-eastern partsofthecountry, the
levywasincreased from 3.5to4.5percenton1July1995.
27. Excise duties arelevied onarange of"luxury" products atratesgenerally ranging from5to
60percent(Table AIV.1).13They areapplied on105percentofthec.i.f.import value, pluscustoms
duty, surcharge (ifapplicable), turnover taxandcess. Domestically manufactured cigarettes carry
anexcise taxofSLRs525per1,000 pieces, while therateonimports varies between SLRs925and
SLRs1,500.14There isnodifferential treatment under salesandexcise taxation foranyotherproducts.
(iv) Import controls, prohibitions andlicensing requirements
28. Inrecent years, SriLanka hasremoved almost allimport andexport licensing requirements
exceptthosemaintainedforsecurity,health,moralandenvironmentalreasons.15Licencesfortherelevant
items areissued bytheImport andExport Control Department (Ministry ofTrade, Commerce and
Food) (Table IV.4). According totheauthorities, imports ofcereals havealsobeenliberalized.
29. Import licences areoriginally valid for180days; theymaybeextended foruptooneyear
if"acceptable reasons" aregiven. Block licences foroneyearmaybeissued fordrugs andchemicals
which maythenbeimported ininstalments uptotheceilings mentioned. Licences areissued only
toSriLankan nationals orcompanies majority owned bySriLankans. Entry ofseasonal agricultural
products isparticularly closely monitored bytheController ofImports andExports; lateentry isnot
accepted ormaydraw penalties.
30. A"foodsecuritymeeting"isheldeveryweek,involvingtheDepartmentofCensusandStatistics,
theFoodCommissioner,MinistryofAgriculture,andtheControllerofImportsandExports.Participants
decide ontheimport quantities ofseasonal foodcrops suchaspotatoes anddried chilies. Thedecisions
aretaken inviewofthecountry 'sfoodsupply situation andadditional considerations suchasthecost
ofliving. TheImport andExport Controller isaccordingly authorized toissuelicences during specified
periods notcoinciding withthedomestic marketing season. Anyarrivals aftertheauthorized period
aresubject toapenalty ofatleast5percentoftheimport value (anadditional 1percentislevied
forevery dayinexcess ofthefirstweek).
31. Onlyimporters offooditems arepermitted toimport seasonal crops; theallocation oflicences
isgenerally based ontheirprevious performance. (Any rentsthusaccrue totheestablished traders.)
While licences arenotofficially transferable, theauthorities areaware ofinformal transfers. The
Controller ofImports andExports canreject licence applications without giving reasons; thedecision
maybeappealed totheMinister ofTrade, Commerce andFood.
13Chandeliers andelectroliers carry rates of200percent.
14SLRs925per1,000 cigarettes ofalength oflessthan72mm.; SLRs1,110 per1,000 cigarettes less
than84mm.; andSLRs1,500 onlonger cigarettes.
15Forexample, there areseveral import prohibitions under sanitary andphytosanitary legislation
(section (viii)(b)).WT/TPR/S/6
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Table IV.4
Products subject toimport licensing
Item Competent authority
Articles made ofebony Department ofImport andExport Control
Sawn timber other thanrubber wood Department ofImport andExport Control
Coral chunks Department ofImport andExport Control
Wood charcoal Department ofImport andExport Control
Earth minerals Department ofMinerals andGeology
Forest products Department ofWild LifeConservation
Motor vehicles Department ofImport andExport Control
Brass andwooden items Department ofArchaeology
Arms andammunition Ministry ofDefence
Riceandpaddy (including flour) Department ofFood Control
Liquor Department ofExcise Permits
Wheat andmeslin (including flour) Department ofImport andExport Control
Photocopying apparatus (colour) Department ofImport andExport Control
Goods restricted under theMontreal Protocol on
Substances thatDeplete theOzone Layer andtheBasle
Convention ontheControl ofTransboundary
Movements ofHazardous Waste andtheirDisposal
(seeTable AIV.2)Central Environmental Authority andMinistry ofIndustries
Source: WTO Secretariat based oninformation provided bytheCustoms Department (Ministry ofFinance).
(v) Trade sanctions
32. Based onU.N. Security Council Resolutions, SriLanka maintains trade embargoes onIraq
andtheFederal Republic ofYugoslavia (Serbia andMontenegro). While there areno
Government-to-Government trade links withChinese Taipei, private sector trade isallowed.
(vi) State trading
33. Imports ofthreeproduct categories -petroleum, armsandexplosives, andwheat -arecurrently
subject toexclusivity rights. Theauthorities justify thetrading monopolies conferred ontheCeylon
PetroleumCorporationand,forarmsandexplosives,ontheLankaGeneralTradingCompanyonsecurity
grounds (Table IV.5). Ceylon Petroleum wasrecently stripped ofitslubricants branch, andimports
ofliquified petroleum gasandindustrial gashavebeenliberalized. Theimport ofwheat isinthehands
ofCo-operative Wholesale Establishment (CWE).
Table IV.5
State-trading monopolies
Item Corporations Company
Petroleum products Ceylon Petroleum Corporation
Guns, cartridges andexplosives Lanka General Trading Company Ltd.
Propane Gas(LPG) Colombo GasCompany Ltd.
Source: Government ofSriLanka.SriLanka WT/TPR/S/6
Page 43
(vii) Countertrade
34. SriLanka 'sGovernment isnotdirectly involved inanycountertrade transactions. According
totheauthorities, while countertrade inrespect ofmajor agricultural commodities isnotencouraged,
transactions areaccepted inallother product areas.
(viii) Standards andother technical requirements
(a) Standardization
35. TheSriLanka Standards Institution (SLSI) isresponsible forstandardization, testing and
certification across virtually allproduct areas. Theonlyexception isforpharmaceuticals which fall
within thepurview oftheMinistry ofHealth. TheInstitution 'sstaffcomprises 350persons, including
100scientists and50qualified professionals. They aremandated tocarry out:(i)product inspection
andcertification; (ii)export certification; (iii)certification ofquality management systems;
(iv)laboratory accreditation; (v)sector-specific training programmes; (vi)testsofchemicals, textiles
andelectronic products inanin-house laboratory (including testsforexternal contractors); and
(vii)import inspections.
