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V. TRADE POLICIES AND PRACTICES BYSECTOR
(1) Overview
1. Given itsfavourable geographic location andwelldeveloped human andnatural resources,
SriLanka appears wellplaced forrapid economic expansion. Theauthorities havesought tousethe
country 'sresource potential mainly fordeveloping export-oriented manufacturing industries andselected
services sectors, suchastourism. These activities werethemainsources ofgrowth during the1980s
andearly 1990s, although domestic activities suchasricefarming benefited from significant policy
support.
2. Exportexpansionhascoincidedwithsignificantlevelsofnominalandeffectivetariffprotection.
Despite liberalization moves inrecent years, tariffs stillreach 35percentininternationally competitive
industries suchasclothing (ISIC 322), footwear (ISIC 324)andfurniture (ISIC 332). Arange offarm
products, pharmaceuticals andother chemicals (ISIC 352)andnon-electrical machinery (ISIC 382)
alsocarry average tariffs ofupto35percent, contrasting withrawmaterials suchasfertilizers and
pesticides (ISIC 3512) which facetariffs oflessthan3percent(Table AV.1 andChart V.1).
3. TheGovernmenthassoughttoensurecompetitiveinputpricesforexportproduction.Dual-pricing
strategies, giving lower prices forinputs toexport industries thanfordomestic salesandbased ontariff
exemption anddrawback schemes, areintended torelieve exporters from thedirect cost,interms of
higher inputprices, ofimport protection. However, while intended tosimulate openmarket conditions,
theeffectiveness ofsuchschemes maynotonlysuffer from administrative difficulties but,more
importantly, indirect costpressures. These aretransmitted mainly viasectors providing indispensable
localinputs, suchastelecommunications, transport andfinancial services, aswellasbyrealwages,
driven upbytheprice impact ofagricultural protection.
4. Possibly inview ofsuchproblems, recent policy initiatives have generally been aimed at
harmonizing competitive conditions across sectors, withtheexception ofahardcoreofsubsistence
farming. Liberalization andderegulation initiatives haveincluded basic service industries suchas
telecommunications and,toacertain extent, banking. Privatizations, ortheacceptance ofprivate
competition intheseareas, mayfacilitate inter-sectoral resource movements andincrease theeconomy 's
flexibility tomarket trends.WT/TPR/S/6
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SriLanka WT/TPR/S/6
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(2) Agriculture, Fisheries andFood Processing
(i) Main features
5. Asinmany other developing countries, agriculture isthesingle most important source of
employment inSriLanka. While thesector contributes some 20percenttoGDP and16percent
tomerchandise exports, itabsorbs about onethirdoftheworkforce (Table AV.2). Most farmers are
engaged insubsistence farming onsmallholdings, producing mainly riceandother staple crops.
Large-scaleplantations,focusingonteaandrubber,tendtobeexportoriented.1Morethanthreequarters
ofSriLanka 'steaandrubber production andasmall share ofcoconut production isexported, while
some paddy wasstillimported inrecent years (Chart V.2).
6. Paddy andcoconut farming arethelargest landusers (Chart V.3). Extension ofthecultivated
areathrough irrigation hasbeenapriority forsuccessive Governments inorder toraisefoodproduction
andreduce migration towards metropolitan areas. Theirrigated landareagrewfromabout 240,000 ha.
in1970 to535,000 ha.in1991. Over 40percentofthisisbased onsmall diversion structures or
village tanks, which areusually operated andmaintained byfarmers. Larger projects, often linked
totheproduction ofhydro-electric power, arerunbytheGovernment.2
7. Apart from irrigation, productivity gains through fertilizer useandseedimprovements are
considered themainavenue forfurther production increases. Anearlier fertilizer subsidy scheme was
abolished in1990; however, asfarmers ceased toapply theamounts offertilizers recommended for
individual crops, subsidies werere-installed inOctober 1994.3Table V.1shows theuseoffertilizer
bysector.
8. Investment inthefarmsector appears hampered byuncertainties surrounding landownership.
Eighty percentofthelandisState owned; however, landtitles arefrequently disputed asthere is
nocadastral survey ofprivate landanddiverse colonial andindigenous legalsystems overlap.4The
authorities, acknowledging thatwell-defined landtitlesareaprerequisite forincreasing agricultural
productivity, havelaunched various pilotprogrammes toclarify andenforce legalentitlements.5No
comprehensive system oflong-term landleases exists.
1However, theshare ofsmallholders infarm exports isincreasing. Central Bank ofSriLanka (1995).
2TheMahaweliprogramme, thelargestirrigationproject,hasgenerated88,211hectaresofadditionalfarmland
allowing forthesettlement of123,279 families. Itprovides for533,000 tonnes ofpaddy (20percentofnational
production)aswellas79,000tonnesofotherfieldcropsandcontributesbetween45and50percenttoSriLanka's
totalelectricity production. Thepower isfedintothenational gridowned bytheCeylon Electricity Board (CEB)
(section (5)(iii)). World Bank (1995a).
3Total expenditure amounted toSLRs1,123.46 million during theperiod October 1994 toMay 1995. Since
April 1995, thescheme covers urea, potash muriate, ammonia sulphate andtriple super phosphate.
4World Bank (1995a).
5National Planning Department (1995); andMinistry ofAgriculture, Lands andForestry (1995).WT/TPR/S/6
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SriLanka WT/TPR/S/6
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Table V.2
Policies inmain agricultural sectors
Sector Main characteristics Policy objectives Policy instruments Policy constraints
Tea Main agricultural export.
State-owned plantations
withproductivity problems.Productivity gains,
processing ofteainto
value-added
products.Privatization oftea
plantations, subsidies for
value-added production.
Tariff protection (35%).Employment cuts
might conflict with
social policy
objectives.
Rice Main staple crop.
SriLanka 'sproductivity
peracreislowcompared to
other countries inthe
region.Improvements in
productivity.Improved management of
irrigation systems, fertilizer
subsidies, price support.
Import licensing
(Table IV.4).
Tariff protection (35%).Subsidized bread
competes withricein
domestic consumption.
Rubber Predominantly a
smallholder crop.
Value-added industrial
products appear tohavea
promising market potential.Revitalizing the
sector through
rubber replanting and
extension schemes.Subsidies forprivate
commercial nurseries and
useoffertilizers.
Tariff protection (20%).Strong rainfalls and
poorsoilsinthemain
growing areas.
