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PERFORMANCE REPORT

AND

ANNUAL ACCOUNTS

FOR THE YEAR 2010

DEPARTMENT OF COMMERCE

HEAD 295

4TH FLOOR, RAKSHANA MANDIRAYA, NO.21, VAUXHALL STREET,

COLOMBO 02. Tel: 011- 232 9733 / 243 6114

Fax: 011 -243 0233 E-mail: fortrade@doc.gov.lk

Web site: www.doc.gov.lk

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INDEX

Page

1. Introduction 03 2 Review of Sri Lanka’s Foreign Trade 2010 04

3 Bilateral Trade and Economic Co-operation 05

4 Joint Commissions on Trade, Economic & Technical Co-operation 08

5 Multilateral Trade Relations 10

6 Regional Economic Co-operation 15

7 Trade, Investment and Tourism Promotion 18

8 Staff movements 26

9 Financial Statement 29

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Mission of the Department

“To develop and promote Sri Lanka’s foreign trade relations at bilateral, regional and multilateral levels by effective implementation of government trade policy, with a view to raising the standards of living and realizing a higher quality of life through the increase of total production, income and employment levels, thereby actively contributing to the overall economic growth of Sri Lanka.”

Department of Commerce (DOC), the international trade policy arm of the Ministry of Industry and Commerce, plays a key role in the overall conduct of Sri Lanka’s foreign trade relations at bilateral, regional and multilateral levels. Functions carried out in this context by the Department include activities relating to both trade policy and promotion and summarized below are the broad areas of work so undertaken by the Department.

Formulation and implementation of Sri Lanka’s international trade policy in close collaboration with relevant line ministries/authorities and private sector stakeholders.

Rendering advice to the Ministry of Industry & Commerce on foreign trade policy with special emphasis on the overall development perspective of the island.

Promotion of Sri Lanka’s commercial interests in the fields of trade, investment and

tourism through overseas Trade Representation. During the year under review, the Department continued its work program on the basis of the government vision of the foreign trade sector and the pivotal contribution it can make toward the overall economic development of the country. Thus, the 2010 work program, inter-alia, focused on further strengthening the existing trade ties, promotion of new markets and products, encouraging effective participation of the SME sector in the international trading system and promotion of Sri Lanka as a trading hub in the South Asian region. Through its overseas Trade Representation, the Department also extended necessary guidance and assistance toward promotion of foreign direct investment and Sri Lanka tourism as well.

1.0 Introduction

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2.1 Export & Import Performance Sri Lanka’s total export earnings during 2010 increased to US $ 8,307 million from US $ 7,085 million in 2009, registering a remarkable growth of 17%. Export earnings from agricultural produce and industrial products recorded growth rates of 21% and 16% respectively. Agricultural exports were dominated by tea with US $ 1,374 million, registering a 16 % increase, while rubber exports, which grew from US $ 385 million to US $ 568 million, saw a remarkable growth of 48%. 2010 Exports of industrial products, which stood at US $ 5,305.4 million, indicated a modest growth of 16.4 % over 2009. Accounting for as much as 42%, textile and apparel sector made the largest contribution in the industrial exports. Apparel exports increased from US $ 3,274.2 million in 2009 to US $ 3,504.1 million in 2010, recording a growth of 7%. Food, beverages & tobacco and rubber & rubber-based products are the second and third largest contributors to the industrial exports respectively. Meanwhile, export earnings from machinery & equipments saw a significant growth of 47.7 % compared to 2009. Table -1 Total Imports, Exports and Balance of Trade : 2006 - 2010 (Value: US$ mn.) Year Exports % Growth Imports % Growth Total

Trade Balance of Trade

2006 6,829 10.7 9,868 18.7 16,696 -3,038 2007 7,675 12.4 11,401 15.5 19,076 - 3,726 2008 8,179 6.3 14,191 24.5 22,145 - 5,871 2009 7,085 - 13.0 10,206 - 28.0 17,291 -3,121 2010 8,307 17.3 13,511 32.4 21,818 -5,204 Source: Sri Lanka Customs