36. TheInstitution 'srecurrent expenditure iscovered largely bygovernment grants, amounting
toSLRs75million in1995; commercial activities areexpected tocontribute anadditional
SLRs15million. Standardization iscarried outmainly bySectoral Committees, focusing onareas
suchasfood, chemicals, andengineering. Committee members -mostly industry experts -areappointed
forathree-year term. Working groups operating under, andlinked to,theindividual committees are
expected toencourage andprocess external contributions tothestandardization process. According
toSLSI officials, foreign standards arereferred towhenever available andpracticable.
37. Theconversion ofstandards into(mandatory) technical regulations isachieved viatherelevant
items'inclusion intoImport andExport Control Regulations and,concerning domestic sales, the
Consumer Protection Act. There areatpresent some 55technical regulations, covering areas such
aschemicals, fooditems, other consumer products, building materials andelectrical products. No
distinction ismade between foreign anddomestic products, according totheauthorities.
38. Quality certificates, confirming aproduct 'sconformity withSriLanka 'srequirements, may
beissued by:overseas laboratories orinspection agencies withwhich SLSI hasamemorandum of
understanding; thenational standards body oranother agency accredited bythecompetent authority
oftheexporting country; or,ifregistered withSLSI, theforeign manufacturer. SriLanka alsoaccepts
marks ofconformity withregard toforeign regulations, issued byforeign agencies, ifthebasic
regulations aredeemed equivalent.
(b) Food standards, sanitary andphytosanitary requirements
39. MainhealthandsafetycriteriaforfoodproductshavebeenformulatedandissuedbytheMinister
ofAgriculture afterconsulting aFood Advisory Committee.16According totheauthorities, national
16TheFood Advisory Committee consists ofthefollowing officials: Director General ofHealth Services
(Chair); Director ofEnvironmental andOccupational Health Service; Government Analyst orhisrepresentative;
CityAnalyst orhisassistant (Colombo Municipal Council); Director General ofCustoms orhisrepresentative;
Chief Medical Officer (Colombo Municipal Council); representative oftheMinistry ofFood; representative
(continued...)WT/TPR/S/6
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regulations aregenerally based oninternational standards andguidelines andthegeneral principles
issued bytheCodex Alimentarious Commission. Regulations areenforced through inspection by
authorized officials: Food andDrugs Inspectors; Medical Officers ofHealth; andPublic Health
Inspectors. Inspection andcertification ofimported foods arecarried outbyFood andDrugs Inspectors
attached totheImport Inspection UnitofColombo Port. Certification offoodexports isatpresent
undertaken byaFood Administration Unitunder theMinistry ofHealth.
40. TheDirector ofAgriculture isthecompetent authority forplantquarantine. Imports ofcoconut,
tea,riceandcacaoplantingmaterialsfromallsourcesareprohibitedunderthePlanProtectionOrdinance,
asareimports ofsweet potato tubers from Africa. Seedorunpinned cotton orrawginned cotton of
anyspecies grown inthewestern hemisphere maybeimported onlythrough theportofColombo.
(c) Packaging andlabelling requirements
41. AConsumer Protection Unit(CPU) intheMinistry ofTrade, Commerce andFoodmayspecify
labelling requirements forconsumer goods. Anylabels inEnglish musthaveanindication ofthecountry
oforigin.17
(ix) Government procurement
42. Depending onthecontract value, government purchases arecarried outbytender boards in
individual departments orministries, orbyacabinet-appointed board. Therelevant threshold levels
arehigher forprojects financed bytheWorld Bank andtheAsian Development Bank (Table IV.6).
Bidders forlarge projects needtolodge deposits ofuptoSLRs5,000, refundable ornon-refundable
asthecasemaybe,toobtain asetoftender documents.
43. Tender boards have three members, typically including theSecretary oftheMinistry of
Construction, theSecretary oftheMinistry directly concerned, andarepresentative oftheMinistry
ofFinance. They decide whether aproject issubject tolocalorinternational tender andspecify the
relevant timeframe forinvitations (generally sixweeks inthecaseofinternational tenders). Bidsare
opened andthevalues aredeclared inpublic, butnodetails aregiven. Asarule,contracts areawarded
tothelowestrespondingbidwhichmayincludeafinancialpackage,ifrelevant.However,localsuppliers
withatleast51percentnational ownership aregranted a7.5percentpreference.
44. Foreign-financed projects maybereserved forcompanies fromdonor countries viarestricted
tendering. Forexample, projects financed bytheAsian Development Bank (ADB) areconfined to
companies frommember countries. Intheauthorities 'view, resulting pricedisadvantages aregenerally
offset bytheaidcomponent, leaving SriLanka anetbenefit. SriLanka doesnotcurrently intend to
accede tothePlurilateral Agreement onGovernment Procurement.
16(...continued)
oftheMinistry ofTrade; representative oftheMinistry ofLocal Government; representative oftheSriLanka
StandardsInstitutionNutritionistoftheMedicalResearchInstitute;foodtechnologist;twoexpertsinfoodscience
ofwhichoneshouldbeabacteriologist;tworepresentativesofthecommer cialandindustrialsector;twoconsumer
representatives; andtheChief Food andDrug Inspectors.
17DunandBradstreet (1994).SriLanka WT/TPR/S/6
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Table IV.6
Thresholds fortendering procedures
Tender board tobe
appointed by:Source offunds
Government ofSriLanka World Bank andAsian
Development BankIndividual donor countries
Department <SL Rs2m. <SL Rs50m. <SL Rs10m.
Ministry >SL Rs2m.and
<SL Rs5m.>SL Rs50m.and
<SLRs100m.>SL Rs10m.and
<SLRs20m.
Cabinet >SL Rs5m. >SL Rs100m. >SL Rs20m.
Source: Ministry ofFinance (1994).
45. Collusive practices suchasbid-rigging arenotprohibited under SriLankan law. However,
tender boards arefreetosuspend orannul procedures evenaftertheopening ofbids.