Coconut High levels ofdomestic
consumption coincide with
significant exports (mainly
coconut products).Expansion of
production through
newplantings,
enhanced domestic
processing of
coconuts.Various incentives
administered bytheCoconut
Development Department.
Tariff protection (35%).Countervailing actions
byimporting
countries.
Sugar Eighty percentof
consumption iscovered by
imports despite apparently
favourable natural
production conditions.Using thesector as
aninstrument of
regional
development,
satisfying atleast
partofdomestic
demand, developing
amarket for
by-products.Privatization ofmain sugar
estates, encouraging foreign
investment inthesector.
Tariff protection (35%).Limited interest by
foreign investors.
Expansion of
production might
divert resources from
potentially more
profitable activities.
Other crops
(cinnamon,
cardamom,
coffee, cloves,
pepper and
arecanut).Average export share of
more than50percent.Increased production
ofpepper andother
export-oriented
crops.Planting, replanting and
rehabilitation subsidies for
existing farms. Security
price systems forpepper,
coffee,
cloves andnutmeg
(suspended in1993).
Tariff protection (10-35%).Limited private sector
access tobank
financing.
Forestry Treecutting isdiscouraged
toprevent deforestation.
Export-oriented processing
isbased onimported wood.Encouraging
environmentally-
friendly activities,
controlled forestry
development.Development ofplantations
andcommunity forest
projects.
Import licensing forsawn
wood andforestry products
(Table IV.4).
Tariff protection (10%).Treefelling isdifficult
tocontrol.
Source: WTO Secretariat based oninformation provided bytheGovernment ofSriLanka.WT/TPR/S/6
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BoxV.1 Government intervention inthewheat andbread markets
Bread andwheat flour areimportant consumer items, with aweight of9.4percentintheColombo
Consumer Price Index. Until recently, allwheat imports were bytheCWE. In1994, some procurement
took place locally andprivate traders were allowed toimport upto250,000 tonnes. Local purchases
have been suspended since. Wheat andmeslin imports aresubject tolicensing (Table IV.4).
Allwheat ismilled byPrima Ceylon Limited, aforeign-owned and-managed company. In
compensation, Prima isallowed toretain andmarket wheat bran. Flour isdelivered toco-operatives at
prices setbytheGovernment. Theco-operatives selltobakeries which areexpected toprovide adequate
supplies ofbasic coarse bread, weighing 450g.perloaf, atprices determined bytheGovernment.
From 1990 to1994, nosubsidies were paid. On29August 1994, theadministered price forflour sales
totheco-operatives wasreduced from SLRs11.00 to6.65 perkg., theprice forbakeries from
SLRs11.35 to7.00perkg.,andthebread price from SLRs5.00to4.50 perloaf. However, theprice
reductions, implemented forsocial policy reasons, coincided with anincrease intheimport price of
wheat, from US$120 (SLRs5,940) pertonne inAugust 1994 toUS$203 (SLRs10,173) pertonne in
January 1995. Inthe1995 budget, subsidies ofSLRs5billion were setaside tocover theresulting
losses. Observers suggest thatthismay beinsufficient aspeople aresubstituting bread forrice.
(Böll (1995), "Länderreport SriLanka -Wirtschaftstrends zurJahresmitte 1995", Nachrichten für
Außenhandel, July).SriLanka WT/TPR/S/6
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(iii) Policies inindividual sectors
(a) Tea
14. Since colonial days, SriLanka hasbeenanimportant teaexporter. Itsworld market share
in1993 wasinthevicinity of20percent, recovering from adecline in1992 duetosevere drought
(Chart V.5).
15. Theareaunder teacultivation is222,000 hectares. Ofthistotal, some 55percentiscovered
byplantations, while theremainder isheldbysmallholders withlessthan20hectares each.12However,
plantations contributed nomore than40percenttototalproduction intheearly 1990s. Theharvest
bothperhectare andperplucker onprivately owned landisalmost twice ashighasonplantations,
allofwhich areGovernment owned.13
16. In1992, private companies were invited totake over themanagement ofall
23government-owned plantations forafive-year period. Reflecting remaining public-sector constraints
-wages andworking conditions aredetermined bytheGovernment andnoinvoluntary retrenchment
isallowed-onlyfourmanagementcompaniesarecurrentlyrecordingprofits.14Toencourageinvestment
12National Planning Department (1995).
13World Bank (1993).
14Government ofSriLanka (1995).WT/TPR/S/6
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inplantations, theauthorities areconsidering either theintroduction oflong-term (50year) leases,
tobeawarded through public bidding, orfullprivatization through avoucher system.15
17. Teaisprocessed inaround 500to600factories, which buytheteaat68percentoftheworld
market price. Factories generally sell90percentoftheirproduction through teaauctions managed
bytheColombo TeaTraders Association, withtheremainder being solddirectly totraders. (Direct
salesmustnotexceed 50percentofafactory 'sproduction.) Therelevant prices maybeinvestigated
byapanel appointed bytheSriLanka TeaBoard. Illustrating theincreasing significance ofdirect
exports, thenumber ofregistered teaexporters increased from 246in1992 to331in1993.
18. TheGovernment aimstoimprove productivity inthesector andstimulate domestic processing.
Revenue fromacessonteaexports isusedtofinance theSriLanka TeaBoard, theTeaSmall Holders
Development Agency andtheTeaResearch Board. Their common objective istopromote production
onsmallholdings andencourage exports (Chapter IV(4)(iv)).
(b) Rice
19. RiceisSriLanka 'smain staple crop. In1994, 2.7million tonnes ofpaddy were produced
onatotalareaof930,000 hectares, resulting inaself-sufficiency ratioofover97percent(Chart V.2).
Fertilizer usedropped during 1994assubsidies weretemporarily suspended, butisexpected torebound
in1995. Ricerepresents some 40to45percentofSriLanka 'saverage percapita protein andcalorie
intake.16
20. Government support forthepaddy sector relies onirrigation andfertilizer subsidies aswell
asguaranteed producer prices maintained through market interventions bythePaddy Marketing Board.
Import competition iscontained through licensing requirements (Table IV.4) anda35percenttariff.
