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Lanka grants host of concessions to US in tariff negotiations
View(s):- 1,161 industrial and 42 agricultural products from Sri Lanka covered; but MFN duties on some items
- “Very high percentage” of US goods to enter Lankan market free of border charges
Sri Lanka granted the United States a wide range of concessions in exchange for the US reducing its “reciprocal tariff” on Sri Lankan goods to 20 per cent from the previous 30 per cent that was due to have come into effect on August 1, authoritative sources said.
The concessions apply to both US industrial and agricultural goods. The US has given the same treatment to 1,161 industrial and 42 agricultural products from Sri Lanka while continuing to push for removal of all duties on US exports to Sri Lanka—similar to agreements it has reached with Bangladesh, Cambodia, Indonesia, Pakistan and Vietnam, these sources said.
Meanwhile, the Sri Lankan goods, for which the US granted concessions, will still be subject to Most Favoured Nation (MFN) tariffs, the rates of which differ based on the item. Sri Lanka has MFN status with the US, as do most other countries.
The US MFN policy, also known as “permanent normal trade relations,” generally refers to a trade principle where a country grants the same trade advantages, such as lower tariffs, to all trading partners receiving MFN status. MFN rates were approved through the US Congress, while “reciprocal tariffs” were introduced by US President Donald Trump via an Executive Order on April 2 this year and are the subject of an ongoing legal challenge.
The sources said the latest round of negotiations led to the US granting certain Sri Lankan commodities a zero reciprocal tariff, although MFN rates will still apply—or, in some cases, MFN plus a 10 per cent reciprocal tariff.
“In effect, on the list of 1,161 industrial goods and the 42 agricultural goods, most will not have any reciprocal duty imposed—and, therefore, will be considered zero reciprocal tariff—but will still be subject to MFN,” the sources explained. “Some will be MFN plus a 10 per cent reciprocal tariff. Anything not covered in the list of 1,161 and 42 goods will be subject to MFN plus a 20 per cent reciprocal tariff.”
They added that Sri Lanka’s objective is to reduce the reciprocal tariff lower and to also expand the concessionary list—mainly industrial goods—to include more lines on apparel, coconut by-products, gems and jewellery and fisheries.
In return, Sri Lanka has given concessions on around 2,000 industrial goods and, to a lesser extent, agricultural products. A “very high percentage” of US goods are set to enter into Sri Lanka free of border charges (the US objective is to cut the trade deficit, which is hugely in Sri Lanka’s favour). Sri Lanka has also committed to purchasing US$500 million worth of crude oil and US$300 million worth of LPG.
The US has not granted any country exemptions on the Congress-approved MFN duties. In negotiating the reciprocal tariff, however, Sri Lanka’s objective—which matches the goal of other nations—is to remain competitive vis-à-vis its competitors. The latest revision puts Sri Lanka on par with the main contenders for exports to the US (Bangladesh, Pakistan, Vietnam and Cambodia, when it comes to apparel).
Seventy per cent of Sri Lanka’s exports to the US are garments. However, of the 1,161 industrial items for which the US has granted concessions, not all of them fall into Sri Lanka’s export list to the US at present. “If you put a value on the list and on the exempted lines given to us, as a percentage of total exports, it amounts to about 25 percent,” the sources estimated. “Garments are covered, and so are various other exports.”
Sri Lanka has a trade surplus of 88 per cent with the US, exporting significantly more to the country than it imports from the US. President Trump wants to cut such deficits in the US’ interest, while his benchmark for a successful “deal” with any country remains full liberalisation.
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