2.0 Review of Sri Lanka’s Foreign Trade 2010

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During the year 2010, Sri Lanka continued to place a greater emphasis on bilateral trade and economic cooperation with its major trading partners such as the USA, the EU, Russia, China, India, Pakistan and Iran with particular attention to its Free Trade Agreement (FTA) partners, namely, India and Pakistan. Strategies in sustaining the existing markets in these countries have been the priority, as consumer spending affecting the aggregate demand was a major concern in most parts of the world. 3.1 Indo-Sri Lanka Free Trade Agreement (ISFTA) The Indo-Sri Lanka Free Trade Agreement (ISFTA), which was signed on 28th December 1998 and entered into force with effect from 1st March 2000, provides duty free access to a wide range of products traded between the two countries. Under this agreement, Sri Lanka can now export more than 4000 product lines to the Indian market on duty free basis. The overall value of two-way trade between India and Sri Lanka, which stood at US $ 655.77 million in 2000, has increased to US $ 3,013 million in 2010, recording an impressive five fold growth. The total value of Sri Lanka’s export to India has registered a staggering growth of 894%, increasing from US $ 47 million in 1999 to US $ 467 million in 2010. This is primarily due to the duty free benefits enjoyed by Sri Lankan exporters under the ISFTA. It is pertinent to mention that as much as 75% of Sri Lankan exports to India continue to be shipped under the ISFTA concessions. The ISFTA has also played a key role in diversifying Sri Lanka’s export basket, which had been confined to a limited number of primary products and commodities like spices, areca nuts, scrap iron/steel, waste paper etc., prior to the agreement. Today, Sri Lanka’s exports to India includes an impressive array of value added products such as apparel & clothing accessories, new pneumatic tyres, insulated wires & cables, furniture, MDF boards, rubber gloves, cocoa products, animal feed, spices, copper products, marble, thermal papers, bottle coolers, glass products, precious stones, oil-cake and other residues, plastic products, processed meat products, packing containers, paperboard labels, fruit juices and ceramic products. Sri Lanka’s imports from India too have shown a substantial growth over the last decade, moving from US $ 512 million in 1999 to US $ 2,546 million in 2010. However, unlike the Sri Lankan exports to India, over 70% of the Indian exports enter the Sri Lankan market outside the ISFTA. For instance, most of the high value items such as automobiles and motorcycles, which account for bulk of the Indian exports to Sri Lanka fall outside the ISFTA benefits. Moreover, items like pharmaceuticals, petroleum products and fabrics recorded under India’s exports to Sri Lanka

3.0 Bilateral Trade and Economic Co-operation

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continue to be products that can enter the Sri Lankan market at zero-duty from any country in the world on MFN basis.

Trade with India: 2009 - 2010 (Value: US$ mn.)

2009 2010 % Growth Export

324.9 466.6 43.6%

Import

1,709.9 2,546.2 48.9%

As shown in the above table, Sri Lanka’s total exports to India in 2010 has shown a 43.6% growth, increasing from US$ Mn 324.9 in 2009 to US $ Mn. 466.6. As stated above, a bulk of these exports has entered the Indian market under the ISFTA. Meanwhile, imports from India during 2009 and 2010 have recorded US $ Mn 1709.9 and 2546.2 respectively, registering an increase of 48.9%. India remained the largest supplier to Sri Lanka and the third largest buyer of Sri Lankan products in 2010 as well. It is important to note that, for the first time, Sri Lanka has fully utilized the quota of garment granted under the 3-million-pieces scheme by India under the ISFTA in 2010. After a lapse of two years, Sri Lanka and India held some informal discussions on the ISFTA implementation issues and the proposed Comprehensive Economic Partnership Agreement (CEPA) in New Delhi in November 2010 and subsequently in Colombo in December 2010. During these discussions, both sides emphasized the importance of resuming negotiations on the respective subject matters. 3.2 Proposed Comprehensive Economic Partnership Agreement (CEPA) with India Sri Lanka and India had initiated negotiations for a Comprehensive Economic Partnership Agreement (CEPA) with the objective of further strengthening the existing commercial relations, primarily shaped within the ISFTA states above. While the existing ISFTA deals with only merchandise trade, the proposed CEPA would encompass trade in Services, Investment and Economic cooperation as well. However, the CEPA negotiations came to a temporary halt in 2008 due to the concerns expressed by some Sri Lankan entrepreneurs with regard to liberalization of services.