Guaranteed prices wereprogressively increased fromSLRs80perbushel (20.9 kg.)in1988and1989,
toSLRs155in1994. However, consumption hasdeclined recently subsequent toareduction inthe
price ofbread, aclose substitute (Box V.1). Intervention purchases might therefore exceed their
1994 levelof120,000 tonnes.17
(c) Rubber
21. SriLanka 'srubber production, mainly forexports, hasbeendeclining since 1970. Arecent
recovery mayhavebenefited fromfertilizer subsidies forsmall-scale farming, which contributes some
two-thirds tototalproduction. Government forecasts areforanannual increase inoutput by2.4percent
overtheperiod 1992-2005.18
22. Theauthorities seektopromote domestic processing activities. Ontopofanexisting cessof
SLRs1.65per100kg.,anadditional amount ofSLRs50hasbeenpayable since1993onrawrubber
exports; thereceipts aretofund promotional activities bytheExport Development Board for
15Ibid.
16Ministry ofAgriculture, Lands andForestry (1995).
17Böll(1995).
18National Planning Department (1995).SriLanka WT/TPR/S/6
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manufactured products (Table IV.7).19InFebruary 1995, anadditional cessinthesector, therubber
replanting cess,wasincreased toSLRs2.70perkg.toraisefunds forfertilizer subsidies, loans for
private commercial nurseries, andasmallholding rehabilitation project.20Import tariffs range from
10to35percent.
(d) Coconuts
23. Coconut production covers almost 20percentofSriLanka 'sagricultural land. Direct
employmentinthesectorisestimatedat150,000,andtheindirectemploymenteffectsatbetween450,000
and600,000. Despite alargenumber ofsmall farms, holdings over2hectares account for70percent
ofSriLanka 'stotalannual production ofsome 2.5billion nuts. Average domestic consumption reaches
about 2billion nuts, reflecting thesocio-cultural importance oftheproduct. Desiccated coconut is
theleading coconut export, followed bycoconut oilandcopra (Table V.3)
24. Acessoncoconut exports isusedtofinance support schemes forreplanting, rehabilitation
(moistureconservation)andintercropping(TableIV.7).Aninsuranceschemefornewlyplantedcoconut
treeswasintroduced in1994, around 400acres arecurrently covered. Import tariffs are35percent.
Table V.3
Coconut export products, 1989-93
(Tonnes andmillion nuts)
1989 1990 1991 1992 1993
Coconut oil 29,667 13,978 1,049 2,429 2,581
Desiccated
coconut43,205 52,969 47,164 53,454 36,229
Copra 8,249 7,250 8,266 5,850 4,935
Total exports
(million nuts)572 508 367 412 291
Source: National Planning Department (1995).
(e) Sugar
25. Established over35years ago,SriLanka 'ssugar industry meets about onefifthoftotaldomestic
consumption. Annual imports exceeded SLRs8billion inrecent years. Following theprivatization
ofallbutoneofthesugar estates, theGovernment isaiming topromote private investment inthe
industry. Theestablishment ofaNational Agency forSugar Industry Development (NASID) iscurrently
under consideration; itwould bemandated todevelop anindustrial strategy forthesector. Import
tariffs of35percent were waived in1994 inview ofhigh international sugar prices
(Chapter IV(2)(ii)(c)).
19Asinother sectors, exporters alsohave access toduty-free imports under various concessional schemes
(Chapter IV(3)(ix)(b)).
20Theloans forprivate commercial nurseries aredisbursed viaregional offices oftheRubber Control
Department. They mayamount toSLRs20,000 peracreandcover upto5acres perfarm. Theloans are
repayable within twoyears; thecurrent interest rateis12.5 percent.WT/TPR/S/6
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(f) Other crops
26. Inaddition totheactivities referred toabove, SriLanka cultivates arange ofminor crops such
ascinnamon, cardamom, coffee, cloves, pepper andarecanut.Based mainly onhome-garden activities,
theycontributesome3percenttototalagriculturalexportearnings.21DespitesomeGovernmentsupport
(Table V.2), theauthorities donotexpect significant increases inproduction.22
(g) Forestry
27. More thanaquarter ofSriLanka iscovered byforests; some 40percentisadministered by
theForestryDepartment.ApartfromtheStateTimberCorporation,someprivatecontractorsarelicensed
fortreefelling. Currently, however, deforestation isamajor policy concern, andfelling isprohibited
ingeneral.23Likewise, export oftimber andproducts made oflocal timber arebanned
(Chapter IV(3)(iii)). Imports ofsawn wood andother forestry products aresubject tolicensing and
carry a10percenttariff.
(h) Fishing
28. Coastal anddeep-sea fishing haveincreased rapidly during theearly 1990s, contrasting with
inland fishfarming (Table V.4). Asthecoastal resources areexploited atthemaximum sustainable
level, theauthorities areencouraging deep-sea fishing andinland production. Subsidies areoffered
forinvestments innewboats (Chapter IV(4)(iv)).
Table V.4
Fishproduction, 1990-94
(Tonnes)
1990 1991 1992 1993 1994
Coastal fishing 134,130 159,150 163,170 169,900 174,500
Deep seaand
off-shore fishing 11,665 15,080 22,000 33,000 37,500
Inland fishing 31,265 23,830 21,000 18,000 12,000
Total 177,060 198,060 206,170 220,900 224,000
Source: Central Bank ofSriLanka (1995).
(3) Mining andQuarrying
29. SriLanka hassubstantial deposits ofprecious andsemi-precious stones, including sapphires,
rubies, zircons, spinels, quartz, cats'eyes, topaz, garnets andmoonstones.24While themining and
quarrying sector contributes around 3.5percenttomerchandise exports (including non-precious
21National Planning Department (1995).
22National Planning Department (1995).
23Theonlyexception istheMahaweli area. Economist Intelligence Unit (1994).
24Economist Intelligence Unit(1994).SriLanka WT/TPR/S/6
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minerals), related products, suchasjewellery anddiamonds, account foranadditional 7percent.
Precious stones arebyfarthelargest mining sub-sector interms ofproduction andexports (Table V.5).
30. TheState GemCorporation wasestablished in1971 topromote exploration andexports of
processed gems.25Export restrictions onunprocessed precious stones, except geuda, mayhave
encouraged gemcutting andgempolishing inSriLanka. According totheauthorities, promotional
activities abroad helped toattract aconsiderable number oforders andcontributed toarecent increase
ingemexports.26
31. Other mineral resources include graphite, ilmenite, ironoreandsilica. Almost allgraphite
isexported incrude form(plumbago); exports amounted toSLRs94million in1993. Exports of
ilmenite fellfrom SLRs230million in1989 toSLRs75million in1993. Exports ofironpyrites
andother metallic oreshavebeenerratic.27
32. TheGeologicalSurveyandMinesBureau,establishedinMarch1993,isexpectedtohelpdevelop
mineral-based industries other thanthose relying onprecious andsemi-precious stones. TheBureau
regulates exploration andmining, undertakes systematic geological mapping, identifies andassesses
mineral deposits andevaluates theircommercial viability.28Sofar,nolarge-scale investments have
beenmade inthese areas.