(x) Emergency trade measures
(a) Safeguard actions
46. Currently, SriLanka hasnosafeguard mechanism incorporating theprovisions ofArticle XIX
oftheGATT. However, under customs legislation, theMinister ofFinance mayintroduce animport
surcharge forspecified periods toprotect domestic producers.18Further details -timeframe, injury
criteria, etc.-arenotspecified; however, theprovisions havegenerally beenusedtoprevent "low
priced"or"dumped"importsfromthreateningSriLankanindustries.Allapplications,including17cases
in1994, havebeenonanm.f.n. basis.19Themeasures havenowexpired andnonewinitiatives have
beentaken. Theauthorities areexamining thepossibility ofimplementing theWTO Agreement on
Safeguards indomestic legislation; future safeguard actions would inanyevent comply withtherelevant
provisions.
(b) Anti-dumping andcountervailing legislation
47. SriLankahasnoformalanti-dumpingorcountervailingrégime.However,theThirdPresidential
Tariff Commission considered thecurrent surcharge mechanism adequate todealwith"unfair trade
practices".Whilenotingthattherelevantprocedurewasexpeditiousandenabledtimelyactiontoprevent
damage tolocal industries, theCommission recommended theuseoftransparent guidelines.20A
committee ofsenior officials oftherelevant ministries hasbeenestablished toexamine thedesirability
oflegislative changes.
18Presidential Commission onTariffs andTrade (1994).
19Theproducts concerned included exercise books, woven fabrics, sarongs, ironbarsandrods, razors and
razor blades, batteries, bicycles andonions.
20Presidential Commission onTariffs andTrade (1994).WT/TPR/S/6
Page 46Trade Policy Review
(xi) Balance-of-payments measures
48. Import licensing oncertain farmproducts ismaintained forbalance-of-payments reasons.21
(xii) Local content requirements
49. There isnoevidence ofanycurrent policy inthesphere ofgoods making specific benefits
orobligations formerchandise imports subject tonationality orlocalcontent criteria.
(3) Measures Directly Affecting Exports
50. Policies operating ontheexport sidearegenerally aimed ateither insulating exports fromthe
costofimport protection; improving thereturn onexports; orproviding trade intelligence andother
forms ofnon-price-related support. While theeconomic impact oftariff andtaxconcessions appears
particularly important fornon-traditional exports suchasclothing, which relystrongly onimported
inputs, direct financial assistance maybemore important fortraditional export products, suchas
hand-loom textiles.
(i) Export taxes, charges andlevies
51. Exports ofanumber ofnatural-resource-based products aswellassome steelitems aresubject
toroyalties, duties orcesses (Table IV.7). While revenue fromroyalties andduties isforappropriation
bythegeneral budget, receipts from cesses aredestined forspecialized agencies orsector-specific
activities. Theduties onexports ofsilica quartz andcertain hides andskins appear notonlyintended
toraiserevenue, buttolower input prices for,andthuspromote, downstream processing activities.22
(ii) Minimum prices
52. Exports ofsilica quartz aresubject toaminimum price ofUS$75 pertonne.
21InNovember 1994, SriLanka informed theGATT Committee onBalance-of-Payments Restrictions that
licensingwouldberetainedfortheirindirectimpactonthecountry'sbalance-of-paymentssituation.Thefollowing
products werelisted: potatoes, fresh orchilled (H.S. Code 0701.90); onions, shallots garlic andother alliaceous
vegetables,freshorchilled(0703.10.01and0703.10.02);pepperofthegenus'Piper',driedorcrushedorground,
fruits ofthegenus capsicum orofthegenus pimenta (0904.20); wheat andmeslin (including flour) (1001.10,
1001.90 and1101.06); andcereal groats, meal andpellets (1103.11). GATT document BOP/R/219,
3November 1994.
22Foranassessment oftheeconomic rationale ofsuchexport taxes andtheir(potentially distortive) impact
onresource allocation, see,forexample, GATT (1994b).SriLanka WT/TPR/S/6
Page 47
Table IV.7
Royalties, duties andcesses applied toexports
Type ofexport levy Product Amount charged Beneficiary
Royalty Elephants other thantuskers SLRs10.00 perelephant Department of
Wildlife
Royalty Tuskers SLRs500.00 pertusker Department of
Wildlife
Royalty Natural graphite 2percentonf.o.b. value Treasury
Royalty Coral andsimilar materials, conch
shells (Chanks)SLRs75per1,000 pieces Treasury
Export duty Silica quartz 20percentoff.o.b. value anda
minimum export price of
US$75 pertonneTreasury
Export duty Steel products falling under items:
7207;
7208.31 -7208.90;
7209.31 -7210.39;
7211.11 -7211.90;
7212SLRs125pertonne Treasury
Export cess Tea SLRs2.00perkg. SriLanka TeaBoard
Export cess Tea SLRs0.0035 per100kg. SriLanka TeaBoard
Export cess Rubber SLRs1.65per100kg. Rubber Control
Department
Export cess Rubber SLRs115per100kg. Rubber replanting
scheme
Export cess Rubber SLRs50per100kg. Rubber Research
Institute
Export cess Rubber SLRs4.00per100kg. Rubber Control
Department
Export cess Rubber SLRs50per100kg. Export Development
Board
Export cess Coconut Varies between products
(seeTable AIV.3)Coconut Marketing
Board
Export cess Cashew-nuts inshell 200percentadvalorem Export Development
Board
Export cess Rawhides andskins ofbovine or
equine animals50percentoff.o.b. value or
SLRs100-300 perkg.Export Development
Board
Export cess Leather ofbovine orequine animals 25percentoff.o.b. value or
SLRs40persqft.whichever is
higherExport Development
Board
Source: Presidential Commission onTariffs andTrade (1994).
(iii) Export controls, prohibitions andlicensing requirements
53. Exports ofwood, ivory andderived products arerestricted orprohibited, except forwood
products based onimported rawmaterials. Theexport prohibition onivory products isinkeeping
withSriLanka 'sobligations under theConvention onInternational Trade inEndangered Species of
Fauna andFlora (CITES); export prohibitions onwood andwood products aremaintained on
environmental grounds. Export controls arealsomaintained under theMontreal Protocol andthe
Basle Convention (Table AIV.2). Additional licensing requirements concern vintage cars,i.e.motor
vehicles registered before 1January 1945, andfertilizers. Private sector exports ofgems aresubjectWT/TPR/S/6
Page 48Trade Policy Review
toprior approval bytheexchange control authorities23;exports ofrough gems, except geuda, arenot
permitted.
