Our trade debate is lopsided. Tariff removal draws headlines, export diversification draws budget speeches, and international negotiations draw the President’s attention.
Few proponents of trade reforms discuss what happens to the workers and firms who lose out once protection is stripped away. That gap matters more than it is treated as mattering, since it is what will determine whether liberalisation survives contact with domestic politics.
Sri Lanka has built this machinery before. According to the Centre for Smart Future, between 2016 and 2018, as the then Government pushed to remove tariff lines and phase out para-tariffs, officials assembled a support scheme built on data rather than lobbying. Each sector’s exposure was modelled against the protection it had enjoyed, alongside production, employment, and firm growth, with results broken down by gender and region. It was a genuine attempt to base decisions on evidence rather than complaints.
The scheme did not survive the political disruption that followed the 2018 constitutional crisis, and the effort lapsed.
A parallel body fared little better. A commission of trade, industry, and statistical experts was set up to review how liberalisation was landing on the ground and to recommend whether particular sectors needed a longer transition. In principle, this gave industry a structured channel to raise concerns, rather than relying on whichever firm could get a minister’s ear. In practice, its reach and record remain thin.
Neither mechanism failed for want of a good idea. Both stalled for a more familiar reason: Sri Lankan policymaking tends to design well and finish badly. Crises intervene, governments change, and the officials who built these tools move on and take their knowledge of them along. Reviving what already exists, rather than starting over, would serve the country better as tariff pressure returns.
The case for doing so is stronger now than it was in 2016. Ten years since, Sri Lanka cannot follow economies such as South Korea, which can absorb tariff shocks with broad financial support to at-risk industries; its fiscal space will not allow it. That constraint argues for precision. Support should go to the sectors and firms that are genuinely struggling, calibrated by evidence, not to whichever industry lobbies hardest.
Revenue considerations sharpen the point. With the Finance Ministry now leading the country’s tariff overhaul, fiscal cost is becoming as central to the calculus as industrial policy once was. Adjustment support cannot be designed apart from that reality. It has to be weighed against what the state can actually afford to forgo in revenue while protecting the industries that need protecting.
Striking new trade deals and diversifying export markets still matter, and neither should be neglected.
But a liberalisation strategy without a working adjustment mechanism not only leaves exposed firms to fend for themselves.
The cost of that neglect is not confined to individual companies and workers. It is the policy itself that suffers, as governments lose the political room to hold the line on reform, retreat under pressure from whichever sector shouts loudest, and abandon the very liberalisation that was meant to deliver sustainable growth. Sri Lanka has already learned what it takes to build the machinery to prevent that. It has not yet learned how to make it work.
There is also a sequencing argument for treating adjustment support as foundational rather than peripheral. Sri Lanka’s other perennial struggles, striking deeper bilateral and regional trade agreements, negotiating from a position of strength, and finally broadening an export basket that has barely changed since the 1990s, all depend on a domestic constituency willing to back liberalisation rather than resist it.
A credible adjustment mechanism buys that support. Without it, every negotiation, liberalisation and diversification push will keep running into the same domestic resistance that has stalled reform for two decades.