Table V.5
Evolution ofthemining andquarrying industry, 1991-94
(SLRsmillion andpercent)
1991 1992 1993 1994
Value added 7,204 6,757 8,446 10,473
(PercentofGDP) (2.1) (1.7) (1.9) (2.0)
Exports ofunprocessed minerals 2,562 2,749 3,653 4,293
-Natural graphite 101 81 94 96
-Ilmenite 42 80 74 171
-Metallic oresandironpyrites etc. 4 - - 18
-Precious andsemi-precious stones 2,358 2,482 3,402 3,917
-Other 58 106 83 90
(Percentoftotalmerchandise exports) (4.8) (3.5) (3.5) (3.5)
Exports ofprocessed mining products 3,105 5,139 7,449 8,419
-Jewellery 298 443 582 1,197
-Diamonds 2,807 4,696 6,867 7,222
(Percentoftotalmerchandise exports) (5.8) (6.5) (7.2) (7.0)
Source: Central Bank ofSriLanka (1995).
25TheState Gem Corporation fallsunder thepurview oftheMinister ofFinance, Planning, Ethnic Affairs
andNational Integration (Table II.1).
26Central Bank ofSriLanka (1994). Firms selling totheState Gem Corporation orexporting gems directly
qualify forincome taxconcessions (Chapter IV(3)(ix)(c)).
27Deposits ofironorehavebeenestimated ataround 5million tonnes. Economist Intelligence Unit(1994).
28Central Bank ofSriLanka (1994).WT/TPR/S/6
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(4) Manufacturing
(i) Main features
33. Thestructure ofSriLanka 'smanufacturing sector haschanged gradually overtimeasprocessing
ofrawmaterials hasdeclined inimportance andformal employment inthefactory industry hasincreased
(Table AV.2). Thefood, beverages andtobacco industry isthelargest sector interms ofgross output,
butclothing andnon-metallic minerals (gem stones) arecatching uprapidly. SriLanka 'sclothing
industry ischaracterized byalarge number ofsmall- andmedium-sized firms; thethree largest units
produce lessthan10percentoftotaloutput (Chart IV.2). Capacity utilization inthesector dropped
from 98percentin1989 to80percentin1994, partly asaresult ofover-expansion inrural areas
(section (ii)). During thesame period, capacity utilization remained highinthefood, beverages and
tobacco industry andincreased from 70to87percentinthenon-metallic mineral products sector
(Table V.6).
34. Theshift inemphasis from agro-processing activities toexport-oriented manufacturing,
encouraged byample taxandtariffconcessions (Chapter IV(3)(ix)), hascontributed toaconcentration
ofmanufacturing activities around Colombo.29TheGovernment seeks topromote industrial activities
inruralareasthrough developing industrial estates andproviding electricity, telecommunications, water
androadaccess.30TheIndustrial Development Board hasestablished suchestates, focusing onsmall-
andmedium-scale businesses, insixdistricts. Inaddition toinfrastructural support, sector-specific
incentives maybeoffered viatheBOI, forexample inconnection withthe"200 Garment Factory
Programme" (section (ii)).
(ii) Textiles andclothing
35. Theclothing industry represents about halfofSriLanka 'smerchandise exports andone-fifth
ofmanufacturing employment. Over 95percentofproduction, worth SLRs78billion in1994, is
exported.31More thanthreequarters oftotalexports come fromBOI-approved foreign-owned firms.
Many investors arefrom traditional clothing-exporting countries suchasHong Kong andKorea.
Subcontracting isnotimportant, contrasting withothercountries atacomparable levelofdevelopment.
29Around 65to70percentofSriLanka 'sindustrial activities arecurrently located intheGreater Colombo
region.
30AccordingtotheCeylonChamberofCommer ce,industrialactivitiesinruralareasarehamperedbyinadequate
telecommunication facilities (Ceylon Chamber ofCommerce, 1994b).
31Domestic consumption ofgarments, sourced from bothimports andlocal production, wasintheorder of
SLRs16billion in1994. (WTO Secretariat estimate based onCentral Bank ofSriLanka, 1995.)SriLanka WT/TPR/S/6
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Table V.6
Value added, share ofvalue added inoutput andcapacity utilization bymanufacturing sector, 1989-94
1989 1990 1991 1992 1993 1994
Food, beverages andtobacco: value added (SLRsm.) 10,168 12,065 15,070 18,668 21,704 24,373
Share ofvalue added intotaloutput (%) 55 55 50 47 55 54
Capacity utilization (%) 88 89 90 91 92 93
Textile, clothing andleather products: value added (SLRsm.) 5,746 7,167 8,542 14,630 18,994 20,660
Share ofvalue added intotaloutput (%) 26 26 25 21 27 26
Capacity utilization (%) 98 98 98 90 85 83
Wood andwood products (including furniture):
value added (SLRsm.)496 485 571 677 831 1,081
Share ofvalue added intotaloutput (%) 74 67 71 55 68 68
Capacity utilization (%) 82 78 70 80 80 80
Paper andpaper products: value added (SLRsm.) 745 1,019 1,167 1,397 1,912 2,301
Share ofvalue added intotaloutput (%) 51 54 53 41 56 57
Capacity utilization (%) 85 98 90 94 90 92
Chemicals, petroleum, coal, rubber andplastic products:
value added (SLRsm.) 3,531 2,428 3,199 3,989 4,723 5,758
Share ofvalue added intotaloutput (%) 29 11 16 14 16 17
Capacity utilization (%) 64 72 63 60 65 67
Non-metallic mineral productsa:value added (SLRsm.) 1,218 4,742 4,905 5,918 7,163 9,272
Share ofvalue added intotaloutput (%) 20 63 60 48 58 64
Capacity utilization (%) 70 76 78 84 87 87
Basic metal products: value added (SLRsm.) 77 194 248 263 279 356
Share ofvalue added intotaloutput (%) 10 19 20 18 19 19
Capacity utilization (%) 37 40 42 45 45 45
Fabricated metal products, machinery andtransport equipment:
value added (SLRsm.) 1,969 2,746 3,247 3,629 3,608 4,344
Share ofvalue added intotaloutput (%) 62 65 64 61 61 61
Capacity utilization (%) 88 92 92 90 90 91
Manufactures notelsewhere specified: value added (SLRsm.) 117 138 1,092 1,196 1,532 1,838
Share ofvalue added intotaloutput (%) 51 47 46 35 45 45
Capacity utilization (%) 95 95 95 93 95 94
Total manufacturing value added (SLRsm.) 24,067 30,984 38,041 50,367 60,746 69,983
a Except petroleum andcoal.
