TRADE POLICY REVIEW OF SRI LANKA

Opening Statement of the United States of America
March 3, 2004
Delivered by David Shark
USTR Geneva

The United States welcomes Secretary Wickremasinghe and the other members of the Sri Lankan delegation to this Trade Policy Review. We are particularly pleased to note that Director General K.J. Weerasinghe has returned to Geneva for this occasion. During his tenure as Sri Lanka's Permanent Representative, Ambassador Weerasinghe made a lasting contribution to the work of the WTO. We have already begun to develop a close working relationship with Ambassador Gomi Senadhira, whom we are confident will be an equally effective advocate for Sri Lanka and friend of the multilateral trading system.

We look forward to a candid and constructive exchange of information and ideas concerning Sri Lanka's trade policies and practices. The Secretariat and the Government of Sri Lanka should be commended for the quality and depth of the reports which will serve as the basis for this discussion. We would also like to express appreciation to our discussant, Ambassador Muhammad Noor Yacob, for his valuable contribution to this review.

We appreciate the thoughtful and constructive role that Sri Lanka has played in the Doha negotiations. Sri Lanka has been an effective and articulate advocate for its interests in the negotiations. But, more importantly, it has also worked hard to find and build convergences with the positions of others. We look forward to Sri Lanka continuing to play this important role, and in this connection, welcome the comments in the introductory statement from Secretary Wickremasinghe about seizing this window opportunity for the Doha negotiations.

We also welcome, that on the bilateral level, steps are being taken to enhance Sri Lanka's commercial relationship with the United States, where there is still a great potential for increased trade. Sri Lanka and the United States have held three successful bilateral meetings under the auspices of our Trade and Investment Framework Agreement. Our trade relationship with Sri Lanka has deepened to the point that we are carefully considering Sri Lanka's proposal to negotiate a free trade agreement. No decision has been made, but we are impressed with Sri Lanka's domestic economic reforms and peace efforts, and we would like to contribute to them. We see Sri Lanka as an attractive FTA partner, because of its relatively open economy and its commitment to trade liberalization. The trade policies of the Sri Lankan government that will be created after this spring's parliamentary elections will inform our consideration of Sri Lanka as an FTA partner.

Sri Lanka has realized many political, economic and social rewards as a result of the cessation of armed conflict and the Government's continuing peace initiatives during 2002 and 2003._ We are pleased to note that the real GDP growth for 2002 reached 4 percent, in contrast to the contraction in 2001, and that the rate of growth increased by an additional 5.5 percent in the first quarter of 2003. The Government has moved to capitalize on the peace by pushing reform and reconstruction at home and attracting assistance and investment from abroad._ Significant IMF facilities and donor commitments are assisting efforts to carry out the objectives identified in the Government's policy program, known as "Regaining Sri Lanka." These objectives include rebuilding infrastructure, rebuilding conflict affected areas, and spurring economic growth. We note in the Government report that the Regaining Sri Lanka strategy seeks to liberalize trade, attract foreign investment, seek market access opportunities for goods and services globally, and reduce barriers to productivity. Among the main elements are to accelerate privatization of commercial activities, reform the legal foundation of the economy and increase efficiency in critical government functions. We would welcome any further information on the implementation of this policy program.

It is apparent from the reports that the make-up of the Sri Lanka economy is beginning to change. According to the Government report, services activities grew by 6 percent and accounted for 54 percent of GDP in 2002, dominated by high growth in telecommunications and financial services, tourism and port services. Banking, insurance and real estate services grew by 11 percent in 2002. While much of the services growth is attributable to the cessation of the conflict, it is also apparent that the liberalization of the telecommunications and financial services sectors, primarily through privatization and relaxation of foreign investment limitations, has already begun to demonstrate results. The National Communications Policy 2003 called for the traditional licensing and other barriers to market entry to be "reduced or eliminated to allow market forces and technology to determine the most efficient means of providing services." We are interested in receiving an update on the implementation of the National Communications Policy. Does Sri Lanka intend to reduce the infrastructure domination of Sri Lanka Telecom, in order to improve interconnection to other operators? Does Sri Lanka have plans to liberalize its banking sector, which is currently restricted to state-owned banks?

