Business

Going Beyond the US Reciprocal Tariffs: Sri Lanka’s exposure to the tariffs and exemptions

Published

1 year ago

2025/05/14

The United States’ (US) proclamation of “reciprocal tariffs” dealt a blow to the global trade system based on the World Trade Organisation (WTO) principles. With the individualised tariff rates, the US has discarded non-discrimination in the Most-Favoured-Nation (MFN) tariff structure. The “reciprocal tariff” rate does not show any reciprocity but rather a calculation hypothesised to drive a bilateral trade deficit to zero.

Although the “reciprocal tariff” grabbed attention, US trade policy under the second Trump administration is more complex. Section 232 of the US Trade Expansion Act of 1962 is being used to target key sectors like steel, aluminium, and auto parts. In addition, investigations are ongoing to determine tariffs for copper, critical minerals, pharmaceuticals, and lumber.

For Sri Lanka, as calculated using 2024 data, 95.6% of US imports are subject to reciprocal tariffs – with the 90-day pause, standing currently as a 10% global tariff. In addition, 4.2% of imports from Sri Lanka are subject to the steel and aluminium and auto parts tariffs imposed under Section 232. However, 0.2% of Sri Lanka’s imports are exempted from the new tariff measures. These exemptions were made by issuing Annex-II of the US Executive Order on the reciprocal tariffs and a notice issued by the US Customs and Border Protection (CBP) on April 12.

Sri Lanka’s Exposure to Section 232 Tariffs:

Steel, Aluminium and Auto Components Tariffs

In 2018, under the first Trump administration, the US imposed a 25% tariff on steel and a 10% tariff on aluminium imported from all trade partners under Section 232 tariffs.

On March 12, 2025, the US expanded the 2018 Section 232, increasing the aluminium tariff to 25%, removing all existing exemptions, and adding more derivative products which use steel and aluminium as components. For example, a keg is an aluminium derivative product. When steel and aluminium imports are expensive due to tariffs, domestic producers are no longer competitive in the production of derivatives such as the keg in the earlier example. This leads to lobbying for cascading protectionist tariffs on imported derivatives. Thus, cascading protectionism means that when a raw material is subject to tariffs in the downstream, the final good becomes less competitive, forcing producers to demand tariff protection for the final goods.

Sri Lanka’s exports will be subjected to an additional 25 per cent of the value of the steel and aluminium content under the 2025-Section-232 tarrifs. The newly added aluminium derivative products account for USD 28.5 Mn in US imports from Sri Lanka, across 27 products. There are USD 80.78 Mn imports under 20 products from Sri Lanka, which are categorised as steel derivatives under the Section 232 Steel and Aluminium tariff proclamation by the US.

New challenges for exporters

One main challenge of the new US tariff structure is the additional reporting requirements to exporters. Notably, the stipulated tariffs will be calculated for the steel or aluminium value of the products, which are exempt from reciprocal tariffs. For example, machinery parts made of steel will be subject to 25% additional steel tariffs, but they are not subject to 10% or 44% reciprocal tariffs. If the machinery parts contain 60% steel value, then the 25% tariff is applied for the 60% steel value. The remaining 40% is subject to the relevant tariff line specified for machinery parts. The exporters need to report on the aluminium and steel content by value, and failure to do so will result in an additional 25% tariff on the whole product’s value.

Lack of information on the steel and aluminium content makes reporting challenging for exporters. Although tariff calculations need the aluminium or steel value, that information is not given in publicly available data; the calculation of tariff increases needs assumptions. Assuming 25% of product value, the fabricated metal sector sees a weighted average tariff increasing to 6.7% from the base tariff rate of 0.6%. The Section 232 products are not subject to reciprocal tariffs. It explains the stable weighted average tariff rate for the fabricated metal sector, even after applying a 10% global tariff and 44% reciprocal tariffs in Figure 2.

The US also announced tariffs on automobiles and parts on March 26 and enacted auto tariffs on April 03. However, the tariffs on automobile parts were delayed to a future date not later than May 03, 2025. The auto components account for 0.5% or USD 10.9 Mn exports by Sri Lanka. New pneumatic radial tyres, non-cellular vulcanised rubber articles, and electric control apparatus are among the products subject to auto component tariffs. As shown in Figure 2, the effective weighted average tariff for motor vehicle sector exports from Sri Lanka to the US will increase to 19.66% on May 03.

Exemptions from some additional tariffs have little Implications for Sri Lanka.

The US exempts certain products necessary for the US domestic industries or those that are subject to Section 232 tariffs. Ten products exported by Sri Lanka are exempted from the reciprocal tariffs, including natural rubber and natural graphite (Figure 3). Natural graphite is an essential component and critical mineral in EV battery manufacturing. On April 12, the US Customs and Border Protection (CBP) released another list of exemptions, primarily composed of electronic equipment. The exemptions exclude products from the direct effect of additional tariffs. However, there is no added advantage from this exclusion, as all countries receive the exemptions, eliminating any relative price advantage for Sri Lanka.

Note: These exemptions were made by issuing Annex-II of the US Executive Order on the reciprocal tariffs and a notice issued by the US Customs and Border Protection on April 12.