Source: Central Bank ofSriLanka (1995).
36. SriLanka'sclothingproductionrelieslargelyonimportedinputs,accountingforover90percent
ofallintermediate inputs (SLRs57billion). According totheCeylon chamber ofCommerce, this
mayexplain therelatively longleadtimeneeded tocomplete export orders (90to150daysinSriLanka
compared tosome 60daysincompeting countries).32Weak backward linkages canbetraced back
topolicy decisions inthe1970s toestablish alabour-intensive, export-oriented clothing industry with
aviewtocapitalizing ontheample supply oflow-cost labour. However, while lowdomestic content
32Ceylon Chamber ofCommerce (1994a).WT/TPR/S/6
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maybeinlinewithsound economic specialization, indicating thesubstitution ofinternational forinternal
linkages, itcould alsomirror adjustment problems inintermediate industries normally wellplaced to
supply exporters. Given strong tariffescalation inthesector -from16percentontextiles (ISIC 321)
to34percentonclothing(322)-andstiffimportcompetitionfromduty-freesuppliesunderconcessional
schemes, there isindeed littleincentive tobuild upamodern textiles industry inSriLanka. Local
cotton-spinning millshavealsobeeneffected byexport duties oncotton fibreinsome important supplier
countries (India andPakistan).33
37. Asdomestic value added islow(Table V.6), theeffective rateofprotection inthetextiles,
clothing andleather industry wasabove 80percentin1994(Chart IV.1). However, thisapplies only
todomestic sales, arelatively minor share oftotaloutput. Exporters areconfronted withinternational
prices forbothtradeable inputs andoutputs.
38. Bilateral agreements originally negotiated under theMultifibre Arrangement limitSriLanka 's
exports totheUnited States, Canada, theEuropean Union andNorway. TheU.S.market takes about
twothirds ofthecountry 'sclothing exports. In1994, supplies tothismarket weresubject to26quotas
covering 47categories; ofthese, sixquotas were fully utilized andanadditional ninemore than
90percent(Table AV.3a). Sixteen quotas limited exports toCanada; threewereexhausted andthree
hadutilization ratesbetween 80and90percent(Table AV.3b). Clothing exports totheEuropean Union
wererestricted infourcategories (four quotas), twoofwhich werefullyutilized (Table AV.3c), and
those toNorway inthree categories. Theallocation ofquota shares among SriLanka exporters is
based mainly onpastperformance (Chapter IV(3)(iv)).
39. Thevalue ofSriLanka 'sclothing exports totherestricted markets mayexpand through (i)quota
growth asspecified intheWTO Agreement onTextiles andClothing; (ii)expansion intonon-restricted
areas; or(iii)increases intheunitvalue ofquota products. In1992, theaverage dollar value of
U.S.clothing imports fromSriLanka wasUS$3.75 persquare metre, asagainst US$8.75 forsupplies
from allsources.34
40. Inaneffort toencourage ruralindustrialization, theGovernment initiated the"200 Garment
Factory Programme" atselected sitesin1991 (Box V.2). In1992, 133garment factories were in
operation under theProgramme. However, asnotallsiteswereeconomically viable, overall capacity
utilization intheindustry dropped (Table V.6).
33Presidential Commission onTariffs andTrade (1994).
34World Bank (1995a:19).SriLanka WT/TPR/S/6
Page 77
BoxV.2 The200Garment Factory Programme
Objective
Eligibility criteria
Incentives offered
Main impact-
-
-
-
-
-
-
-
-
-Creation ofemployment inrural areas for100,000 people inthe
industry, additional indirect jobeffects.
Each supported enterprise should create atleast 500jobsby
31December 1992;
thefactory must bespecifically constructed fortheprogramme;
employees must receive aminimum salary ofSLRs2000 permonth,
insurance, medical facilities, freebreakfast andtwodaily teas;
theymust berecruited through theBOIjobbank; and
employment must notbereduced inother production units ofthe
parent company.
Allocation ofMFA quotas from thequota pool(50,000 doz.annually
forfactories inthemost difficult locations, 25,000 indifficult locations
and10,000 innon-difficult locations);
support bytheExport Development Board toenter non-quota markets;
usual investment incentives asavailable under Section 17ofthe
BOILaw; and
loanandequity funding through theNational Development Bank and
theDevelopment Finance Corporation ofCeylon.
AsofDecember 1994, 165factories approved under theprogramme
were inoperation providing employment forabout 71,088 persons.
Capital outlays committed toapproved projects were estimated atover
SLRs5billion. Export earnings amounted toSLRs32billion in
1994, representing over halfoftotal textile andclothing exports by
BOI-approved firms.
Following difficulties inthequota allocation system, theBOIrelaxed theemployment requirement to
450employees perfactory. Of97firms surveyed attheendof1993, 39employed more than
500people, 25between 450and500, and33lessthan450.
Source: Ceylon Chamber ofCommerce (1994a); andCentral Bank ofSriLanka (1995).
(iii) Petroleum
41. Ceylon Petroleum Corporation (CPC) isthelargest State-owned manufacturing company. It
wasformed in1962bythenationalization ofthreeforeign-owned companies, Shell, Mobil andCaltex.
Undercurrentlegislation,CPChastheexclusiverighttoimport,refineanddistributepetroleumproducts.
Strategic business parameters, including prices, aredecided bytheGovernment; oilsupplies arecovered
bytogovernment-to-government contracts andspotpurchases. Noprincipal changes areenvisaged
intheforeseeable future.35While apolicy statement inthecontext ofthe1995 budget indicated the
Government 'sintention toencourage "strategic alliances" involving CPC, nofurther details weregiven.
Asnoted inChapter IV(2)(vi), thelubricants branch ofCPC hasrecently beenprivatized.36
35Theauthorities havereferred inthiscontext, among other things, tothecountry 'ssecurity situation deemed
torequire tight controls ontheuseofpotentially dangerous substances.