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Later in 2010, an extensive consultation process was started with all the stakeholders in order to address those concerns. In this regard, the first consultative meeting, chaired by the Hon. Minister of Industry and Commerce was held on 27th July 2010 to assess the perspectives of the chamber representatives followed by a series of such meetings. During bilateral consultations between Sri Lanka and India held during the latter part of 2010, both sides agreed to re-start formal negotiations based on a new draft prepared by Sri Lankan side. 3.3 Pakistan-Sri Lanka Free Trade Agreement (PSFTA) Following the Pakistan-Sri Lanka Free Trade Agreement (PSFTA), which entered into force on 12th June 2005, the value of bilateral trade between the two countries has seen a substantial improvement. The value of two-way trade, which stood at US $ 147.15 million in 2004, has increased to US $. 342.14 million in 2010. Sri Lanka’s exports, which registered at US $ 55.46 million in 2009, have risen to US $ 60.38 million in 2010, recording an 8.87% growth. While Pakistan ranks the second largest trading partner of Sri Lanka in the SAARC region after India, Sri Lanka can now export over 4500 product lines to the Pakistani market on duty free basis. Sri Lanka’s main exports to Pakistan include natural rubber, copra, tea, coconut, spices, betel leaves. A range of new products have also penetrated into the Pakistan market after the implementation of the PSFTA and they include items such as fresh pineapple, sports goods, tamarind, edible oil, porcelain tableware & kitchenware, ceramic tiles, furniture, electrical switches and sockets, herbal cosmetic products and plastic articles, paints, glass paintings, leather products, frozen fish, prawns, lobsters, crabs, cut flowers and foliage, gems & jewellery and aquarium fish. Meanwhile, Pakistan’s major export items to Sri Lanka include cement, cotton textile fibers, yarns and fabrics, pharmaceutical products, dry fish, potatoes, rice, big onions, electrical machines and apparels etc. In order to expand the existing trade relations, both countries initiated negotiations for a comprehensive economic cooperation arrangement in 2008 and two rounds of negotiations have been concluded so far. 3.4 US-Sri Lanka Trade and Investment Framework Agreement (TIFA) The Trade and Investment Framework Agreement signed between the United States of America and Sri Lanka in 2002 provides a broad institutional arrangement for promoting closer trade and economic co-operation between the two countries. It facilitates regular contacts among high level trade officials, where the respective authorities could identify and address any barriers, which hamper trade and investment flows between two countries.

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In the context of the TIFA, Sri Lanka primarily aims at (a) securing enhanced market access for its exports, in particular, apparel through either any special trade preferences or the US GSP facility with additional flexibilities in regard to product coverage and rules of origin etc. and (b) pursuing US cooperation in areas, such as intellectual property rights, trade facilitation, trade capacity building & branding of Ceylon Cinnamon, energy management for export oriented coconut based industries, awareness creation on the US Food and Drug Administration (FDA) labeling requirements, capacity building in lawyers, administrators in the area of commercial arbitration.

