The Government is continuing negotiations with the US for better competitive trade terms while strengthening its forced labour import controls, as officials cautioned that the current 10% additional tariff treatment would not by itself provide exporters a lasting advantage over regional competitors.
Trade Ministry and Commerce Department officials told Parliament’s Committee on Public Finance (CoPF) on 11 August that negotiations remained under a non-disclosure agreement (NDA) and a final agreement had yet to be reached.
“We are negotiating under the NDA. So, I can limit what we can tell,” an official said.
Officials said Sri Lanka initially faced a 44% country-specific tariff, which was brought down through negotiations, first to 30% and then to 20%. However, those country-specific rates were not implemented before a global 10% rate took effect.
The current 10% additional rate applies on top of existing Most-Favoured-Nation (MFN) duties, which vary according to the Harmonised System (HS) code of individual products. An average MFN rate of around 16.5% was cited during the CoPF discussion, though officials stressed that the actual rate varies by product.
Separately, the Office of the US Trade Representative (USTR) initiated proceedings under Section 301 of the Trade Act of 1974 covering 60 countries, including Sri Lanka, over controls on imports of goods produced using forced labour.
Officials said Sri Lanka initially fell into the 12.5% category as it lacked regulations and an enforcement mechanism to prevent imports of goods produced using forced labour, despite having domestic laws addressing the practice.
The Government subsequently appointed a technical committee, while Sri Lanka appeared at a US public hearing on 9 July and made its submission. Officials said the proposal was received positively, following which regulations were introduced to prevent imports of goods produced using forced labour.
Officials said Sri Lanka’s submission and regulatory measures were accepted by US authorities, enabling the country to move from the 12.5% category to 10% and maintain its competitiveness in the US market.
However, they cautioned that other countries were also moving to introduce similar forced labour controls, making Sri Lanka’s present advantage less durable. Of the 60 countries concerned, officials said 19 had received the 10% treatment, while others faced 12.5%. Most of Sri Lanka’s regional competitors were already at 10%.
Against this backdrop, the Cabinet has directed the same technical committee to develop a longer-term mechanism, including examining whether the existing legal framework is sufficient or requires amendments, new legislation, or further regulations. Customs is expected to remain the border enforcement agency.
The rules are also intended to prevent goods linked to forced labour from entering Sri Lanka as inputs, undergoing value addition, and subsequently being exported to the US. Officials said many exporters serving Western markets already undertake supply-chain verification, although small and medium enterprises (SMEs) dependent on third-party importers could face greater exposure.