36CPC'slubricant activities were transferred toajointventure setupwithCaltex inJuly1994. Caltex holds
51percentofthestakes, 39percenthasbeenreserved fordomestic investors andtheremainder foremployees.WT/TPR/S/6
Page 78Trade Policy Review
(5) Services
(i) Main features
42. TheSriLanka services sector represents more thanhalfofGDP, almost 40percentof
employment, andover20percentoftotalexport receipts. Itsexpansion inrecent years hasbeendriven
mainly byactivities suchasbanking, insurance andrealestate services; theircombined share inGDP
rosefrom4.6percentin1989to6.8percentin1994(Table AV.2). Reflecting thesecurity situation
inparts ofthecountry, defence andother government services account foralmost halfoftotal
employment inthesector.
43. Inviewoftheirsupportive rôleforawide range ofeconomic activities, theGovernment is
making efforts toimprove theprovision ofinfrastructural services suchastransport, energy and
telecommunications. Theregulatory environment insomeoftheseareashasbeengradually rationalized,
andkeyoperators havebeenrestructured andprivatized. Mirroring policies inthemanufacturing area,
tradeableservices(includingintermediateinputssuchastelecommunications)ranktopontheliberalization
agenda. Reforms inthetransport, telecommunications andfinancial services sectors mayhelptodevelop
Colombo intoaregional centre.
44. SriLanka'sscheduleofspecificcommitmentsundertheGeneralAgreementonTradeinServices
(GATS) covers onlyhotel andlodging, travel agency andtouroperator services (Table V.7).37In
these sectors, SriLanka isbound nottoplace restrictions onthecommercial presence offoreign
companies oronthepresence ofnatural persons. However, ithasreserved therighttoapply thegeneral
limitations, qualifications andconditions under itsforeign investment legislation, including theBOI's
case-by-case approval ofequity shares intravel agencies exceeding 40percent(Chapter III(2)(i)).
Thepresence ofnatural persons issubject totherelevant provisions inlabour, immigration andcustoms
legislation. Thecombined share oftravel agencies andtouroperators inGDP islessthan1.5per
centatpresent (section (vi)).
37While theconventional definition forbalance-of-payments (andnational accounting) purposes focuses on
transactions between residents andnon-residents, thedelineation ofservices trade under theGeneral Agreement
onTradeinServices(GATS)extendstoactivitiesoflocallyestablishedforeign-ownedbanks,insurancecompanies,
hotels, etc.Intheabsence ofspecific limitations, commitments under theGATS cover fourdifferent modes
ofsupply: cross-border supply; consumption abroad; commercial presence; andpresence ofnatural persons.SriLanka WT/TPR/S/6
Page 79
Table V.7
Sector-specific commitments under theGATS
Sector Mode ofsupply Limitations onmarket
accessLimitations onnational
treatment
Hotel andlodging services Cross-border supply Unbound (duetolackof
technical feasibility)Unbound (duetolackof
technical feasibility)
Consumption abroad Unbound Unbound
Commercial presence None except forcertain
limitations, conditions and
qualifications under
SriLanka 'sinvestment
legislation (see
Chapter III(2)(i)).None
Presence ofnatural persons Subject toprovisions of
labour, immigration and
customs lawsNone
Travel agency andtour
operator servicesCross-border supply None None
Consumption abroad Unbound Unbound (duetolackof
technical feasibility)
Commercial presence None, except forcertain
limitations, conditions and
qualifications under
SriLanka 'sinvestment
legislation (see
Chapter III(2)(i)).None
Presence ofnatural persons Subject toprovisions of
labour, immigration and
customs lawsNone
Source: Document GATS/SC/79, 15April 1994.
(ii) International transport
(a) Maritime transport
45. SriLanka 'straditional involvement ininternational trade relies mainly onthefacilities ofone
large port, Colombo, which accounts forabout 85percentofthecountry 'sseatraffic. Following
themodernization ofcontainer terminal facilities in1985, Colombo 'sporthasexperienced rapidgrowth,
buoyed bycontainer trans-shipment toandfromsouthern India. In1987, theportranked 26thamong
theworld 'scontainer handling ports, although thisposition hasslipped since (Table V.8).
46. International shipping services areunconstrained inprinciple, withtheexception ofgovernment
cargo which mustbecarried bythenational line.38Competition among lineshasstrengthened inrecent
years, withseveral newoperators entering themarket in1994, andfreight rateshavereportedly come
down.39However, private sector representatives haveindicated thatbottlenecks intheportofColombo
areanimportant obstacle tofurther trade expansion. Theauthorities intend toexpand portfacilities;
foreign loanfinancing istobecomplemented byprivate investments onaBuild-Operate-Transfer (BOT)
basis.40
38Therequirement thatimports bygovernment organizations must becarried bythenational line,based on
acabinet decision, willexpire in1997.
39Central Bank ofSriLanka (1995).
40President ofSriLanka (1995).WT/TPR/S/6
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Table V.8
Performance oftheportofColombo, 1979-93
Year Containers
handled
('000)Share oftrans-shipments
(percent)Number ofships Ranking among
container handling
ports
1979 17.7 6.3 1,808 139
1983 146.7 46.1 1,934 59
1987 435.6 69.9 2,335 26
1991 669.5 70.1 2,925 31
1992 675.8 66.8 3,117 32
1993 858.4 69.9 3,328 31
Source: National Planning Department (1995).
(b) Airtransport
47. Atpresent, long-distance tourism isthemainstay ofColombo 'sInternational Airport. Overall,
international commercial airtransport, i.e.scheduled andcharter flights, represent about twothirds
ofallaircraft movements (Table V.9). Colombo Airport iscurrently usedbysome 20scheduled and
sixcharter carriers; high-value (perweight) garments arethemain outward-bound cargo.41
Table V.9
Aircraft movements atColombo International Airport (Katunayake), 1991-93
1991 1992 1993
Total number ofairmovementsa18,100 19,800 ....
(International commercial airtransport)a(11,900) (13,500) ...
Number ofpassengers 1,521,000 1,797,000 1,704,000
Freight (tonnes) 43,600 48,900 45,000
a Includes scheduled andnon-scheduled flights
Source: International Civil Aviation Organization (1993 and1994); andtheGovernment ofSriLanka.
48. SriLanka 'sDepartment ofCivil Aviation operates astheregulator inthesector. Itis
empowered, interalia,tolicence personnel (pilots, engineers, etc.),certify airworthiness ofdomestically
registered planes, approve allflights within thelimits ofthecountry 'sflight information system, and
process anddecide applications byscheduled carriers forlanding. Landing rights aregoverned by
55bilateral aviation agreements, halfofwhich arecurrently operational. Negotiated inaccordance
withInternational CivilAviation Organisation (ICAO) rules, theagreements designate eligible carriers
andregulate parameters suchasthenumber andfrequency offlights, butnottherelevant fares. The
authorities seek, however, toestablish asystem ofminimum faresforoutgoing passenger flights from
Colombowithaviewtostabilizingmarketconditions.Contrastingwithpassengertraffic,cargotransport
hasbeenderegulated since 1992.
