Solutions to Trump’s tariffs lie beyond negotiating tables

By Dhananath Fernando

Originally appeared on the Morning

We all hope that by 1 August, Sri Lanka will secure a better deal with the United States on the proposed tariffs affecting around 25% of our total exports. Continued engagement is essential, but we must recognise a hard truth: the real solutions go far beyond negotiations.

Even if we manage to win a 0% tariff deal with the US, that alone won’t fix our export problem. Our exports aren’t underperforming because of foreign tariffs; they are underperforming because we are not competitive enough. The problem lies at home.

While diplomatic efforts must continue, meaningful results will only come from bold, domestic trade and investment reforms. And those reforms must happen together, not in isolation.

Consider the recent India-UK Free Trade Agreement. It is expected to boost bilateral trade by $ 34 billion. The UK will cut average tariffs on Indian goods from 15% to 3%. Tariffs on whisky and gin will fall from 150% to 75%, and down to 40% within 10 years. Car tariffs will drop from over 100% to 10%. On the other hand, 99% of Indian exports to the UK, including textiles, food, and footwear, will enter tariff-free.

What does this mean for Sri Lanka? Simply put, Indian products will now have a significant edge in markets we once competed in. Even though Sri Lanka benefits from the UK’s new Developing Countries Trading Scheme (DCTS), India’s preferential trade access will make its goods more competitive than ours.

India isn’t stopping there. Trade agreements with the European Union (EU), Chile, the Gulf Cooperation Council, New Zealand, the European Free Trade Association (EFTA, comprising Switzerland, Norway, Iceland, and Liechtenstein), and ASEAN are all underway. Each deal pulls the rug further from under our feet.

Unlike India, Sri Lanka is not a large market. We don’t have the leverage to bring global powers to the table. Beyond basic-level conversations with Bangladesh, China, and Indonesia, we haven’t shown much interest in trade deals. The agreements we have signed – with Singapore and Thailand – are gathering dust. The long-stalled Comprehensive Economic Partnership Agreement (CEPA) with India remains a missed opportunity.

Let’s be honest. Competing with India in terms of price, scale, and often even quality is becoming increasingly difficult. That’s why the rational path forward is clear:

1. Integrate deeper with India

2. Unilaterally reduce trade barriers

3. Use this openness to attract investment

India’s aggressive trade strategy gives its exporters – and its value chains – a global advantage. If Sri Lanka can position itself as a reliable partner within India’s export ecosystem, we can gain by being part of its value chain. But to do that, we must get our house in order.

Currently, all our focus is on negotiation tables. But investment will not come unless we fix our own fundamentals. That means reforms in land use, labour laws, and industrial zones. Investors are not waiting for handshakes and smiles; they are looking for reliable, efficient, and reform-oriented partners.

Meanwhile, new regulatory pressures are emerging in our traditional markets too. The EU’s new Corporate Sustainability Due Diligence Directive (CSDDD) will reshape how businesses operate. 

This law requires large EU companies – and by extension their global suppliers – to actively prevent human rights and environmental violations across their operations. Without flexible labour regulations and well-functioning industrial zones, Sri Lanka risks losing even the markets we already have.

So here we are, caught between slow internal reforms and an aggressive global trade race.

The opportunity is still within reach. Deeper integration with India, along with smart reforms, can turn Sri Lanka into a competitive, attractive export and investment hub.

One year ago, Parliament passed the Economic Transformation Bill. One year later, we are still talking, not doing. That alone proves that solutions to US President Donald Trump’s tariffs – and many of our economic woes – won’t be found across negotiation tables. They begin right here, at home.

Bouquets and brickbats for Economic Transformation Bill

By Dhananath Fernando

Originally appeared on the Morning

We all agree that Sri Lanka’s economy requires transformation. Can we transform an economy solely through an Economic Transformation Bill? No. Can we do it without a bill, without a proper legal framework and institutional structure? Again, the answer is a definite no.

Overall, the bill essentially unbundles the Board of Investment (BOI) into three main parts: establishing a powerful Economic Commission to decide and drive investment strategy at a national level, improving the investment climate for investors, and setting up Invest Sri Lanka to attract investors.

The current zones managed under the BOI have been transferred to a new organisation, with options for establishing industrial zones in collaboration with the private sector. This aims to resolve land issues and improve facilities for investors. The new institution is focused purely on trade agreements and economic integration with global supply chains.

A Productivity Commission, modelled after Australia’s, is proposed to enhance market efficiency and prevent anti-competitive practices. Lastly, a type of Government think tank is proposed to provide research services and analytics on trade and investment.

The bill also appears to compile six ideas into one comprehensive piece of legislation. Incorporating debt-to-GDP ratio targets, export-to-GDP ratio targets, and gross financing needs expectations seems to be another objective, as outlined in the preamble.

Risk of political interference

On the flip side, the appointment of members for the Economic Commission and other institutions falls directly under the president’s purview. In instances where the president is also the minister of finance, significant economic powers are concentrated in the hands of a single individual. Given that the majority of members can be appointed by the president, there is a significant risk of political interference in the business and investment climate.

We can set up numerous institutions, but real reform and transformation occur not when the bill is passed but rather when capable individuals drive real change. If we have flawed provisions for the appointment of members to the Economic Commission and other institutions, allowing for political interference, we risk creating another ineffective BOI.

Ideally, appointments should be nominated or approved by the Constitutional Council (CC). Additionally, representation from professional bodies such as the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) could ensure adherence to ethical standards.

Steps in the right direction

The new bill proposes six key institutions:

Economic Commission (EC)

Invest Sri Lanka (Invest SL)

Zones Sri Lanka (Zones SL)

National Productivity Commission (NPC)

Office for International Trade (OIT)

Sri Lanka Institute of Economics and International Trade (SIEIT)

The idea of establishing a separate entity to manage investment zones is a step in the right direction. A 2018 study by the Harvard Center for International Development revealed that 95% of BOI investment zones were occupied and investors had identified land availability as a constraint.

Rather than having the BOI run industrial zones, there are many private sector players who can provide better services to investors. Zones SL should collaborate with the private sector to open new zones, providing infrastructure as landlords rather than managing the zones themselves.

The Productivity Commission is another positive policy step, provided it is implemented correctly. Its role should be to ensure a data-driven approach to productivity in each sector, promote competition, and encourage international competitiveness.

The commission should work with industry experts, as productivity expertise varies by sector. Australia’s experience with its Productivity Commission demonstrates the importance of maintaining focus on competition and avoiding mission drift, as seen with the Consumer Affairs Authority, which has deviated from its original purpose.

The OIT aims to address the lack of capacity in trade negotiations. The bill’s overall concept targets structural issues that hinder exports and Foreign Direct Investments (FDIs). However, it does not guarantee the intentions of politicians or ensure that everything will improve after the passage of the bill. The appointment process and selection of competent individuals for committees are crucial.

Implementation challenges

The key challenge for Sri Lanka will be execution. A large government with poor capacity is likely to result in political appointees populating these commissions, given the current appointment structure and salary scales. There is little incentive for qualified individuals to join at the current salaries offered.

Moreover, the Government lacks the capacity to offer higher salaries, and doing so for one segment could lead to demands for salary increases across the board or protests during a politically sensitive period. Phased reforms to reduce the State’s workforce are necessary to improve State capacity and manage these institutions effectively.

When the BOI was established, it was intended to be a one-stop shop for investors. However, it has become another bureaucratic hurdle. We risk repeating this mistake with all six proposed institutions if the wrong individuals are appointed. Conceptually, the policy is in the right direction, but its success depends on the implementation and the people driving it.