The Sri Lanka-USA Business Council of the Ceylon Chamber of Commerce – focusing on strengthening bilateral trade, investment, and business ties between Sri Lanka and the United States, recently hosted a timely webinar on the evolving US tariff regime and its implications for Sri Lankan exporters. The session brought together trade experts and industry leaders to examine how Sri Lanka can navigate risks, leverage short-term opportunities, and prepare for long-term competitiveness.
Delivering the welcome note, the Sri Lanka-USA Business Council President and also the Group Chief Financial Officer of MAC Holdings, Tilak Gunawardena, stressed the importance of understanding the shifting US trade environment. ‘As global trade regulations continue to evolve, understanding US tariff policy is vital for Sri Lankan businesses seeking to grow and sustain their presence in the US market,’ he said. He reaffirmed the Council’s commitment to supporting the wider business community with timely, relevant, and actionable insights.
Setting the stage, Advocata Chief Executive Officer Dhananath Fernando explained that the discussion would focus on how US tariffs are reshaping global trade, the risks Sri Lanka faces, and the opportunities that may arise from this changing environment.
The discussion opened with Deloitte India Executive Director Vijay Chauhan, with over 30 years of experience on public policy, trade facilitation, customs and indirect tax administration. He provided a breakdown of how the US is applying tariffs through domestic laws such as the International Emergency Economic Powers Act (IEEPA), Section 232 (national-security tariffs on steel, autos, etc.), and Section 301 (actions mainly targeting China). Vijay noted that while these tariffs are being challenged in the US courts, they currently remain in force, however he advised exporters to maintain meticulous documentation and remain in close contact with US counterparts in case refund opportunities arise in future.
Lanka’s tariff rate has fallen to 20%
Turning to the industry perspective with Yohan Lawrence, a key voice in the apparel sector, the Chairman of the Exporters Association of Sri Lanka and the Secretary General of the Joint Apparel Association Forum (JAAF). He observed that Sri Lanka’s tariff rate has fallen to 20%, now in parity with competitors like Bangladesh, Cambodia, and Vietnam. Therefore, apparel orders have not shifted significantly. Further, as many buyers expect India’s current 50% tariff to be temporary, they’re hesitant to shift supply chains to Sri Lanka. He cautioned that the real concern would be that the higher tariffs could drive inflation in the US and reduce consumer demand, forcing global brands to push suppliers – including Sri Lanka – to cut prices, with potential consequences for export revenues and jobs. However, to cushion the impact of the US pressures, he noted that the UK’s new trade scheme could offer Sri Lanka some relief and opportunities.
Adding a broader economic lens, Shiran Fernando, Chief Economist of the Ceylon Chamber of Commerce leading the Chamber’s Economic Research and policy advocacy initiatives, explained that fears of a major export slump have not materialised. In fact, most Asia-Pacific countries, including Sri Lanka, reported export growth in the first half of the year. Yet Sri Lanka’s growth was slower than peers such as Vietnam and Thailand, which have benefited from electronics demand driven by the global AI boom. Meanwhile, US imports from China are falling but China has rerouted to ASEAN, the EU, and Latin America, intensifying competition for Sri Lankan exporters.
Speaking on compliance requirements that Sri Lankan exporters should exercise caution on, Vijay highlighted three key aspects; accurate HS classification – to avoid overpaying duties; valuation strategies – including the legal use of the ‘first sale’ rule (provided transfer pricing rules are respected) and rules of origin – where only genuine value addition qualifies products as Sri Lankan. He stressed that missteps here can lead to severe penalties.
However, Vijay also noted an opportunity: Indian firms may look to partner with Sri Lankan companies for further processing before exporting to the US under Sri Lanka’s lower 20% tariff – granted rules of origin and compliance are carefully followed.
Non-tariff barriers may prove more critical than tariffs
Both Yohan and Shiran emphasised that non-tariff barriers may prove more critical than tariffs themselves. While Sri Lanka’s apparel exports face few non-tariff barriers in the US, Sri Lanka imposes many on its own imports. Shiran noted that, since Sri Lanka operates under a Trade and Investment Framework Agreement (TIFA) with the US rather than a full FTA, these non-tariff measures often create friction in trade discussions. He also pointed out that the country’s tariff structure remains ‘convoluted,’ with para-tariffs that further complicate negotiations. However, under the IMF program, Sri Lanka is expected to gradually simplify these structures – a move both panellists stressed is essential.
The panel also discussed sectoral exposure of the tariffs as two-thirds of Sri Lanka’s exports to the US are apparel, followed by around $ 300 million in rubber products and smaller contributions from tea and other sectors. While the reduction of tariffs to 20% has provided relief, this advantage is fragile. Both Lawrence and Fernando warned that tariffs are a ‘moving target’ and could rise again if Sri Lanka mishandles trade policy, as seen with India.
The audience also directed a question on how Sri Lanka compares with Vietnam, to which Lawrence noted that while both countries now face the same 20% tariff, Vietnam enjoys an edge due to its stronger domestic fabric base, while Sri Lanka relies heavily on inputs from China. If stricter ‘rules of origin’ are enforced, this gap could widen.
In terms of global positioning, Vijay stressed that current tariff arbitrage is a short-term window of opportunity. Over the long term, as tariffs are expected to stabilise between 10-20%, Sri Lanka must strengthen its comparative advantage through productivity, efficiency, and greater market access to other countries.
He pointed to FTAs as a key tool for accessing new markets but urged that future agreements should focus more on addressing the non-tariff barriers than just tariff measures.
Sri Lanka’s future depends both on the US Supreme Court’s eventual ruling on tariffs and on domestic reforms. Even if tariff advantages persist in the short term, lasting gains will come only through deeper reforms, greater efficiency, and stronger trade agreements
Conflicts between customs valuation and transfer pricing rules will always exist
In response to a question on transfer pricing risks with the US, Vijay cautioned that conflicts between customs valuation and transfer pricing rules will always exist. He noted that while lower tariffs previously meant valuations were largely shaped by transfer pricing, companies must now balance both regimes carefully. Any attempt to reduce customs values, he stressed, should be checked for consistency with transfer pricing rules to avoid penalties.
Fernando provided relevant insights on Sri Lanka’s currency outlook. While the rupee appears stable against the US dollar, domestic pressures – higher imports, weaker tourism inflows, and the Central Bank’s progress on the reserve build-up – suggest gradual depreciation. He clarified that Sri Lanka is not ‘manipulating’ its currency, as alleged in past US debates, but remains vulnerable to external shocks. To build resilience, he argued, Sri Lanka must push ahead with ‘second-generation reforms’ such as tariff simplification, trade facilitation, digitised customs, stronger FTA negotiation capacity, and labour market reforms.
Finally, Lawrence highlighted sustainability as Sri Lanka’s long-term differentiator. While price remains the main driver in the US market, brands continue to demand ethical and sustainable practices. With the EU and UK tightening compliance requirements, Sri Lanka’s reputation for sustainable manufacturing can provide a lasting competitive edge – even if buyers are reluctant to pay extra for it in the short term.
Summing up, Dhananath noted that Sri Lanka’s future depends both on the US Supreme Court’s eventual ruling on tariffs and on domestic reforms. Even if tariff advantages persist in the short term, lasting gains will come only through deeper reforms, greater efficiency, and stronger trade agreements. The panel agreed that while tariffs will remain important, non-tariff barriers, compliance, and competitiveness reforms will ultimately shape Sri Lanka’s success in global markets.