Includes the barriers (tariff and non-tariff) that U.S. companies face when exporting to this country.
The newly developed Sri Lanka Trade Information Portal (https://srilankatradeportal.gov.lk/) is a one-stop point for information relating to import into and export from Sri Lanka. Operated by the Department of Commerce, the portal provides an accessible, intuitive, helpful gateway for traders to access important regulatory and procedural information needed to export, import, and transit. The initiative is also in line with the government’s commitment to the requirements of World Trade Organization to comply with Article 1 of the Trade Facilitation Agreement.
In October 2018, the government introduced new policy measures including margin deposit requirements for letters of credit for the importation of personal motor vehicles and selected non-essential consumer goods imports. Furthermore, in April 2020 the government introduced a series of temporary suspensions on goods it deemed ‘non-essential’ as a measure to ease the excessive demand for foreign currency after the fiscal stimulus the government introduced to help COVID-19 affected industries. Although the suspensions were extended in June 2020 and January 2021, exceptions are allowed if the product import is for value addition or re-export.
Sri Lanka enacted a new antidumping and countervailing duties law and a safeguard measures law in 2018 to provide protection to domestic industries from injurious dumping and subsidization, and for the application of safeguard measures where import surges cause or threaten to cause injury to the domestic industry. However, these laws will not go into effect until the government publishes the implementing regulations.
The Ministry of Defense controls the import of firearms and ammunition for use by the armed forces, police, and civil security. Certain military-related or dual-use items are prohibited or controlled. Radars, night-vision devices, beta lights, armored vehicles, explosion-detection equipment, digital-jamming equipment, infrared illuminators, GPS equipment, and laser designators are prohibited. Imports of laser/radar range finders and thermal-image devices are subject to Ministry of Defense approval. Remote-controlled toys are also under license control for public security reasons. There are restrictions on the import of toxic and hazardous chemicals and pesticides. Used and reconditioned air conditioners and refrigerators are under license control for environmental protection.
Sri Lanka requires import licenses for more than 400 items at the six-digit level of the Harmonized Tariff Schedule, mostly for health, environment, and national security reasons. Importers must pay a fee to receive an import license. Import licenses for meat products may be required based on the health or disease status of livestock in the particular country or area.
Approval is at the discretion of the regulators; no standard practices are followed, and requirements can vary. Regulators entrusted with evaluating products to be imported often lack the capacity to make scientific determinations, and a zero-risk policy is followed in lieu of scientific rationale. Import of telecommunication equipment requires approval from the Telecommunications Regulatory Authority and a license issued by the import controller. Some items which are under Import Control License (ICL) are temporarily banned under the April 2020 import restrictions.
The Sri Lanka Tea Board regulates tea imports into Sri Lanka. Tea imports require a license, only bulk tea can be imported, and only registered tea exporters are allowed to import tea for value addition and re-export. Only certain varieties of tea can be imported for such purposes. When re-exporting, the packages should indicate, “Ceylon Tea blended with other origin teas.”
Customs Barriers and Trade Facilitation
Duties are calculated using the actual transaction value of the goods (as evidenced by the commercial invoice or other contract of sale document). If the value of the goods cannot be established by this method, Sri Lanka Customs will attempt to establish the value of the goods using methods in line with Article 7 of the GATT. When the customs authority does not accept the declared value and determines the value in accordance with the GATT, the importer has a right to appeal the decision to the Director General of Customs. The Customs Ordinance allows an importer to clear the imported goods provisionally from Customs custody pending a final determination on value. However, this option is not available to an importer where fraud is suspected. U.S. companies have expressed concern that the Sri Lanka Customs valuation system is susceptible to misuse and is not consistently applied.
In addition, Section 153(2)(b) of the Customs Ordinance authorizes customs officers to receive 50 percent of the monetary penalty imposed for various customs infractions. The money received from the sale of forfeited goods is credited to the Customs Officers Reward Fund. Several U.S. companies have reported that the existence of this scheme has created incentives for customs officers to take unwarranted actions.