The 8th meeting of the Joint Council under the TIFA was held on 14th October 2010 in Sri Lanka. Sri Lankan delegation was led by Hon. Minister of Industry and Commerce and the US delegation was led by Assistant US Trade Representative for Central and South Asia. On the side lines of the 8th round of TIFA talks, the two sides also organized a Private Pubic Partnership (PPP) conference with the objective of involving private sector participation in the TIFA process with special emphasis on the post-conflict development of Sri Lanka. While the PPP conference was attended by about 20 US companies and most of them joined the investment promotion delegation that visited Jaffna on 12th October 2010. 3.5 GSP+ Scheme of the European Union The GSP+ Scheme, which came into operation on 01.07.2005, granted duty free markets access for several Sri Lankan products in the EU market. They included apparel, bicycles, ceramic ware and fisheries products which were not adequately benefiting from the EU’s GSP general scheme. While the EU accounts for as much as 50% of Sri Lanka’s apparel exports, two thirds of them were qualified for GSP+ concessions. The GSP+ benefits which Sri Lanka was enjoying ware terminated with effect from 15th August 2010. However, Sri Lanka continues to enjoy the concessions granted under the GSP general scheme. In addition, Sri Lanka also benefits under the GSP schemes of the USA, Japan, Norway, Canada, Switzerland and Turkey The Department of Commerce is responsible for coordination of trade related issues under the following Bilateral Joint- Commissions/ Committees, which are held at the Ministerial level.

Sri Lanka – Bangladesh Sri Lanka - China Sri Lanka – Egypt Sri Lanka - India Sri Lanka – Iran Sri Lanka - Kuwait Sri Lanka – Maldives Sri Lanka - Pakistan Sri Lanka – Iraq Sri Lanka - Thailand

4.0 Joint Commissions on Trade, Economic & Technical Cooperation

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Sri Lanka- Iran Joint Commission for Economic and Technical Co-operation The 9th Session of the Joint Commission for Economic and Technical Co-operation (JCETC) between Sri Lanka and Iran was held in Colombo from 13th - 15th September 2010. The Iranian delegation was led by H.E. Dr. Mahdi Ghazanfari, Minister of Commerce, while the Sri Lanka delegation was led by Hon. Rishad Bathiudeen, Minister of Industry and Commerce. The following committees, formed during the JCETC, had detailed discussions on the broad areas stated below.

A) Trade, Commerce and Transportation Committee B) Energy, Power Industry, Mining and Techno Engineering Committee C) Culture Science & Technology, Information Technology and Health Committee D) Coordination Committee

The delegations recognized that the present trade pattern, which remains rather modest, provides for considerable room for further expansion of commercial relations between the two countries. During the meeting detailed discussions were held on investment cooperation, preferential market access for Ceylon Tea, cooperation between trade chambers, customs cooperation, maritime and merchant shipping, air services for trade and economic cooperation and energy, power, industry and techno engineering. The two sides agreed to hold the 10th Session of the Joint Commission in Tehran in the year 2012. 7th Session of the Sri Lanka - Iraq Joint Committee for Economic and Technical Co-operation 7th Session of the Sri Lanka - Iraq Joint Committee for Economic and Technical Co-operation was convened in Colombo from 20th – 21st October, 2010. The Iraqi delegation comprising high level officials, who represented several important economic sectors, was led by Hon. Dr. Safa AI-Deen Mohammed Abdul Hakeem AI-Safi, Minister of Trade, while the Sri Lankan delegation was led by Hon. Rishad Bathuideen, Minister of Industry and Commerce. With a view to achieving tangible results, the delegations set up three broad Committees, namely, (1) Trade & Financial Cooperation; (2) Economic Cooperation; (3) Scientific, Cultural & Technical Cooperation. Discussions focused on ways and means for extending bilateral cooperation into several other fields such as agriculture, fisheries, animal husbandry, petroleum & oil, construction of housing,

