Sri Lanka tariff reform could repeat past failures unless vulnerable firms and workers receive credible adjustment support, the CSF warns.
Sri Lanka tariff reform risks repeating a decade-old policy failure unless the Government creates a credible mechanism to protect vulnerable firms and workers from liberalisation.
The Centre for a Smart Future (CSF) has warned that the Government must establish the institutional foundations for trade adjustment before industry pressure begins shaping policy through lobbying, exemptions and political accommodation.
In its Policy Note, Designing a Credible Trade Adjustment Program for Sri Lanka’s Renewed Tariff Rationalisation Plans, the independent think tank welcomed signs that a trade adjustment mechanism is being considered alongside tariff reforms.
The mechanism could also become important if Sri Lanka resumes Free Trade Agreement negotiations.
However, the CSF cautioned that a system based mainly on consultations and ministerial referrals would be insufficient.
It said the institution must have the analytical capacity and independence to identify vulnerable sectors, assess adjustment needs and make evidence-based recommendations.
Sri Lanka Tariff Reform Brings New Adjustment Risks
The warning comes as Sri Lanka implements its National Tariff Policy, issued by the Department of Trade and Investment Policy in February 2026.
The policy commits Sri Lanka to a simplified four-band Customs Import Duty structure.
It also provides for a phased reduction of the CESS levy through 2029 and rejects open-ended tariff exemptions as a method of supporting industries.
The policy describes the existing tariff system as an “Anti-Export Bias Duty Regime.”
According to the CSF, the World Bank has estimated that this distortion has cost Sri Lanka about $10 billion in unrealised annual export potential.
Correcting that distortion remains a legitimate long-term objective.
However, the immediate consequences could be severe for businesses and workers in labour-intensive industries that developed under high levels of protection.
SMEs, less productive businesses, rural workers, women and less-skilled employees could face the greatest difficulties adjusting to the reforms.
Without structured support, the CSF warned, affected firms and workers may have to absorb those costs alone.
Industries could then seek exemptions through direct political lobbying, while pressure grows to delay, dilute or reverse the reforms.
CSF Warns Against Repeating 2017-2019 Experience
Such an outcome could repeat the experience of Sri Lanka’s 2017-2019 liberalisation attempt.
During that period, the trade, industry and finance ministries jointly developed a Trade Adjustment Program.
Cabinet approved the programme in early 2019.
Although officials had substantially completed its technical framework, the programme was never operationalised after the reform effort stalled following a change of Government.
The CSF is therefore calling for an independent Trade and Productivity Commission, or TPC.
It proposes that the body operate alongside, but separately from, the proposed National Tariff Policy Committee.
The NTPC, chaired by the Treasury Secretary, is expected to process tariff proposals, generally on a quarterly basis.
However, the CSF argues that the committee is neither designed nor staffed to conduct detailed sector- and firm-level vulnerability assessments.
It also lacks the structure needed for detailed hearings and evaluation of adjustment plans.
A dedicated TPC secretariat, the CSF said, could process submissions, commission research, prepare case files and maintain a public record of recommendations and decisions.
The earlier framework’s seven-member commission model, operational manual and implementation guide could provide a ready foundation.
The central question facing the Government is therefore not whether Sri Lanka tariff reform should proceed.
It is whether Sri Lanka will build institutions capable of managing the consequences fairly while preventing political pressure from once again weakening the reform process.
