ECONOMYNEXT – Sri Lanka has requested India to expand the quota to export under the Indo-Lanka Free Trade Agreement to 50 million units from the current 8 million after President Donald Trump slapped a 44 percent tax on the island, Foreign Minister Vjitha Herath said.
“From the reciprocal tax imposed by America there is an impact on our exports,” Minister Herath told parliament Tuesday.
“With that we had discussions with India. Under the (Indo Lanka) Free Trade Agreement, we had a quantity of 8 million pieces. We are fully utilizing it.
“We requested the Indian government to increase the quota to 50 million pieces because this agreement was signed 25 years ago, and now the market has expanded.
“If not, we have requested facilities to increase exports by 500 million dollars.”
India was slapped a 27 percent tax under the formula used by Donald Trump which was based on the trade deficit divided by the imports to the US, which is claimed to represent tariff and non-tariff barriers imposed by Sri Lanka.
Compared to Sri Lanka 44 percent, India has a substantial advantage in exporting to the US. Several Sri Lankan firms also operated out of India exporting to the rest of the world.
President Trump is trying to create a Sri Lanka style protectionist utopia, in a deeply Mercantilist belief that trade deficits are bad.
The US has not counted services imported from America in the calculation. The EU is planning to hit back on US services.
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However the US is the world’s second largest exporter after China. It lost first place in 2009, soon after the housing bubble burst.
Sri Lanka is to meet officials of the Office of the US Trade Representative for the South Asia region on Tuesday night to formally submit proposals on how to reduce tariff barriers and reduce the import duties, Deputy Minister for Economic Development Anil Jayantha told parliament.
RELATED: Sri Lanka hoping to make proposals to US Trade Rep Tuesday on Trump tariff
Trump’s tariffs are to go into effect from April 09. Pending the imposition, US buyers have told Sri Lanka exporters to suspend their shipments, hoping for a last-minute reprieve.
RELATED: Sri Lanka exporters asked to suspend some shipments to US after Trump tariffs
Sri Lanka’s highest import duty is only 20 percent, but the country has imposed high CESS and Port and Airport Development levies making up a bewildering array of taxes on some products which are produced by some business interests closed to the politicians under the Rajapaksa regime.
These include, dairy products, shoes and building materials as well as grains such as maize which has contributed to protein malnutrition of little kids of poor families according to critics.
Sri Lanka’s so-called de-liberalization started when macroeconomists in the Treasury bank slapped new taxes through a 25 page gazette in November 2024 after money printing triggered forex shortages.
The Sri Lanka taxes were also slapped like an ‘executive order’ as Trump did.
After Trumpist 2004 for tariff gazette which then led to a revival of the 1970s import substitution strategy, The Office of the US Trade Representative noted as follows in the next year.
“Departing from the previous liberalization path, the Government recently imposed a new import
tax on selected items by way of a levy (referred to as a “cess” in Sri Lanka) in light of a decline
in foreign reserves,” a USTR report noted at the time. (Download report)
“The government also hopes this new tax will protect domestic agriculture and industry
“The government also hopes this new tax will protect domestic agriculture and industry. Despite an improvement in the foreign reserve position, the government has not revoked the tax.”
“Together with import tariffs, the EDB levy effectively increases charges on most finished good imports to over 48 percent of the import value, with the highest charges on goods subject to specific duties.”
“The United States Embassy has received complaints from affected U.S. exporters and US companies in Sri Lanka regarding the new “prohibitive” tariff regime.”
Economists and many businessmen have begun to warn President Trump of similar consequences to what Sri Lanka suffered following his sudden tariff plan. (Colombo/Apr09/2025)