The Sri Lankan government has taken steps to improve trade facilitation in line with the WTO Trade Facilitation Agreement. A National Trade Facilitation Committee (NTFC) was established in 2016. Sri Lanka launched an online trade information portal in July 2018. All required trade related information is available on the portal as of November 2020 (https://srilankatradeportal.gov.lk/).
Other Market Access Barriers
Sri Lanka’s Consumer Affairs Authority (CAA) sets maximum retail prices (MRP) for essential consumer items. Items subject to MRP include lentils, chickpeas, wheat flour, dried chili peppers, canned fish, milk powder, sugar, imported basic variety of rice, imported onions, chicken, and imported potatoes. Food importers have lobbied the government to remove MRP, arguing that standard prices are impractical in an environment of changing international markets and currency fluctuations. In 2020, and again in 2021, the MRP of several food items were revised. Policy advocates have urged the government to reverse the decision to intervene in an already competitive market.
Lack of a proper quality assurance mechanism and the current price mechanism is making it difficult for global pharmaceutical companies to operate in the Sri Lankan market. In May 2019, the National Medicine Regulatory Authority (NMRA), under the Ministry of Health, instituted MRP for 60 essential drugs. The government also introduced price control on Intra-ocular lenses in February 2017 and on stents in August 2017. Sri Lanka imports about 85 percent of its medicinal drug requirement. The government has not taken action to increase MRP of drugs to compensate for rupee depreciation. The pharmaceutical industry has urged the government to formulate currency depreciation linked price controls for drugs and medical devices. According to industry sources, global pharmaceutical companies have said they would withdraw some products from Sri Lanka due to a lack of an effective price setting mechanism. The Sri Lankan government promotes local manufacture of pharmaceuticals through buy-back guarantees.
Technical Barriers to Trade
Sri Lanka issued the Food (Color Coding for Sugar levels) Regulations 2016, which require labeling of carbonated beverages, ready-to-serve drinks other than milk-based products, and fruit juices. In November 2017, the government imposed an excise duty of 12 Sri Lankan Rupees (LKR) per liter or LKR 0.50 per gram of sugar (approximately $2.85 per kilo of sugar) contained in beverages, whichever is higher, in support of the government’s anti-diabetes campaign. Both the labeling regulations and excise taxes were introduced with limited input from the beverage industry and with little time for industry to respond and implement changes. Since the implementation of the 2017 beverage excise tax, the Sri Lanka carbonated soft drink industry has lost approximately 35 percent of total sales volume while its tax burden has increased to almost 50 percent of gross revenue. The government has considered additional taxes on the beverage and soft drink industry. The labeling regulation and tax affects the sales of both U.S. companies and domestic producers.
Sanitary and Phytosanitary Measures
Sri Lanka requires the approval of its Chief Food Authority for the importation or the sale of products derived from genetic engineering (GE) intended for human consumption. However, Sri Lanka does not have a functioning approval mechanism for GE products and thus, effectively, has a ban on seeds and other agricultural products derived from GE. Sri Lanka requires all agricultural commodity imports to be accompanied by a certification that the commodity is “non-GE.” The general quarantine procedure for import of plant and plant products states that “genetically modified organisms (GMOs)” and “living modified organisms (LMOs)” are not allowed to be imported into Sri Lanka. Food products for human consumption containing GE ingredients must be labeled. The United States will continue to engage Sri Lanka on these issues, especially on establishing a biotechnology regulatory framework consistent with international standards.
Sri Lanka permits imports of poultry products only from countries that have never reported outbreaks of Highly Pathogenic Avian Influenza (HPAI) or only after six months have passed since a country has notified the World Organization for Animal Health (OIE) that a particular area or state (in the case of the United States) is free of avian influenza. This is despite the fact that the OIE recommends that areas affected by avian influenza can resume trade three months after the last detection. However, beginning in 2018, Sri Lanka relaxed the regulations for U.S. poultry products to allow imports from areas with a three-month disease-free status, subject to a risk assessment for each consignment. Currently, chicken is allowed only for processing of re-export. Poultry products are under import license control. The importation of chicken meat is prohibited. Other poultry meat is allowed as Sri Lanka does not have a significant industry.