(iv) Export quotas
54. SriLanka doesnotapply anyexport quotas except under theMultifibre Arrangement (MFA).
Exports ofclothing arerestricted under bilateral agreements withtheUnited States, theEuropean Union,
Canada andNorway; thequotas areadministered bytheMinistry ofIndustries. Eighty percentof
aquota isallocated according toanexporter 'spastperformance, withtheremainder being destined
foraquota pool. Applications forquotas fromthepoolareinvited through themedia; quota shares
areallocated inproportion totheamounts requested. Asthereisnoauction orother salesmechanism,
anyrentsareappropriated bytheexporting firms, except foraquota feeofSLRs1perpiece which
wasintroduced inearly 1995. (SeealsoBoxV.2).
(v) Voluntary restraints, surveillance andsimilar measures
55. According totheauthorities, SriLanka doesnotmonitor orrestrict exports, apartfromclothing,
under anyarrangements withthirdcountries; noristhere anyevidence ofsuchmeasures atcompany
level.
56. There arenogovernment-mandated quality controls andcertification requirements, except on
certain coconut exports, including desiccated coconut. Thecontrols areconducted bytheCoconut
Development Authority (Table IV.7). TheNational Gems andJewellery Authority exercises quality
control overgemexports, withaview, interalia,toensuring theauthenticity ofthegems andtheir
valuation.
(vi) State trading
57. According totheauthorities, there arenoitems which maybeexported onlybydesignated
companies, corporations orboards.
(vii) Export subsidies
58. TheExport Development Board (EDB) assists newexporters withgrants ofupto3percent
ofthef.o.b. value during thefirstyearofoperation.24TheEDB alsoprovides agrant of20percent
onthef.o.b. value ofhand-loom exports. According totheauthorities, there arenoother direct
government transfers toencourage exports.
23IMF (1994).
24Subsequently, assistance islimited to3percentofanyincrease inexport values. Asindicated inChapter II,
theEDB isfunded mainly through government contributions and,tosome 45percent, thecessonhigh-tariff
imports (1993).SriLanka WT/TPR/S/6
Page 49
(viii) Export-processing zones
59. There arecurrently fourexport-processing zones inSriLanka, setupsince 1978 and
administered bytheBoard ofInvestment (BOI) (Chapter III).25Thezones provide duty-free access
forallgoods andagenerally better andmore reliable infrastructure thanelsewhere inthecountry.
Given thebenefits currently accorded toexporters throughout SriLanka (section (ix)), theavailability
ofinfrastructural services seems tobetheprime attraction ofthezones. According totheauthorities,
nosubsidies aregiven forcurrent costs ofelectricity andother services, landprices aremarket
determined, andlabour legislation applies asinanyother partofthecountry. TheBudget Speech
1995 announced special housing andaccommodation development programmes for,among others,
workers inindustrial centres suchasthefree-trade zones. Details havenotbeenworked outtodate.
(ix) Taxanddutyconcessions
(a) Exemptions forcapital goods
60. Imports ofcapital goods arefully dutyexempt ifmore than90percentoftheresulting
production isexported orsoldtoBOI-approved firms andpaidinforeign currency; a50percentduty
exemption isgranted tofirms exporting between 50and90percentoftheiroutput. Thefollowing
imports arecovered: (i)machinery, equipment, accessories andapparatus; (ii)devices applied in
themanufacturingprocessorsupportiveequipment;(iii)sparepartsforplant,machineryandequipment;
and(iv)transportequipmentusedexclusivelyinthefactoryorplaceofproductionorspecificallydesigned
fortheprescribed export products.
(b) Concessions forintermediate inputs
61. Taxanddutyexemptionsorrebatesforinputsusedinexportprocessingmaybegrantedthrough:
(i)aBOI-administered tariff exemption scheme; (ii)amanufacture-in-bond scheme; (iii)an
inward-processing scheme; and(iv)acustoms dutyrebate scheme. Theschemes provide relief from
customs duties, turnover tax,defence levy, excise tax,import cess, andthestamp dutyonletters of
credit.
62. Since 1991, theBOIhasadministered atariff-exemption scheme forfirms located outside the
export-processing zones. Thescheme isintended topromote export-oriented development morewidely
beyond thezones, inparticular inrural areas. Imports aremonitored bytheBOIwhich, asinthe
export-processingzones,isallowedtoperformcustomsprocedures.26Giventhedifficultiesinpreventing
duty-free imports from leaking ontothedomestic market, theGovernment isconsidering involving
aprivate contractor toinspect imports ofBOI-approved firms onapreshipment basisandmonitor their
stocks (section (2)(i)).
63. Bonded areas receive basically thesame status asexport-processing zones butarelimited to
asingle factory, which ismonitored byCustoms. Exporters operating under themanufacture-in-bond
scheme mustbeapproved byacommittee intheMinistry ofFinance. Imports ofthefollowing products
arecovered: (i)rawmaterials andcomponents; (ii)ancillaries usedwiththemain rawmaterials;
(iii)packaging materials; (iv)catalysts, accelerators orretarders ofchemical reactions; (v)products
25Thezones arelocated inKatunayake, Biyagama, Koggala andKandy.
26Customs officials onlycheck BOIimports ifthere isstrong evidence ofcontraband oronspecific instruction
from theDirector-General ofCustoms (section (2)(i)).WT/TPR/S/6
Page 50Trade Policy Review
usedasinputs forexport production; and(vi)goods ofdomestic origin (re-imports). Theadvantages
ofbonded-factory status havebeeneroded bythebenefits offered toBOI-approved firms.
64. Theinward-processingschemeallowsmanufacturers,subjecttotheprovisionofabankguarantee,
tocleartheirimports without payment ofduties andotherlevies.27Thefollowing goods canbeimported
under thescheme: (i)rawmaterials andcomponents; (ii)partsforassembly; (iii)catalysts, accelerators
andretarders ofchemical reactions; and(iv)packaging materials, including rawmaterials, tobeused
forpacking theexport product.
65. While thedutyrebate scheme offers more flexibility thantheinward-processing scheme, it
ismore difficult toadminister. Import duties mustbepaid, butarerefunded onexportation. Toease
administration ofthescheme, standard rebate rateshavebeenestablished for14export items.28The
standard ratesareapproved byacommittee chaired bytheDeputy Secretary oftheMinistry ofFinance;
theyaretoberevised aftereachtariff reform. Forallother exports, drawbacks aretobecalculated
bytheExport Development Board uponrequest.29Noadministrative feesarecharged inthiscontext;
thedetermination oftheactual rebate ratemaytakebetween three months andoneyearfromthedate
ofapplication.
