Thematic Area: Policy Efficiency and Competitiveness
The trade and regulatory policy environment in Sri Lanka’s export markets is evolving rapidly. In the European Union (EU), Sri Lanka’s eligibility for the Generalised Scheme of Preferences (GSP) can sometimes become uncertain due to the programme’s conditions. Increasing environmental regulations such as the European Union Deforestation Regulation (EUDR) significantly raise compliance costs, while the United Kingdom’s Developing Countries Trading Scheme (DCTS) and changes to the rules of origin (ROOs) could present potential economic benefits for Sri Lanka.
In the US, protectionist “reciprocal tariffs” have increased Sri Lanka’s effective tariff rate by nearly 20 percentage points. These tariffs could have a notable economic impact since the US accounts for a quarter of Sri Lanka’s exports. Altogether, the EU, UK, and the US represent 54% of Sri Lanka’s merchandise exports in 2024. In this context, a systematic and comprehensive economic analysis is essential to quantify the effects of policy changes in these markets on Sri Lanka’s economy.
Accordingly, this study aims to assess the impacts of evolving trade policies in Sri Lanka’s major external markets and to explore trade reforms that could serve as viable solutions. Specifically, it will estimate the economic effects of changes in GSP tariff regimes and the EUDR within the EU, analyse the macroeconomic and labour market impacts of the US reciprocal tariffs, and evaluate whether joining the Regional Comprehensive Economic Partnership (RCEP) could enhance Sri Lanka’s overall welfare.