Reciprocal Tariffs: Effective Tariff Rates for Sri Lanka

As a 44% “reciprocal tariff” will not be imposed until July, the current effective tariff rate is the MFN rate plus 10%, which applies to 95.6% of Sri Lanka’s exports to the US, worth USD 2.93 Bn. Accordingly, since April 05, the apparel sector has had a 26.65% average tariff (Figure 4). The base MFN tariff average for wearing apparel was 16.65%.

Sectors such as rubber, other manufacturing products, including gems and precious stones, and food preparations experience the most significant relative tariff hikes. These sectors had tariff rates that were less than 2% before April 05. Notably, 37.7% of Sri Lanka’s apparel exports go to the US, while the US share in other manufacturing products is 67.6% (Figure 4). The high reliance on these sectors increases their vulnerability to tariff shocks and plunges in demand in the US market.

As the Section 232 steel and aluminium tariffs, 10% global tariff, and exemptions are already effective, a significant challenge exporters face is meeting reporting requirements. For example, exporters need to report the steel and aluminium content for tariff calculations, and failure will result in the automatic application of 25% to the total value of the derivative product.

In addition, the country of origin of steel and aluminium used in derivative products should be declared to avoid the 200% tariff imposed for aluminium and steel from Russia. Thus, reporting can be a technically challenging and costly task for exporters.

In addition, Sri Lanka needs to be vigilant and follow the US CBP guidance to avoid higher tariffs due to rules of origin; If a different country is identified as the country of origin, Sri Lanka must pay the tariff rate applied to that particular country. Irrespective of the outcome of negotiations on the 44% reciprocal tariffs, the Section 232 tariffs, reporting requirements, and rules of origin complexities will prevail. The necessary technical assistance should be provided to the exporters to minimise the tariff cost under the current US trade policy regime.

By Dr AsAnkA

Wijesinghe

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Business

India–Sri Lanka Business Forum highlights new momentum in trade, investment and connectivity

Published

6 hours ago

2026/05/23

Thilina Walpola

Dignitaries at the India-Sri Lanka Business Forum

The Ceylon Chamber of Commerce, in partnership with the Confederation of Indian Industry (CII), organised the India–Sri Lanka Business Forum: Partnering in Sri Lanka’s Growth and Investment and the CII – Ceylon Chamber CEOs Interaction in Mumbai on 13 May 2026. The events brought together senior government representatives, industry leaders, policymakers, and business delegates from India and Sri Lanka to deepen economic engagement and explore new avenues for cooperation across priority sectors.

The discussions reflected growing optimism about India-Sri Lanka economic relations and focused on expanding collaboration in trade, investments, connectivity, tourism, renewable energy, logistics, digital transformation, infrastructure, healthcare, education, manufacturing, and technology.

Participants included Mahishini Colonne, High Commissioner of Sri Lanka to India; Duminda Hulangamuwa, Senior Economic Advisor to the President of Sri Lanka; Dr Rajesh Ravindra Gawande, Secretary (Protocol, FDI, Diaspora & Outreach) and Chief of Protocol, Government of Maharashtra; Ms Priyanga Wickramasinghe, Consul General of Sri Lanka in Mumbai; Krishan Balendra, Chairperson, The Ceylon Chamber of Commerce and Chairperson, John Keells Holdings PLC; Anurag Agarwal, Co-chairman, CII Western Region Sub-committee on International Trade & Investment and Chief Executive Officer, Polycab India Ltd; Vishal Kamat, Chairman, CII Western Region Sub-Committee on Tourism and Hospitality and Executive Director, Kamat Hotels India Ltd; Bingumal Thewarathanthti, Vice Chairperson of the Ceylon Chamber and CEO Standard Chartered Bank Sri Lanka, Vinod Hirdaramani – Deputy Vice Chairperson of the Ceylon Chamber and Chairman Hirdaramani Group, and Shiran Fernando, Secretary General & CEO of the Ceylon Chamber.

Welcoming the delegates, Anurag Agarwal, highlighted the growing momentum in India–Sri Lanka economic relations and the emergence of future-oriented sectors driving bilateral cooperation.

He noted that India and Sri Lanka are at an important phase of economic collaboration, where connectivity, investments, innovation, and sustainable partnerships are creating new opportunities for shared growth. He further emphasised the significant potential for deeper engagement in sectors such as renewable energy, tourism, ICT, logistics, digital services, healthcare, manufacturing, education, and infrastructure.

Business

Proposed oil palm expansion sparks economic and environmental debate

Published

6 hours ago

2026/05/23

Thilina Walpola

Withanage and Kariyawasam speaking to journalists

Move to reconsider the ban on oil palm cultivation has triggered a heated debate among environmentalists, economists and plantation sector stakeholders, with critics warning that replacing rubber plantations with oil palm could weaken one of the country’s most valuable export industries while exposing the nation to long-term environmental and trade risks.

Environmental groups argue that the issue is no longer purely ecological, but a major economic policy question with implications for exports, foreign exchange earnings, rural livelihoods and Sri Lanka’s standing in international markets.