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roads & highways, power & energy, health, culture, education & higher education, youth affairs & sports, air services, port & shipping, customs and banking services. During the Joint Committee meeting, the Ceylon Chamber of Commerce and the Baghdad Chamber of Commerce signed a Memorandum of Understanding for promotion of bilateral cooperation for the benefit of the business community of the two countries. Further, the National Chamber of Commerce of Sri Lanka also signed a Cooperation Agreement with the Federation of Baghdad Chamber of Commerce for fostering closer business relations between the two countries. The Federation of Chambers of Commerce and Industry of Sri Lanka showed interest in implementing the activities covered under the Joint Cooperation Agreement signed in 1999, where as there were interactions between the Ceylon National Chamber of Commerce and its counterpart Chamber of Commerce in Iraq for mutual cooperation. Sri Lanka’s muitilateral trade relations primaraly focus on the World Trade Organization (WTO) and its Agreements Sri Lanka signed as a single undertaking in 1995. Sri Lanka is a founding member of both the GATT (1947) and the WTO, established at the conclusion of Merekkash Agreemnet in 1995. Sri Lanka also maintains a closer interaction with several other multilareal bodies including, the United Naitons Conference on Trade and Development (UNCTAD), the World Intelectual Property Organisation (WIPO), the International Trade Center (ITC) and the Advisory Center for WTO Law (ACWL).. 5.1 The World Trade Organization (WTO) Doha Round of Trade Negotiations During the year 2010, Sri Lanka continued to engage in the Doha Round trade negotiations of the WTO. The Department of Commerce actively participated in a number of key areas of negotiations with a view to protecting and promoting Sri Lanka’s trade and economic interests, particularly in the areas of Agriculture, Non-Agricultural Market Access (NAMA), Trade Related Intellectual Property Rights (TRIPs), Trade Facilitation, Rules, Services and Aid for Trade. These negotiations were based on the modalities proposed in the WTO Draft Texts under Doha Development Agenda, issued in December 2008.

5.0 Multilateral Trade Relations.

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Negotiations in Agriculture: In agriculture, Sri Lanka continued to work with like-minded Members of the WTO to ensure flexibilities that would protect the country’s domestic agriculture, particularly subsistence agriculture, rural livelihood and income against the adverse impacts of import surges and to ensure food security. The proposed modalities which are currently under negotiations, would allow for developing countries to introduce measures on import surges through a Special Safeguard Mechanism (SSM), to counter adverse impacts triggered by excessive volume of imports, or by drop in domestic prices. These measures would be applied by Sri Lanka to protect its domestic agriculture. With regard to tariff reductions of agricultural products under DDA negotiations Sri Lanka will have two options as per the current status of the negotiations.

1. As a Small and Vulnerable Economy (SVE), Sri Lanka would have several options with respect to its tariff reduction commitments, which provide more flexibility for its agricultural tariff policy than for other developing countries.

a. Sri Lanka may choose a tiered reduction formula set out for developing countries,

which is further moderated by 10 percentage points for SVEs, together with the entitlement to designate a certain percentage of tariff lines as Special Products.

b. Sri Lanka could undertake only an average tariff cut of 24% by designating as many

products as it wishes as Special Products, without resorting to the formula tariff cut and without needing to justify its selection of Special Products through demarcated indicators.

Both these options would provide Sri Lanka with sufficient policy space to develop its domestic agriculture, particularly subsistence agriculture and rural development, while at the same time addressing its needs as a Net Food Importing Developing Country (NFIDC). Negotiations in Non–Agriculture Market Access (NAMA) As a country with low binding coverage, Sri Lanka is subject to less tariff reduction commitments in the NAMA negotiations. Since Sri Lanka had bound less than 30% of its tariff lines during Uruguay Round of negotiations, and consistently applied low tariffs, Sri Lanka had been accepted as a country who would have to undertake disproportionate commitments if subject to the general tariff reduction formula. Sri Lanka, therefore, is exempted from making tariff reductions through the formula, instead only needing to commit to bind 80% of its Non agricultural tariff lines at an average of 30%.