(c) Income taxconcessions
66. Enterprisesundertakingnon-traditionalexports-i.e.allitemsapartfromtea,rubberandcoconut
products -maybenefit from lower income taxes. Theconcessionary rateissetat15percentuntil
31March 201430;itisalsoavailable toexporters 'subcontractors. Other income taxbenefits for
exporters ofnon-traditional products include therighttodeduct from theirtaxable income twice the
amounts spent onoverseas promotional activities andonresearch ortraining; andtowrite off,over
threeyears, plantmachinery, equipment andcomputers and,overfouryears, motor vehicles andoffice
furniture.
67. Other income taxconcessions aresector specific. Income taxexemptions areprovided for
firms selling gems andjewellery directly totheState GemCorporation orexporting these items for
payment inforeign currency, andforcompanies engaged inentrepôt trade inproducts approved by
theMinister ofFinance.
27Normally, participants needtoprovide ablock bank guarantee valid foroneyearandcovering 25percent
oftheduties andother taxes payable ontheimported inputs thatmaybeinstock; apersonal bond istocover
thebalance payable. Alternatively, theDirector-General ofCustoms mayaccept onepersonal/company bond
covering thefullvalue ofduties andtaxes due.
28These products are: tawashi brushes (2.3percent); activated carbon (3.3percent); coirtwine
(2.9percent); mattress fibre (1.3percent); printed HDPE bags(24.5 and27.9 percent); latex foam rubber
(mattress, pillows andcushions) (12.4 percent); teainbags(9.6percent); articles ofunhardened vulcanized
rubber (13.7 percent); edible vegetables andfruit(0.5percent); printed insheets (24percent); livelobsters,
frozen shrimps andfrozen lobsters (0.5percent); biscuits (16.2 percentfrom 1March 1994 to12May 1994,
15.6 percentfrom 13May 1994 to30April 1995); bristle fibre, omat fibre, hackled, bleached, cutanduncut
orinbales (1.3percent).
29Again, therateissubject toapproval byacommittee chaired bytheDeputy Secretary oftheMinistry of
Finance.
30Export Development Board (1994).SriLanka WT/TPR/S/6
Page 51
(x) Export finance andinsurance
(a) Equity finance andstart-up capital
68. TheExport Development Board (EDB) provides loans andequity finance forexport-oriented
firms. Tosupport "pioneering" export-oriented activities, EDBequity participation maycover upto
30percentoftheissued andpaid-up capital. Loans ofuptoSLRs1million ataninterest rateof
13percentareavailable tofirms wishing toexpand exports intheshortrun.Forsmall export-oriented
manufacturers, andexport-processing firms, special loans ofuptoSLRs250,000 areoffered atan
interest rateof8percent.
(b) Working capital
69. While subsidies forpreshipment credit facilities were abolished inMay1994, exporters are
offered access tobankloans inforeign currency. Theloans areavailable todirect andindirect exporters
onacase-by-case basis, following recommendations bytheExport Development Board (EDB).
Additional benefits areoffered forspecified activities, including hand-loom exports. Inthelatter case,
theEDB subsidizes 50percentoftheinterest rateonbankloans forworking-capital.
(c) Export insurance andguarantees
70. TheSriLanka Export Credit Insurance Corporation (SLECIC) issues insurance policies and
bankguarantees toassist exporters intheevent ofnon-payment duetocommercial, economic orpolitical
risks (Table IV.8). Exports bysmall andmedium-sized firms receive aparticularly wide range of
benefits. While thenumber ofpolicies andbankguarantees hasincreased rapidly inrecent years, their
coverage hasremained below 1percentofthetotalvalue ofexports. According totheauthorities,
therelevant terms andconditions donotvarybetween product areas. Reflecting theirshare intotal
merchandise exports, ready-made garments, teaandcoconut account forthemajority ofthepolicies
andguarantees offered.
(xi) Export promotion andmarketing assistance
71. Officials oftheDepartment ofCommerce andTrade posted asSriLanka 'straderepresentatives
in18overseas missions helptoprovide intelligence forSriLanka 'sexporters. Information is
disseminated through trade andindustry associations. Inaddition, theEDB extends arange of
information andadvisory services onmarket developments, quality control, packaging andthelike,
andgrants financial assistance toparticipants intrade fairsandexhibitions abroad.31Exporters 'own
marketing efforts overseas aresupported ona50percentcost-sharing basis. Special incentives are
offered toinvestors in"pioneering" export ventures; theEDBmayreimburse 80percentofproduction
andmarket research expenditure uptoamaximum ofSLRs1million or50percentofaninvestor 's
equity contribution.
31Exporters participating inEDB-sponsored fairsandexhibitions areoffered stallspace, fixtures andfittings;
50percentofthetravelcosts(economyclass)foronedelegatepercompanyforspecifiedevents;and100percent
oftheairfreight ofsamples. Selected small-scale exporters mayobtain fullcoverage ofairtravel costand
50percentofaccommodation cost.WT/TPR/S/6
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Table IV.8
Insurance andbank guarantee outlays oftheSriLanka Export Credit Insurance Corporation, 1992-93
1992 1993
Insurance policies
Newpolicies
Number 58 92
Value (SLRsmillion) 229.8 483.0
Share intotalmerchandise exports (percent) 0.21 0.35
Total outstanding policies
Number ofpolicies inforce 440 466
Value ofpolicies inforce (SLRsmillion) 1,386.1 1,769.8
Bank guarantees
Newguarantees
Number 244 480
Value (SLRsmillion) 572.1 816.4
Share intotalmerchandise exports (percent) 0.53 0.59
Total outstanding guarantees
Number 891 1,145
Value (SLRsmillion) 2,596.0 3,081.0
Source: SriLanka Export Credit Insurance Corporation (1994).
72. Small andmedium-sized firms mayreceive additional assistance foractivities suchasthe
preparation ofbrochures, design development andnewstrategies topromote theirproducts inoverseas
markets. Thecosts oftheprogramme, setupin1989, areshared bytheAsian Development Bank
(50percent), theExport Development Board (25percent) andtheexporting firm(25percent).
