ECONOMYNEXT – Sri Lanka is considering energy imports and tariff reforms as part of efforts to address a 44 percent tariff imposed on the island by US President Donald Trump, Deputy Economic Minister Anil Jayantha said.
Energy is one of the largest imports of the country, where a significant change could be shown.
Sri Lanka had two virtual meeting with US officials before the Trump tariffs was paused.
Though US does not engage in government-to-government transactions, and possible private firms that Sri Lanka could work with would be indicated.
Sending a negotiation mission as soon as practicable to discuss details either in Washington or Colombo was also discussed, Minister Jayantha said.
President Anura Kumara Dissanayake had written to President Trump. The Treasury had also submitted a more detailed document to the office of the US Trade Representative and the White House.
In terms of tariffs, Sri Lanka’s highest rate was 20 percent, and some goods were already at zero, Minister Fernando said.
Sri Lanka however had so-called para tariffs, involving CESS and Port and Airport Levy.
Sri Lanka’s so-called ‘de-liberalization journey’ began in November 2004 with a gazette with 25 pages filled products slapping taxes at midnight without parliamentary approval, in the style of a Trump executive order.
The fateful gazette then led to the rise of protectionist oligarchs, who were able to block free trade agreements, by financing politicians, critics say.
Sri Lanka has a history of macro-economists cutting rates or re-financing bank credit. When forex shortages emerge macro-economists – including in the Treasury who are usually seconded from the central bank – then persuade politicians into imposing trade or exchange controls upon the people.
The office of the US Trade Representative at the time pointed out that Sri Lanka had reversed course, and was going on a path of self-sufficiency.
Unlike now US policy at the time was toward global free trade, and mutual prosperity by empowering the consumer sovereignty of the poorest citizen against protectionist business interests.
“The government’s Economic Policy Framework has backtracked on the previous government’s trade liberalization strategy,” a USTR report pointed in 2005.
“It specifically calls for protection of small and medium enterprises and agriculture.”
“[D]eparting from the previous liberalization path, the Sri Lankan government 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.
“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.”
The protectionism later led to the promotion of protein malnutrition by severely controlling maize imports to drive up chicken and egg prices, according to critics. Shocking taxes were imposed on diary products to support one company.
The maize controls were initiated with the political establishment by a collector who was blacklisted by a top poultry firm for overpricing maize, according to insiders who know the origins of maize protectionism.
In subsequent years the USTR continued to point out taxes imposed on apparels and food products.
Under the so-called Yahapalana era, as money printed through open market operations for flexible inflation targeting led to forex shortages, the USTR highlighted further controls.
Ironically, flexible inflation targeting and ‘data driven monetary policy’ which leads to rate cuts based on backward looking past 12-month inflation was promoted by the US-based International Monetary Fund.
“When there have been balance of payment difficulties, the government has imposed controls on foreign exchange transactions,” the USTR report noted in 2017.
“In December 2015, the Sri Lankan government imposed a cap on vehicle financing. Financing is limited to no more than 50 percent of the value of the vehicle for cars (90 percent of the value for electric vehicles) and 70 percent for buses.”
The USTR also highlighted price controls of the National Medical Regulatory Authority which effectively blocks higher priced US branded drugs even if consumers wanted them.
USTR had also highlighted taxes on apparels in the past and also the practice of Sri Lanka customs imposing valued added tax on a 10 percent extra imputed value. (Colombo/Apr12/2025)
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