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This provides space for 20% of tariff lines which may be deemed sensitive to remain unbound, while allowing Sri Lanka the flexibility to determine its bound commitments on the basis of sensitivity over the remaining 80%, provided it maintains an average of 30%. With respect to market access for Sri Lanka’s export products, Sri Lanka will benefit overall from the tariff reduction commitments undertaken by its export markets, which will in general bring down high tariffs and peak tariffs to levels well below 5-10%, as the formula for tariff reduction is designed to reduce high level of tariffs with deeper cuts. In the case of its apparel exports to the EU and US, Sri Lanka has been affected by a proposal to delay tariff reductions by ten years on certain products, including apparel, in these markets to address the concerns of preference-receiving countries who anticipate losing their competitive advantage because of deep cuts in general tariffs. Two such lists exist which identify products for delayed tariff reduction, one each for the US and EU market. As a result, Sri Lanka, together with Pakistan, Bangladesh, Nepal and Cambodia, have been recognized as “disproportionately affected countries” (DAC) for which a separate solution has been provided. These countries will receive tariff reductions over a five year period as opposed to the ten year period other countries will have to face. These tariff reductions will be provided for five products from the EU and US lists for Sri Lanka and Pakistan, and five products from the US list for Bangladesh, Cambodia and Nepal. Out of a number of products slated for delayed tariff reductions, DACs have requested for tariff reductions on five products in the US and EU each over the normal five year period, as opposed to the ten years which other countries would have to wait. While these modalities do offer some relief, the negotiations on this issue are still ongoing, and Sri Lanka continued to engage to obtain a solution which would more adequately address its concerns. Negotiations in TRIPS Related Issues As regards negotiations under the Agreement on Trade in Intellectual Property Rights (TRIPS), Sri Lanka engaged in discussions with other like-minded Members on two key areas. In the area of geographical indications (GIs), Sri Lanka participated in discussions with respect to the level of protection Member states are required to afford to all GIs. GIs are signs used on goods that have a specific geographical origin and possess qualities, reputation or characteristics that are essentially attributable to that place of origin, like Ceylon Tea, Sri Lankan sapphire and Sri Lankan / Ceylon Cinnamon. At present, all GIs are required to be protected in order to avoid misleading the public and to prevent unfair competition. A higher level of protection is currently granted for GIs in the product sectors of wines and spirits, where these are to be protected even if misuse would not cause the public to be misled. The present negotiations initiated by those countries who have interest in

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protecting other GI products are aimed at delivering this higher level of protection for products other than wines and spirits. In addition, Sri Lanka also engaged with like minded countries in negotiations aimed at aligning the TRIPs Agreement with the Convention on Biological Diversity, with respect to how the latter addresses IP issues in the use of natural resources. Sri Lanka’s participation in these negotiations is based on issues of bio-piracy related to Sri Lanka’s rich biodiversity Negotiations on Agreement on Trade Facilitation (ATF) Sri Lanka also actively engaged in the text-based negotiations on the proposed AFT. A draft text has been produced following intense negotiations over five years on different proposals relating to three areas of harmonization and regulation in trade facilitation: freedom of transit, fees and formalities connected with importation and exportation, and publication and administration of trade regulations. Negotiations on the provisions of Special and Differential Treatment (S&DT) which will contribute to meet the special needs of developing countries in implementing the proposed AFT also took place in parallel with the above text- based negotiations. These S&DT negotiations focused on issues such as scheduling of timelines of commitments and categorization of commitments based on whether a country can implement immediately or would require technical assistance to do so. Negotiations in Rules In the area of rules, negotiations continued on clarifying and improving the disciplines under the Agreements on Anti-dumping and on Subsidies and Countervailing Measures, particularly fisheries subsidies, and on Regional Trade Agreements. In the area of anti-dumping, discussions were undertaken on a number of issues regarding the procedures relating to imposition of anti-dumping duties, while discussions under the SCM Agreement also continued on key issues. Discussions were also undertaken to harmonize the provisions of the two agreements vis-à-vis the investigation procedures and injury determination. In the area of fisheries subsidies, discussions continued on special and differential treatment, general disciplines, fisheries management, transparency, dispute settlement, implementation and transition rules. With respect to RTAs, negotiations continued on transparency of RTAs, coverage of RTAs and other issues. Negotiations in Trade in Services: In the area of services, WTO Members continued negotiations on disciplines on domestic regulation, financial services and specific commitments, as well as bilateral negotiations on improvement of existing services commitments.