While services accounts for an ever greater share of Sri Lanka's GDP, it is clear that Sri Lanka continues to rely on merchandise trade, overwhelmingly garments, to generate export earnings. The United States is Sri Lanka's main export market, accounting for 37.6 percent of its exports, with a value of $ 1.8 billion, in 2002. As noted in the Secretariat report, garment exports accounted for 53 percent of Sri Lanka's total export earnings. Sri Lanka is heavily dependent on the U.S. market in this sector, with 63 percent of such exports bound for the United States. An additional 31 percent of Sri Lanka's garment exports were destined for the European Union in 2002. According to the Secretariat report, the Central Bank attributed Sri Lanka's inability to fill quota allocations for tea and garments under the India Sri Lanka FTA to a lack of competitiveness in the Indian market. With the coming expiration of the apparel quotas in developed countries, Sri Lanka could face a more competitive environment for its garment in its traditional markets. We are interested in the Government's plans to improve the competitive position of its garment producers.

We are particularly interested in Sri Lanka's plans to diversify its export products beyond garments and tea. According to the Government report, the share of export earnings derived from non-garment industrial products increased from 14 percent in 1996 to 26 percent in 2002, surpassing the relative position held by agricultural products, including tea. Machinery, appliances, gems, rubber-based products, crustaceans and leather products are all contributing to export earnings. We are interested in hearing the Government's plans to further develop the contribution of these and other products to its export mix.

We are interested in hearing how Sri Lanka is overcoming its reliance on industrialized markets for its exports. To what extent has Sri Lanka been successful in exporting its non-garment industrial products to developing country markets? The government of Sri Lanka appears to be actively seeking improved market access opportunities within its region through preferential agreements. It has concluded or is negotiating several agreements, including the South Asian Free Trade Area (SAFTA); the Bangkok Agreement; and the BIMST-Economic Cooperation agreement. In addition, Sri Lanka has or is developing bilateral agreements with India, Egypt, Singapore and Bangladesh. We would appreciate an explanation of how these agreements relate to each other, as participation is overlapping. Because of the size of the Indian market and its geographic proximity, we are particularly interested in the status of the implementation of the India Sri Lanka Free Trade Agreement and current plans to expand its scope to other areas, including services. Does Sri Lanka have a complementary strategy to obtain market access opportunities in developing countries outside its immediate region through the Doha Development Agenda?

Sri Lanka should be commended on its successful implementation of the WTO Customs Valuation Agreement in January 2003. We note that Sri Lanka is improving customs procedures through the Sri Lanka Automated Cargo Clearance System (SLACCS) and new import clearance procedures in an Electronic Data Interchange (EDI) environment. We would welcome an update on developments.

Like others, the United States is concerned about the predictability of Sri Lanka's tariff system. At its last trade policy review, Sri Lanka noted its intention to have a simplified two-band tariff system, with a single digit simple average applied MFN rate. Since that time, the tariff structure has undergone frequent changes. According to the Government report, there are currently five tariff bands, ranging from zero to 25 percent rates, with specific duties on certain agricultural products. It is our understanding that the tariffs on agriculture fluctuate, based upon domestic supply. The tariff structure is further complicated by concessional duties to certain producers and duty exemptions that, according to the Secretariat report, may apply to 70 percent of all imports. That said, we were pleased to note in the Government report that Sri Lanka remains committed to its goal of a consolidated two-band tariff structure and are interested in the near-term prospects for realization of the system. We are also interested in hearing the Government's plans for the elimination of the remaining ten percent tariff surcharge. Imports of agricultural products, particularly poultry, meat and wheat, confront seemingly discriminatory and non-transparent barriers.

In the area of intellectual property rights, Sri Lanka took a major step forward in November 2003, when the new intellectual property law came into force. The new law largely satisfies commitments made pursuant to TRIPS and to the U.S. - Sri Lanka Bilateral IPR Agreement. Sri Lanka should be commended for establishing a Working Group to implement the law, we nevertheless realize it will take time before the new procedures and court precedents are established. High priority needs to be given to the provision of additional training in enforcement. We encourage Sri Lanka to give positive consideration to the ratification of the WIPO Performances and Phonograms Treaty.

In summary, we are impressed with Sri Lanka's economic achievements, and we hope that Sri Lanka will be able to build upon them. The questions and comments we offer today are intended in a constructive spirit and we thank the delegation of Sri Lanka for its willingness to provide responses.