49. Landing slotsareallocated through aspecial Committee, chaired bytheDirector ofCivil
Aviation, which meets twice ayear. Intheevent ofconflicting applications, theCommittee decides
41World Bank (1995a).SriLanka WT/TPR/S/6
Page 81
mainly onthebasis of"historic rights". However, given thelimited number ofmovements, some
40commercial flights perdayonaverage, suchdecisions arerare.
50. Airport Aviation Services, established asaseparate entity in1983, aremandated tooperate
theairport, including thesubletting ofrestaurants andshops andallocation ofcargo space. Thecompany
isfullygovernment-owned. Landing andparking feesarecharged onthebasis ofweight; therates
areapproved bytheGovernment. Allground handling services areinthehands ofAirLanka, the
national flagcarrier.
(iii) Telecommunications andpostal services
51. SriLanka 'stelecommunications sector isregulated bytheDirector General of
Telecommunications. Thispostwascreated inJuly1991when regulatory andoperational taskswere
separated. TheDirector-General 'smandate includes: (i)licensing oftelecom operators inliberalized
marketsegments(includingtelexandfaxservices,cellularphoneservicesandpagingservices);(ii)tariff
approval foralltelecommunications services42;and(iii)technical standards forbasic equipment. The
Director-General iscurrently supported byastaffof70.
52. SriLanka 'stelephone penetration ratiowaslessthanonelineper100inhabitants in1993.
Thewaiting period fornewsubscribers was5-10years (Table V.10).43SriLanka Telecommunications
(SLT), themonopoly supplier ofsimple voice transmission andoperator ofthebasic network, has
recorded profits sinceitsinception in1991. Thisisdespite thefactthat,mainly duetothepoorpayment
record ofsome government departments, one-fifth ofthecompany 'soutstanding billsarenotsettled,
andthatSLTs ratesforinternational callscompare favourably withthose charged inanumber ofother
countries (Chart V.6). Inaddition tothestandard corporation tax,SLTrecently became subject to
anadhoctaxofSLRs1.5billion (1995) levied tomeetgeneral revenue requirements.
Table V.10
Evolution ofthetelecommunications sector, 1990-94
1990 1991 1992 1993 1994
Telephone lines
Total lines('000) 121.4 125.8 135.5 157.8 180.7
Newconnections ('000) 10.2 6.6 10.6 22.3 25.3
Waiting list('000) 47.9 61.3 96.2 124.1 186.2
Telephone density (lines per100inhabitants) 0.71 0.73 0.78 0.90 1.01
Overseas services
Telephone traffic (million minutes) 9.0 15.6 17.8 19.9 21.6
Telegrams (million words) 2.7 2.5 2.5 2.2 2.2
Telex (million minutes) 4.5 4.4 4.2 3.3 3.1
Source: Central Bank ofSriLanka (1995).
42This includes, asaformality, rates forcellular phones which arefreeinprinciple.
43AccordingtotheDirectorGeneralofTelecommunications,some186,000applicantswerelistedinmid-1995.
Thecurrent installation feeisSLRs13,000 (US$260), including thephone set;themonthly rateisSLRs8.WT/TPR/S/6
Page 82Trade Policy Review
53. Privatization ofSLTiscurrently proceeding but,according totheauthorities, maynotbe
successful duetotradeunion resistance. However, establishment ofacompeting radio-based network
forvoice transmission isunder consideration; theprocess should startinlate1995. Toensure alevel
playing field, SLTwillberequired tophase outcurrent cross-subsidization between long-distance and
localcallsandbetween international anddomestic calls.44Theauthorities intend tooffset theensuing
revenue effects through significant rateincreases during office hours; ratesforoff-peak callsmay
evenbereduced. (Chart V.6suggests thatthedifference between peakandoff-peak ratesislower
atpresent inSriLanka thaninmany other countries.)
54. In"open" areas, licences areissued tonewentrants depending ontheDirector-General 's
assessment ofthemarket situation. Helevies alicensing feeof1percentoftheinvestment value
and,later, acharge (cess) of0.3percentofthecompany 'sturnover.45Most licences areissued for
a20-year period. While companies areinitially freetosettheirtariffs, anyincreases arecapped at
theinflation rateminus 2percent(acapofminus 4percentisunder consideration toprevent
anti-competitive practices andrequire companies topassproductivity gains ontocustomers). While
thereareatpresent restrictions oncall-back services, theauthorities intend toreformulate theirpolicy.46
55. SriLanka'semergingmarketforcellularphoneservicesiscurrentlysuppliedbyfourcompetitors.
Thepotential pacesetter isajointventure between SLT, holding a40percentshare, andTelstra (OTC),
theAustralian market leader. Datacommunication services areprovided byfouroperators, including
SLTwhich entered themarket in1994. Committed tocost-based pricing, SLThasnomore than10
customers atpresent.
56. Theinstallationofin-housenetworkswithinacompany'spremisesisnotregulated;linksbetween
locally separated unitsmustbeapproved bytheDirector-General. Theonlycurrent private network,
microwave-based, isoperated byAirLanka. Private satellite communication fordatatransmission
issubject toapproval bytheDirector-General; there havebeennoapplications todate.
57. Contrasting withSriLanka 'srapidly evolving telecommunications markets, traditional postal
services havebeenstagnant overthepastfiveyears (some 67,000 deliveries p.a.), despite gradual
liberalization. Private companies mayoffer domestic aswellasinternational courier services, and
thenumber ofprivate postoffices hasincreased (Table V.11).47
44Anyadditional network operator would have tochannel international traffic through SLT'sgateway.
45TherateissetbytheDirector-General; theresulting receipts areintended tocover hisoperating costs.
46Theratestructure presented inChart V.6suggests thatthere arenosignificant incentives forsuchservices.
47Tencourier services arecurrently operating inSriLanka; DHL isthemarket leader.WT/TPR/S/6
Page 84Trade Policy Review
onaprivate basis, iscurrently being considered fortheeastcoast.49Asaresult oftransmission and
other losses, onlytwothirds ofthepower generated wasactually soldinrecent years.