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5.2 Trade Policy Review – Sri Lanka 2010 Sri Lanka underwent its Third Trade Policy Review in November 2010. The Trade Policy Review exercise which every WTO Members undergoes periodically provides an opportunity for Members to exchange views on the trade policy regime of the Member in question. During the TPR, Sri Lanka highlighted the contribution of its trade and economic policies towards steady economic growth. Sri Lanka also noted the challenges and achievements for Sri Lanka in the six year period since the 2nd TPR in 2004, including rebuilding efforts after the tsunami in 2003, and the defeat of terrorism in 2009, and the impacts of the global financial, economic, food and energy crises. Overall, Member congratulated Sri Lanka in achieving and maintaining a steady economic growth of 6% over the period under review, despite the many challenges Sri Lanka has had to face, and expressed confidence in Sri Lanka's open and transparent trade regime. Members also exchanged views on a number of Sri Lanka's existing tariff and non-tariff measures. 5.3 The United Nations’ Conference on Trade and Development (UNCTAD) The UNCTAD represents the main forum on the linkages between trade and development, and its focus is on the development-friendly integration of developing countries into the world economy. UNCTAD has progressively evolved into an authoritative knowledge-based institution whose work aims to help shape current policy debates and defining a new paradigm on development, with a particular focus on ensuring that domestic policies and international action are mutually supportive in bringing about sustainable development. Its three pillars of work are: 1). Forum for intergovernmental deliberations 2). Research, policy analysis and data collection and, 3). Technical assistance Sri Lanka continued to engage actively in UNCTAD, working with a larger group of developing countries to ensure its interests with respect to UNCTAD’s capacity building programmes and technical assistance activities, as well as engaged in negotiations in the Trade and Development Board, the body which oversees UNCTAD’s work up to and after each UNCTAD Ministerial meeting. Sri Lanka also participated in negotiations in UNCTAD at the Commissions on Investment and on Trade and Development, as well as at various expert meetings. 5.4 Global System of Trade Preferences (GSTP) The GSTP is a tariff preferential scheme negotiated under the aegis of the United Nations Conference on Trade and Development (UNCTAD) with a view to increasing South-South trade and economic cooperation. The Third Round of negotiations which began in 2004 with 22

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participants, concluded in December 2010, with eight of the 22 signing the final Sao Paulo Round Protocol. Signatories agreed to cut tariffs by 20% on 70% of dutiable tariff lines. Sri Lanka was one of the 22 Participants, and continued to participate in negotiations in the third round of the GSTP in 2010. In particular, Sri Lanka engaged in negotiations in advancing Sri Lanka’s interests in the rules of origin negotiations in the third round. 5.5 Group of Fifteen Sri Lanka continued as Chair of the Chairmanship of the Group of Fifteen, a coalition of 18 developing countries considered as those which were fairly representative and having sufficient economic and political weight and countervailing power. Under Sri Lanka’s Chairmanship, the G15 underwent an exercise to revitalize the Group and streamline its mandate. The current Members of the G15 are Algeria, Argentina, Brazil, Chile, Egypt, India, Indonesia, Islamic Republic of Iran, Jamaica, Kenya, Malaysia, Mexico, Nigeria, Peru, Senegal, Sri Lanka, Bolivarian Republic of Venezuela and Zimbabwe. Sri Lanka continued to be a key player in the regional trade and economic arrangements that Sri Lanka has become a party to. Sri Lanka perceived its regional trade policy objectives through its associations with regional agreements such as APTA, SAPTA, BIMSTEC and IOR-ARC. 6.1 Asia Pacific Trade Agreement (APTA) The APTA (formerly known as Bangkok Agreement) is the only regional trade agreement which links East, South-East, and South Asia. It is one of the Asia’s oldest regional preferential trading agreements comprising of six participating states namely, Bangladesh, China, India, Laos, Republic of Korea and Sri Lanka. Although the 04th Round of negotiations under APTA was concluded in December 2009, the tariff negotiations which were to be finalized in March 2010 continued. At the end of the 03rd Round, a consolidated concession list consists of 4,270 products, plus 587 products offered exclusively to Least Developed Countries (LDCs), by the participating states. The 04th Round of negotiations is expected to widen the product coverage and deepen the tariff cuts already given in the 03rd Round.