Sri Lankan animal health authorities require substantial time to conduct microbiological tests of meat shipments. Additionally, these authorities have occasionally rejected imports based on testing methods that are not consistent with those set out in the country’s regulations or the import permit. The authorities only accept testing performed by the Medical Research Institute (MRI) based in Colombo. In March 2020, the MRI achieved accreditation to international standard ISO/IEC 17025:2005 – the general requirements for the competence of testing and calibration laboratories. Any negative results on the sample tests require the importer to re-export the shipment. The extended period taken to conclude testing of the shipment places the importer at risk of losing the right to file insurance claims as many insurers only insure for a limited period. All meat products are subject to license control. Beef is allowed for both retail and restaurants; however, pork only for restaurants.
Government procurement of most goods and services in Sri Lanka is primarily undertaken through a public tender process. Some tenders are open only to registered suppliers. Procurement also occurs outside the normal competitive tender process. There are widespread concerns about the lack of transparency and accountability in the tender process. Tender specifications are often developed to suit a particular company. Even on occasions when a U.S. company wins a tender, the contract can be canceled on a technicality, often at the urging of a competitor. The practice of accepting unsolicited proposals without competing bids continues and there is a lack of clarity in the government procurement process which leads to reports of large-scale corruption.
Sri Lanka is not a signatory to the WTO Agreement on Government Procurement (GPA) but has been an observer of the GPA since April 2003.
Distribution Services (including logistical services) and Express Shipments
Sri Lanka does not provide de minimis treatment for the application of taxes on inbound shipments. Further, airport authorities do not provide preferential treatment to express cargo airlines. Rather, express shipments must undergo the routine examination procedure by security and the airport’s authority, which delays clearance.
Financial Services (including banking services)
At present, all foreign banks in Sri Lanka operate as branches. All banks operating in Sri Lanka, including foreign banks, are required to establish two branches outside the Western Province for each new branch established in the Western Province. The Central Bank also requires all banks operating in Sri Lanka to direct a minimum 10 percent of lending for agriculture.
A 2.5 percent stamp duty applies to usage of credit cards issued by Sri Lankan banks for transactions made in a foreign currency. Transactions in local currency are exempted from this duty. As a result, U.S. e-Commerce firms, setting prices in dollars, face greater costs than local competitors when selling in the Sri Lankan market.
Only companies incorporated in Sri Lanka may be registered to provide insurance services. Foreign insurance companies that provide health insurance services to Sri Lankans must sell through an insurance broker registered in Sri Lanka and are restricted to insurance products not sold by local insurance companies. The Sri Lankan government requires all general insurance companies to cede 20 percent of their reinsurance coverage to a state-run insurance fund.
In 1999, Sri Lanka imposed restrictions on the number of foreign films that can be imported into the country for theater showings and required all the films to be imported by the State-Owned National Film Corporation. In 2002, Sri Lanka changed the rules and created five different entities – “circuits” – that can import foreign films, four private and one state-run, but kept the quota limits. Current restrictions limit the number of imported English language films to 65 per year (13 per entity). In 2018, Sri Lankan importers came close to the 65-film total limit and resorted to “shopping around” different circuits for quota slots. The overall process for importing foreign films remains opaque.
Sri Lanka imposes taxes on foreign films, programs, and commercials shown on television. In 2017, the government increased the tax on foreign films and television series dubbed into Sinhala and Tamil from LKR 90,000 per 30-minute episode (approximately $515) to LKR 150,000 (approximately $857) per 30-minute episode. Foreign television shows in their original form (without dubbing) are taxed at LKR 100,000 (approximately $571) per 30-minute episode. Foreign films in their original form are taxed at LKR 200,000 (approximately $1,142). Higher rates apply to repeat telecasts. Foreign commercials are taxed at LKR 500,000 (approximately $2,857) in the first 6 months and at LKR 1,000,000 (approximately $5,714) during the next six months. Government approval is required for all foreign films and programs shown on television.