Table V.12
Electricity production andconsumption, 1992-94
1992 1993 1994
Installed capacity (MW) 1,410 1,410 1,410
Share ofhydro power (percent) 81 81 81
Units generated (Gwh) 3,534 3,979 4,364
Share ofhydro power (percent) 82 95 94
Transmission andother losses (percent) 35 35 35
Total sales (Gwh) 2,916 3,270 3,582
Destination (percent):
Households 24 25 26
Industry 36 37 39
Commerce 20 20 17
Public authorities 19 16 17
Street lighting 1 1 1
Source: Central Bank ofSriLanka (1995).
59. TheCeylon Electricity Board (CEB), astatutory corporation, isresponsible forallaspects of
electricity generation anddistribution. Losses oftheCEBin1994areestimated atSLRs450million
andSLRs900million areexpected in1995.50Electricity prices varybysizeofthereceiving unit
(e.g.small, medium andlargeindustries), butareuniform across sectors andregions. Individual firms
areallowed inprinciple tooperate theirownpower plants. Aproposal tofeedexcess supply intothe
CEB'sgridiscurrently under consideration.51
(v) Financial services
(a) Banking
60. Therearecurrently24commercialbanksoperatinginSriLanka,ofwhich17areforeign-owned.
Theforeign-owned banks arenotlocally incorporated. Licences areissued bytheMonetary Board
oftheCentral Bank afterconsultation withtheMinistry ofFinance, and,inthecaseofforeign banks,
taking intoaccount theopinion ofthehome country regulator.52According totheauthorities, themain
operating conditions, including allprudential requirements, areidentical fordomestic andforeign-owned
banks. However, SriLanka hasmade nobindings under theGATS.
49Nachrichten fürAußenhandel, 27February 1995.
50Central Bank ofSriLanka (1995).
51Theproposal wascontained ina1994 memorandum oftheCeylon Chamber ofCommerce.
52TheController ofImmigration andEmigration issues resident visas formanagers offoreign banks on
recommendation oftheDepartment ofBanking Supervision oftheCentral Bank.SriLanka WT/TPR/S/6
Page 85
61. Thespread between borrowing andlending rates, currently around 5percent, isrelatively
highbyinternational standards.53Thismayreflect efficiency problems ofthetwoState-owned banks,
themarket leaders, andtheprotective effects onincumbents ofSriLanka 'scurrent restrictions oncapital
transactions (Chapter I(4)).54Themarket share, interms oftotalassets, ofthetwoState-owned banks
is60percent; unlike theirprivate competitors, theyarerequired tooperate abranch network inrural
areas andapply public sector regulations totheirstaff. TheGovernment hastaken stepstorestructure
thetwoState-owned banks.
(b) Insurance
62. Fiveinsurance companies arecurrently active inSriLanka, three private companies and
twoState-owned companies offering lifeandnon-life policies. TheState-owned companies hold
60percentofthemarket. Banks arenotallowed toenter theinsurance market.
63. In1993, premium income fromgeneral insurance activities totalled SLRs3.9billion orslightly
lessthan1.2percentofGDP. Ofthis,thelargest share (28percent) wasaccounted forbythelife
insurance segment, followed bymotor vehicle insurance (24percent). Some 5to6percentofthe
workingpopulationhaslifeinsurancepolicies;privatehealthinsurance,coveringbothmedicaltreatment
andpharmaceuticals, isincreasingly offered asanoption inthiscontext.
64. Noforeign direct investment isallowed inSriLanka 'sinsurance sector; aproposal toaccept
minority shareholdings isunder consideration. Foreign managers mustbeapproved bytheController
ofInsurance (Insurance Division oftheMinistry ofFinance). Current draftlegislation would create
anindependent Insurance Board toregulate andsupervise thesector.
65. SriLanka 'sinsurance companies arerequired toinvest asignificant share oftheirassets -
50percentfrom lifeinsurance policies and30percentfrom non-life policies -ingovernment
securities.55Theremainder maybeinvested inapproved deposits andquoted shares, butnomore than
5percentinonenon-government security. Companies arefreetocontract international reinsurers
inrespect ofmarine andfirepolicies, provided theGovernment Insurance Company isinvolved to
atleast15percent.
(vi) Tourism
66. SriLanka isamajor tourist destination, withover400,000 arrivals in1994. Gross receipts
amountedtooverSLRs11billion(TableV.13);theemploymenteffectswereestimatedatsome84,000,
including indirect effects inrelated sectors. Hotels, golfcourses andrecreation facilities areclassified
bytheBOIaspriority areas forforeign direct investment (Chapter III(2)(ii)).
53World Bank (1995a).
54These restrictions mayalsoexplain therelatively highnumber offoreign banks inSriLanka, ascross-border
supply offinancial services isrestricted while there arepractically nolimitations onthenumber ofcommercial
banks based inSriLanka.
55Thisimplies inpractice, thatlong-term private capital ispartly being usedtofinance public consumption.
Areduction oftheminimum shares referred toabove isunder discussion.WT/TPR/S/6
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Table V.13
Development ofthetourist industry, 1992-94
1992 1993 1994
Tourist arrivals ('000) 393.7 392.3 407.5
Europe 250.0 256.2 258.3
North America 12.6 13.6 15.6
Asia 114.2 106.7 116.4
Australasia 12.4 11.8 12.0
Other regions 4.5 4.0 5.2
Tourist nights ('000) 4,055 4,148 4,250
Gross tourism receipts (SLRsbillion) 8.8 9.8 11.4
(PercentofGDP) (2.3) (2.2) (2.2)
Tourism-related employment ('000) 69.1 75.7 84.2
(Percentoftotalemployment) (1.2) (1.2) (1.4)
Direct employment ('000) 28.8 30.7 35.1
Source: WTO Secretariat based onCentral Bank ofSriLanka (1994 and1995).
67. TheCeylon Tourism Board, under thepurview oftheMinister ofMedia, Tourism andAviation,
isthemainsupervisory andplanning authority inthesector. Itregulates hotels, travel agents andother
specified tourist services andattractions, operates orientation centres inancient cities, andpromotes
craftcentres andthelike. While thesector islikely tobenefit from liberalization andderegulation
inrelated areas -including theeasing ofexchange controls andvisarequirements, andthegradual
opening oftelecommunication services -theirimpact would bedwarfed byalasting peace settlement
inSriLanka 'scivilwar.
68. Tourism istheonly areainwhich SriLanka hasmade commitments under theGATS
(Table V.7).