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WTO Trade Policy Review of Sri Lanka
November 4, 2010

November 4, 2010

Statement of the U.S. Representative

As Delivered

Thank you, Chair. We welcome Mr. Tilak Collure and your delegation to the WTO’s third Trade Policy Review of Sri Lanka. We appreciate the effort that went into the reports that were circulated for our consideration prior to this meeting. We commend both the government of Sri Lanka and the Secretariat for the work you both did to bring to light the government’s current trade policies. Each report helped us to understand better the developments that have taken place in Sri Lanka since its previous review in 2003. I am also pleased to thank our discussant for this Trade Policy Review, Ambassador Karen Tan. We appreciate her sharing both her time and for her wisdom, so that we can all benefit from a successful TPR of Sri Lanka.

I would like to begin my remarks, Mr. Chairman, by expressing my government’s best wishes for a new era of peace and prosperity to be enjoyed by all Sri Lankans. This review comes at a historic moment for Sri Lanka. With the end of a long and bitter civil war, Sri Lanka is confronted with the opportunity to boost economic development and provide increased economic opportunities for citizens across the island. The end of this conflict opens new hope and opportunity for prosperity to regain its foothold in your nation and for your country to achieve its economic development aspirations. Sri Lanka can now direct its full attention to the constructive and productive acts of governing that will permit Sri Lanka to grow and to flourish.

Indeed, Sri Lanka has a solid foundation for progress, having shown strong GDP growth of roughly 6 percent per annum from 2004 to 2009. We are impressed by the strong performance of Sri Lanka’s economy during this period, despite the internal conflict, the effect of a tsunami, and external shocks such as higher oil and food prices and the global financial crisis. We are also pleased to see that Sri Lankan firms have been increasingly able to climb the value chain in producing higher value-added products, taking advantage of both a skilled labor force and investments in technology.

The United States and Sri Lanka have an expanding trade relationship totaling 1.8 billion in two-way trade in 2009. The United States remains Sri Lanka’s largest single-country market. Sri Lanka exported $1.6 billion to the United States in 2009, led by exports of textile and apparel goods. Additionally, the stock of U.S. foreign direct investment in Sri Lanka was $114 million in 2008 (which represents the latest data available), a 42.5 percent increase from 2007.

We would like to underscore our regard for Sri Lanka’s stated principles of openness to international trade and an investor friendly climate. With this in mind, we note, however, the Secretariat’s observation that Sri Lanka’s trade reforms have proceeded at a mixed pace since its last Review. While transparency has apparently been enhanced, average tariff protection has increased. Also, Sri Lanka has made substantial use of import surcharges and other charges falling solely or mainly on imports. We take due note of the Secretariat’s statement that these measures have been taken mostly for revenue purposes. We continue to hope that high economic growth and the end of the armed conflict will provide increasing opportunities for Sri Lanka to lower the burden on imports as well as to step up economic, trade and institutional reform.

We are pleased by the government’s recent announcement of an overall reduction in tariffs, lowering many rates to zero. We are further heartened to note that the government eliminated a 15% import surcharge applied on most imports. These are positive developments and we look forward to hearing more about the government’s plans to improve consumers’, producers’, and investors’ access to imports by lowering tariffs.

We hope, too, that Sri Lanka is bearing in mind the benefits to its trade that can result from binding a greater number of its tariff lines beyond the current 36.4%. The binding of tariff lines makes trade more predictable for your domestic industries that require available inputs at the lowest cost to be able to compete in the global marketplace. As the Secretariat notes, the authorities, as part of your strategy to liberalize trade and tariffs and other charges on imports, may wish to consider enhancing the scope and level of Sri Lanka’s bindings. Adding predictability to the trade regime, this would help to improve the business environment, which is one of the government’s stated goals.

The Secretariat report further notes that other charges can considerably increase the cost of imports into Sri Lanka. In some cases these charges more than double that total cost. Eliminating or significantly reducing such charges would also enhance predictability and affordability of inputs for competitive domestic consumption and production. Sri Lanka has already taken steps to reduce the costs of imports by its most recent actions. We encourage you to continue on this path, while keeping firmly in mind the benefits that can help Sri Lanka achieve its goal of greater integration into the world economy.

We also hope that the government will take care to abide by WTO rules when modifying its tariffs. Here, I must mention our concern about some 103 applied tariff lines that exceeded their bound rates in June of this year. We will be interested to know what the government is doing to rectify this situation.

Exporters of non traditional goods exporting at least 80% of their production also enjoy a number of tax concessions, including a preferential income tax rate on profits from these exports, and a full tax holiday for between three and seven years for new investments. These concessions are also extended to service providers that export at least 70% of turnover. We would like to know Sri Lanka’s rationale for such concessions not only in light of its WTO commitments but also in terms of the economic and trade distortions that these can create.

We are pleased to acknowledge an important policy development that has taken place since Sri Lanka’s last Review. Sri Lanka’s legislation implementing the WTO Customs Valuation Agreement (CVA) is a major step forward. According to the Secretariat, however, that legislation grants the authorities the flexibility to depart from CVA rules when deemed necessary, in the interest of the national economy or for any other reason, allowing for the use of minimum values. During the period under review, the Secretariat points out, Sri Lanka applied such minimum import prices to used cars. We are disappointed that Sri Lanka’s implementation of this important agreement has taken this turn and would like to know what options Sri Lanka may be considering to mitigate this unfortunate legislative outcome.

The Secretariat report notes that the government of Sri Lanka remains determined to reduce further the list of sectors in which foreign investment is restricted. We welcome this and other approaches to open the economy, and we offer the following comments in this regard. The services sectors, we believe, hold promise for fulfilling Sri Lanka’s competitive objectives. Inasmuch as these sectors, which account for 58% of GDP and 42% of employment, remain the main driver of economic growth, additional WTO services commitments would also foster economic development thereby improving the livelihoods of Sri Lanka’s citizens. Another positive step would be for the government of Sri Lanka to decide to participate in the Agreement on Government Procurement. We encourage the government of Sri Lanka to consider the benefits of making this commitment. Also, to promote a positive climate for business and economic growth, we encourage the efforts by Sri Lanka to address governance issues, including strengthening the rule of law and combating corruption. The United States stands ready to assist in addressing these critical development issues, and believe that our mutual interest lies in creating confidence among all investors that Sri Lanka is a friendly place to do business.

We hope that this trade policy review will help us to understand more clearly the ways in which Sri Lanka is addressing the protection and enforcement of intellectual property rights. We believe that more can be done. We understand that, in the apparel sector, right holders have some successes in combating trademark counterfeiting through the courts. We would expect that trademark enforcement will become an ever more important example for Sri Lankan firms as they develop strong brands and unique designs.

Finally, Mr. Chairman, the United States will continue to work with Sri Lanka to strengthen and deepen our relationship. We believe that developing countries such as Sri Lanka have much to gain from a balanced and ambitious result in the Doha negotiations that include meaningful new market access for all. A result that includes new market access in services, industrial goods and agriculture could further enhance opportunities for Sri Lanka to broaden its export base, its export markets and hence Sri Lanka’s opportunity to compete in world markets. The United States looks forward to working with Sri Lanka toward bringing the round to a successful conclusion. And we offer all good wishes to your government for a successful Trade Policy Review.

Thank you.