73. Various sector-specific development authorities, funded through export levies, royalties ortaxes
(Table IV.7), provide trade intelligence andmarketing assistance intheareas covered.
(xii) Export performance requirements
74. Apart fromthetaxanddutyconcessions listed insection (ix),SriLanka operates noprogrammes
conferring benefits conditional onacompany 'sexport performance.
(xiii) Measures maintained byimporting countries
75. Formore thannineyears, uptoJune1994, theUnited States maintained countervailing duties
of3.06percentonSriLankan exports ofcertain clothing items and5percentoncertain textile products
(textile millsector).
76. InNovember 1993, Brazil opened acountervailing dutyinvestigation intoSriLanka 'sexports
ofdesiccated coconut (HSCode 0801.10.0200) andcoconut milkproducts (HSCode 02.09.80.0102).SriLanka WT/TPR/S/6
Page 53
Preliminary countervailing duties of134percentondesiccated coconut and69percentoncoconut
milkpowder tookeffect on30March 1995.32Afinaldetermination isexpected by15August 1995.
(4) Other Measures Affecting Production andTrade
(i) Competition policy
(a) Changes insectoral concentration
77. Available evidence suggests thatindustrial concentration inSriLanka hasgenerally decreased
overtime, except inthewood andfurniture andpaper industries (Chart IV.2). Thismayreflect the
operation ofvarious factors, including external (border) andinternal (regulatory) barriers toentry into
amarket orindustry, changes inproduction techniques, andtheexistence oremergence ofeconomies
ofscale. While theimpact ofeconomies ofscale andofstiffening import competition viatrade
liberalization, mayhaveworked towards increased concentration ofdomestic production, privatization
andtheelimination ofinternal regulatory barriers, including theabolition ofpublic monopolies, may
alsohaveencouraged newentrants. Between 1981 and1991, theshare ofState-owned enterprises
intotalindustrial value added came down from over55toabout 11percent.33
32Inthecourse oftheinvestigation, theDepartment ofCommerce received aquestionnaire inPortuguese,
which itwasunable torespond within thetimeframe set(40days).
33World Bank (1995a).WT/TPR/S/6
Page 54Trade Policy Review
(b) Privatization
78. SriLanka 'sprivatization programme waslaunched in1989. AsofFebruary 1994,
34State-owned enterprises hadbeenprivatized, mostly inthemanufacturing andconstruction sectors,
andanadditional 47State-owned firms were earmarked forprivatization.
79. Following atemporary suspension oftheprogramme in1994, theGovernment established a
Public Enterprise Reform Commission (PERC), composed ofrepresentatives ofboththeprivate and
thepublic sector. TheCommission ismandated toreview theprivatization programme, propose new
assetforprivatization andtheregulation ofprivatized industries. Basic infrastructure industries are
toremain State-owned. ThePERC 'sgeneral objectives include: improving thecompetitive position
andefficiency oftheSriLankan economy; attracting technology andexpertise; developing and
democratizing management; motivating theprivate sector; generating Staterevenue andothereconomic
benefits. The Commission hastaken action toprivatize and/or restructure thefollowing
government-owned business entities: Capital Development andInvestment Company (CDIC); Station
RubberCo.Ltd;TeaSmallholdersFactoriesLtd;OrientLankaLtd(DutyFreeOperatorattheAirport);
AirLanka (selection ofaconsortium ofconsultants consisting ofamerchant bank, aviation company
andaprospective strategic partner); Sevanagala Sugar Company; andColombo GasCompany.34
(c) Actions against restrictive business practices
80. Monopolies, mergers, andanti-competitive practices operating against the"public interest"
arecontrolledunderSriLankancompetitionlaw.35Companiesacquiringamarketshareofoveronethird
must notify thistotheFairTrading Commission (FTC). Similarly, mergers resulting inamarket
dominance mustbenotified; theFTChas21daystodecide whether toopenaninvestigation. However,
given itslimited staffing, some 20professionals, theFTC hascarried outfewinvestigations into
monopoly andmerger cases inthepast. Cartels arenotcovered bytheFairTrading Commission Act
oranyother legislation.
81. Under theIndustrial Promotion Act,theFTCmaycarryoutenquiries intoprices ofanyproduct.
Ifprices aredeemed unreasonable, theCommission mayrecommend import tariffadjustments. There
hasbeenonesuchcase(toothpaste), leading toatariff reduction from35to10percentinJune1995.
TheFTChasnoenforcement powers.
82. TheIndustrialPromotionActalsoallowsforpricecontrolsonfoodandpharmaceuticalproducts.
Theprovisions arecurrently applied tosome 5,000 pharmaceuticals; however, thescope ofcontrols
islimited tothedomestic salesmargin applicable ontopofthec.i.f. import price. Prices oflocally
manufactured essential drugs maybefreely settoencourage production.
83. TheFTC'sfieldofactivity shows some overlap withcompetencies oftheConsumer Protection
Unit(CPU) under theDepartment ofInternal Trade oftheMinistry ofTrade, Commerce andFood.
TheCPU isempowered toact,among other things, onhoarding, misleading labelling, andsalesof
"sub-standard" products. Ithaspowers ofprosecution andmayseeksanctions, under penal law,before
courts. Based ontherecommendations ofapolicy taskforce, theauthorities arecurrently considering
34Thefollowing organizations arebeing considered forprivatization: Regional Plantation Management
Companies; Ceylon Steel Corporation; Lanka Electric Company; SriLanka Telecom; andMilco Ltd.
35Thebasic provisions arelaiddown intheFairTrading Commission Actandsubsequent amendments
(Industrial Promotion ActNo.46of1990 andFairTrading Commission (Amendment) ActNo.57of1993).SriLanka WT/TPR/S/6
Page 55
legislative amendments providing fortheamalgamation oftheFTCandtheCPU(Department ofInternal
Trade). Inaddition, thepolicy taskforce hasrecommended theestablishment ofaCommission for
Consumer Affairs andFairTrading andatribunal withenforcement powers.