Sri Lanka banned oil palm cultivation in April 2021 through Extraordinary Gazette No. 2222/13 issued by former President Gotabaya Rajapaksa, citing environmental degradation, biodiversity loss, soil erosion and threats to water resources.

However, plantation companies are now reportedly lobbying for the reversal of the ban, arguing that oil palm offers higher short-term commercial returns compared to traditional plantation crops.

Environmentalists and policy analysts, however, caution that the long-term economic costs could outweigh the immediate profits.

Hemantha Withanage of the Environmental Justice Centre said Sri Lanka risks undermining a globally competitive rubber industry in pursuit of a commodity that generates comparatively limited national value.

“Rubber remains one of Sri Lanka’s strongest industrial export sectors. Replacing rubber with oil palm would be economically shortsighted because the downstream rubber manufacturing industry generates far greater export earnings, employment and industrial value addition, he said.

Industry statistics reveal a worrying decline in the rubber sector over the past four decades. Rubber cultivation has fallen from 171,126 hectares in 1982 to around 84,000 hectares in 2024, while production has dropped from 133,200 metric tons in 1980 to approximately 69,185 metric tons last year.

Despite shrinking cultivation, the rubber sector continues to deliver significant export revenue. Sri Lanka earned nearly USD 994 million from rubber exports in 2024, while rubber-based manufactured products generated more than USD 2.5 billion in export income.

The country also imports over USD million worth of raw and processed rubber annually to sustain domestic manufacturing demand, highlighting the strategic importance of maintaining local rubber production.

Analysts warn that further reductions in rubber cultivation could increase import dependency, weaken industrial supply chains and place additional pressure on foreign exchange reserves.

By contrast, Sri Lanka’s palm oil sector contributes relatively little to export earnings. In 2025, Sri Lanka imported 38,210 metric tons of palm oil and 33,696 metric tons of coconut oil, while the value of palm oil imports in 2023 stood at approximately USD 23 million.

Critics argue that oil palm cultivation mainly benefits plantation-level profitability rather than the broader national economy.

Thilak Kariyawasam of FIAN Sri Lanka said the environmental externalities associated with oil palm could eventually translate into significant economic costs.

“The industry’s impact on water resources, soil quality and ecosystems creates hidden financial burdens for the country. Pollution control, water management and biodiversity losses all carry long-term economic consequences that are often ignored in short-term investment calculations, he said.

Environmental groups also raised concerns that Sri Lanka could face reputational risks in export markets if environmentally controversial plantation policies are pursued.

The European Union, one of Sri Lanka’s most important export destinations and the provider of GSP+ trade concessions, has tightened regulations linked to deforestation and environmental sustainability.

By Ifham Nizam

Business

Talawakelle Tea Estates achieves International Organic Certification for Great Western and Logie Teas

Published

6 hours ago

2026/05/23

Thilina Walpola

(Up) The Logie Estate, factory is dedicated exclusively to organic tea production. (Down) Great Western Estate, certified for organic tea production under EU, USDA, and JAS standards

Talawakelle Tea Estates PLC has secured internationally recognised organic certification. A member of the Hayleys Plantations Sector and one of Sri Lanka’s premier Regional Plantation Companies, this milestone enables the Company to market certified organic teas under its renowned Great Western and Logie garden marks.

The certification spans three major global standards: the EU Organic Regulation of the European Union, the National Organic Program (NOP-US) of the United States Department of Agriculture, and the Japanese Agricultural Standards (JAS) for organic products. With this achievement, Talawakelle Tea Estates is now positioned to supply premium organic teas to international markets that demand the highest standards of certification, traceability, and product integrity.

“We are proud to reach this significant milestone after more than four years of dedicated effort to build a fully compliant organic cultivation and processing system that meets stringent international standards. This achievement shows the strength of our partnerships with the Tea Research Institute (TRI) and internationally qualified consultants and, most importantly, the commitment and collaboration of our estate and corporate teams. Together, we have established a robust and sustainable organic management framework that will support our long-term vision.” Talawakelle Tea Estates, Director / CEO, Nishantha Abeysinghe added.

To ensure consistent compliance with international standards, Talawakelle Tea Estates appointed dedicated full-time personnel from its estate teams and corporate sustainability division to oversee and manage every stage of the organic value chain – from cultivation to final manufacture.

The Company has also developed an end-to-end organic cultivation and processing management system covering the full value chain – from field-level practices to final manufacture – ensuring a structured and carefully monitored approach to organic tea production.

To safeguard product integrity and eliminate the risk of cross-contamination with conventional teas, the Company has designated low-risk fields exclusively for organic cultivation and dedicated the Logie factory entirely to organic tea production, minimising the risk of cross-contamination.

Following a series of rigorous audits, Talawakelle Tea Estates has secured full certification and is now set to launch its certified organic tea range globally under the prestigious Great Western and Logie garden marks names bringing together heritage and sustainability.

This achievement marks an important step in the Company’s broader journey to build a more sustainable, nature-based product portfolio in response to growing global demand. By combining strong garden identities with internationally recognised organic standards, Talawakelle Tea Estates continues to strengthen its position in the premium tea segment.