(ii) Protection ofintellectual property rights
(a) Overview
84. Intellectual property rights -patents, designs, trade andservice marks andgeographical
indications -areprotected under theCode ofIntellectual Property Actof1979 andsubsequent
amendments.36Theclassification ofgoods andservices forregistration inSriLanka follows the
classification established bytheNiceAgreement oftheWorld Intellectual Property Organisation.
85. Registration ofpatents, industrial designs, andmarks under theIntellectual Property Code is
administered byanappointed Registrar. Alicence agreement maybecancelled ifitinvolves thepayment
ofroyalties abroad andisconsidered detrimental totheeconomic development ofSriLanka. The
provisions havenotbeenusedsofar.Copyright protection doesnotrequire registration. There are
noprovisions inpatents andtrademarks legislation thatwould allow forcompulsory licensing.
86. TheIntellectual Property Code contains safeguards against theanti-competitive useofpatents,
industrial designs andtrademarks; licence contracts must notimpose restrictions onthescope,
geographical area, quality orquantity oftheproducts covered. Owners ofindustrial property rights,
ortheirlicensees, mayprevent non-authorized (parallel) imports oftheproducts protected. However,
there havebeennosuchcases todate.
87. Itisfortherightholder toseeklegalaction against infringing imports orsales; customs is
notgenerally empowered toseizesuchproducts exofficio. Infringements ofintellectual property rights
areinvestigated bythepolice. Under criminal law, offenders maybesentenced tofines ofupto
SLRs20,000 orimprisonment foruptosixmonths; thepenalties maybedoubled intheevent of
subsequent convictions.
88. Abilateral agreement withtheUnited States onintellectual property rights wasconcluded in
September 1991; itsprovisions havenotyetbeenfullyimplemented. Thenecessary legaladjustments
areexpected tobepassed byParliament inconjunction with amendments required bythe
WTO Agreement onTrade-Related Intellectual Property Rights (TRIPS). According totheauthorities,
themostsignificantchangesrelatetotheprotectionoflayout-designs(topographies)ofintegratedcircuits
andtheprotection ofundisclosed information.
(b) Patents
89. Under current legislation, patents areprotected inSriLanka for15years from thedateof
granting. Thepatent owner hastheexclusive righttoexploit theinvention concerned; assign ortransmit
thepatent; andconclude licence contracts. From 1861 to1994, 9,803 patents were registered in
SriLanka.
90. Patent protection isnotpossible forscientific theories andmathematical methods; plant or
animal varieties oressentially biological processes fortheproduction ofplants oranimals (except
36ActNo.30of1980; ActNo.2of1983; andActNo.17of1990.WT/TPR/S/6
Page 56Trade Policy Review
micro-biological processes andtheresulting products); schemes, rulesormethods fordoing business,
performing purely mental actsorplaying games; methods forthetreatment ofhuman oranimal bodies
bysurgery ortherapy; anddiagnostic methods practised onhuman oranimal bodies.
(c) Copyright andrelated rights
91. SriLanka isamember oftheUniversal Copyright Convention of1952, andhassigned the
BerneConventionontheProtectionofLiteraryandArtisticWorks.Authorsfromcountriesparticipating
intheBerne Convention automatically receive copyright protection inSriLanka iftheypublish their
works inoneofthese countries. Asprovided forintheConvention, protection isgranted during the
lifeoftheauthor plusanadditional 50years.
(d) Trade andservice marks
92. Trade andservice marks areprotected fortenyears fromtheapplication dateandarerenewable.
However, marks notusedduring fiveconsecutive years maybecancelled upon request unless their
non-use isduetoconditions overwhich theholder hasnocontrol. Atend-1994, 24,931 valid marks
were registered inSriLanka.
(e) Industrial designs
93. Newindustrial designs areprotected, onregistration, foraperiod offiveyears fromthedate
ofapplication. Renewal ispossible fortwoconsecutive periods offiveyears. Between 1904and1994,
4,218 industrial designs were registered.
(iii) Research anddevelopment
94. TheCeylon Institute ofScientific andIndustrial Research (CISIR) wasestablished in1952as
anautonomous institution. While specializing mainly inscientific research until1991, ithassince
increasingly sought todevelop newproducts andproduction methods fortheprivate sector. Therelevant
contracts areoncommercial terms andconditions; theInstitute does notpursue sector-specific
development targets. Despite significant private funding, CISIR continues todepend predominantly
ongovernment transfers.
(iv) Investment andadjustment incentives
95. Avariety ofinvestment promotion schemes intheagricultural sector, including fortea,coconut
andrubber,arefinancedviaexportcesses(TableIV.7).TheTeaSmallHoldingsDevelopmentAuthority
(TSHDA) supports teagrowing innewandreplanted areas; assistance varies byaltitude. TheSriLanka
TeaBoard (SLTB) contributes 50percentoftheinterest payments onloans forteabagging machinery.
TheSLTB alsooperates ascheme forthemodernization ofCTC(cut,teaandcurl)teafactories, covering
70percentofthecostofmachinery (85percentinmedium elevated areas).37Asupport scheme for
rubber (re)planting andfactory modernization isadministered bytheRubber Development Department.
TheAgricultural Insurance Board provides insurance coverage fortheplanting ofnewcoconut trees.
ANewComprehensive Rural Credit Scheme (NCRCS) isplanned toencourage investment inthepaddy
sector. Details havenotyetbeenworked out.
37Central Bank ofSriLanka (1995).SriLanka WT/TPR/S/6
Page 57
96. AtotalofSLRs75million wasdisbursed inboth1993and1994under various support schemes
inthefishery sector. In1994, thefunds were usedtofinance 109boats, 145traditional craft, and
40multi-day boats.38
97. Subsidized investment credits fortheindustrial sector areprovided through theNational
Development Bank (NDB) andtheDevelopment Finance Corporation ofCeylon (DFCC). Estimates
ofthesubsidy elements involved arenotavailable. Themostimportant recipients werethechemicals,
petroleum, coal, rubber andplastic industries (Table IV.9).
98. Aiming tospread industrialization beyond theColombo region, theGovernment initiated a
200garment-factory programme inFebruary 1992. Allfactories under thisprogramme received
BOIstatus,qualifyingforarangeoftaxincentives.Loanandequityparticipationwereprovidedthrough
theNDB andDFCC (included inTable IV.9). Theallocation ofMFA quotas wasalsousedtoinfluence
thechoice oflocation inthiscontext (Box V.2).
Table IV.9
Credits andequity participations bytheNational Development Bank andDevelopment Finance Corporation ofCeylon, 1994a
SectionNational Development
BankDevelopment Finance
Corporation ofCeylonTotal
No.of
projectsAmount
SLRsm.No.of
projectsAmount SLRs
m.No.of
projectsAmount
SLRsm.
Food, beverages andtobacco 169 633 76 464 245 1,097
Textile, apparel, leather products 116 549 56 311 172 860
Wood andwood products 67 104 26 81 93 185
Paper andpaper products 42 105 28 223 70 328
Chemicals, petroleum, coal, rubber
andplastic products121 846 62 484 183 1,330
Non-metallic mineral products 24 10 21 321 45 331
Basic metal products 62 206 5 16 67 222
Fabricated metal products,
machinery andtransport equipment148 90 37 601 185 691
Products notelsewhere specified 519 3,855 - - 519 3,855
Total 1,268 6,398 311 2,501 1,579 8,899
a Approvals.
Source: Central Bank ofSriLanka (1995).
(v) Subsidies forcurrent production
99. In1995, subsidies -i.e.direct State transfers totheSriLankan economy -areexpected to
reach some SLRs9billion.
38Central Bank ofSriLanka (1995).WT/TPR/S/6
Page 58Trade Policy Review
Table IV.10
Current transfers topublic corporations andstatutory boards, 1989-95
(SLRsmillion)
Sector 1989 1990 1991 1992 1993 1994a1995b
Agriculture andirrigation 153.1 170.4 186.0 466.1 442.4 639.2 695.5
Fisheries 14.6 10.0 23.1 22.4 29.0 30.3 34.0
Manufacturing andmining 306.7 37.4 59.1 175.0 122.0 107.2 125.0
Energy andwater supply 416.1 345.0 658.9 133.1 93.3 518.2 997.0
Trade andcommerce 803.6 6.2 10.1 95.8 149.8 3.9 5,005.0
Transport, communications 467.7 2,030.0 279.4 422.1 488.5 665.1 417.5
Other 1,147.2 1,418.4 1,023.4 1,105.5 1,539.8 1,472.1 1,779.0
Total 3,309.0 4,017.4 2,240.0 2,420.0 2,864.8 3,436.0 9,053.0
a Provisional.
b Estimate.
Source: Central Bank ofSriLanka (1995).
100. Limited amounts ofsubsidies foragricultural production aregranted indirectly through price
support forfertilizers andtheprovision ofirrigation onanon-cost-recovery basis. Thefunds destined
forthemanufacturing andmining sectors areabsorbed mainly byunprofitable State-owned enterprises.
WhileSriLankaTelecomisfinanciallyindependentandprofitable,theState-ownedRailwaysDepartment
continues toposthighdeficits, estimated toreach overSLRs640million in1995.SriLanka WT/TPR/S/6
Page 59
Annex IV.1
Import dutyexemptions
Imports ofthefollowing items areexempt fromdutyprovided theDirector-General ofCustoms
issatisfied thattheyareusedasindicated:
(i) Passengers 'baggage asdefined byregulations bytheMinister ofFinance under
Section 107A oftheCustoms Ordinance (Chapter 235).
(ii) Apparatus, drugs andchemicals imported foreducational purposes orresearch.
(iii) Films ofeducational, scientific orcultural character produced byaU.N. Organization
orspecialized agency.
(iv) Temporary imports ofprofessional andscientific equipment andpedagogic material
asapproved bytheSecretary totheTreasury.
(v) Articles awarded abroad toanyperson fordistinction inart,literature, science orsport
orforpublic service orotherwise asarecord ofmeritorious achievement andconduct.
(vi) Rawmaterials imported forthemanufacture ofpharmaceuticals.
(vii) Ayurveda, Siddha andUnani rawandprepared drugs andmedicinal plants specified
bytheDirector-General ofCustoms inconsultation withtheSecretary, Ministry of
Health.
(viii) Homeopathic drugs recommended bytheHomeopathic Council ofSriLanka.
(ix) Nutritional supplements fornasogastric tubefeeding.
(x) Artificiallimbs,crutches,hearingaids,accessoriesforhearingaids,andotherappliances
which areworn orcarried orimplanted inthebody tocompensate foradefect or
disability.
(xi) Specialized machinery, medical andsurgical instruments, apparatus andaccessories
imported forthetreatment ofpatients afflicted withserious ailments asrecommended
bytheDirector General ofHealth Services.
(xii) Articles specially designed forusebythedeafandtheblind.
(xiii) Articles offoreign production re-imported, upon which import dutyhaspreviously
beenpaid, subject toregulations made bytheDirector-General ofCustoms.
(xiv) Goods imported byorganizations approved bytheSecretary totheTreasury tobegifts
frompersons ororganizations overseas fortherelief ofdistress caused bynatural or
other disasters.
(xv) Goods imported fordisplay oruseatexhibitions, fairs, meetings orsimilar events,
approved bytheSecretary totheTreasury subject totheconditions laiddown.WT/TPR/S/6
Page 60Trade Policy Review
(xvi) Plant, machinery andequipment imported fortheexclusive useofanindustry which
exports and/or supplies todirect exporters 100percentofitsoutput, under terms and
conditions approved bytheSecretary totheTreasury.
(xvii) Inputs (rawmaterials andcomponents andparts) imported under theInward Processing
Scheme forexport, under terms andconditions approved bytheMinister ofFinance.
(xviii) Samples oftextile fabrics notexceeding 42metres andarticles ofapparel andclothing
accessoriessubjecttoamaximumof12unitsimportedassamplesbygarmentexporters.
(xix) Ornamental fishimported forre-export under terms andconditions approved bythe
Director-General ofCustoms.
(xx) Fishcaught byafishing vessel operating from aSriLankan portandregistered ata
portofregistry inSriLanka.
(xxi) Ground equipment andtechnical supplies imported forusewithin thelimits ofanairport
inSriLanka inconnection withtheestablishment andmaintenance ofaninternational
airservice.
(xxii) Materials imported forthefabrication ofplant, machinery andequipment, tobeused
inanindustry which exports 100percentofitsoutput under terms andconditions
approved bytheSecretary totheTreasury.