6.0 Regional Economic Cooperation

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In addition, APTA has adopted modalities for extending negotiations into other areas such as non-tariff measures and entering into Framework Agreements on Trade Facilitation, Trade in Services and Investment. Sri Lanka has ratified the Framework Agreements on Trade Facilitation and Investment, and Members are currently engaged in following up on the implementation of these Agreements. APTA is the only trading arrangement that Sri Lanka parts with China and Korea. APTA has facilitated Sri Lanka to enhance market access particularly to these two major markets. The following table illustrates Sri Lanka’s recent exports growth to China and Korea.

Sri Lanka’s major export items under APTA includes, coir products, rubber tyres, gloves, tea, apparel, activated carbon, porcelain ware, floor tiles and fish products, etc.

Sri Lanka’s Exports to Major APTA members: 2007 - 2010

Year India Bangladesh China South Korea Total exports 2007 13.17 0.5 9.03 4.4 27.14 2008 10.4 0.7 19 5.2 35.3 2009 13.1 1.3 28.98 6.1 49.48 2010 21.6 0.2 41.4 6.5 69.7

% change in exports

2009/2010 64.9 -84.6 42.9 6.6 40.9 % change in

exports 2007/2010 64 -60 358.5 47.7 156.8

Source: Department of Commerce 6.2 Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) During the period under review, Sri Lanka was considering to explore the possibilities of developing trade relations with ASIAN countries through negotiating the BIMSTEC free trade agreement with Bangladesh, India, Myanmar, Nepal and Thailand.

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6.3 South Asian Free Trade Area (SAFTA) The Agreement on South Asian Free Trade Area was finalized and signed by the Council of Ministers of the member states of SAARC on 6th January 2004 in Islamabad, Pakistan. The preliminary substantive work towards finalization of SAFTA was entrusted with the Committee of Experts (COE), which was established drawing expertise from the member states. SAFTA aims at further enhancing the programme of regional economic integration through promotion of preferential trade, which commenced with the establishment of South Asian Preferential Trading Arrangement (SAPTA) in 1995. In the 5th Meeting of SAFTA Committee of Exports (CoE), held in Kathmandu, Nepal in October 2009, the Member States agreed in principle to reduce by 20% the tariff lines of their Sensitive List. The first meeting of the Working Group on Reduction in the Sensitive Lists under SAFTA was held in Kathmandu on 10th February 2010. The meeting discussed the modalities proposed for reduction in the number of tariff lines covered in the sensitive lists. The Member States agreed to make their request lists bilaterally to each member State and, following receipt of requests, the Member States agreed to make their initial offer lists to all the SAARC Member States. Sri Lanka has sent request lists to Bangladesh, Maldives and Nepal. In contrast we have received requests from Bangladesh, Bhutan, India, Maldives and Nepal. Since Sri Lanka has bilateral Free Trade Agreements with India and Pakistan, the Department of Commerce does not intend to discuss the matter with India and Pakistan. 6.4 SAARC Agreement on Trade in Services (SATIS)

The 5th Meeting of the Expert Group on SAARC Agreement on Trade in Services was held in Kathmandu from 8 – 9 February 2010.The meeting finalized the text of the Draft Agreement on Trade in Services and agreed to expedite completion of internal formalities to sign the Agreement during the forthcoming SAARC Summit. The Agreement was signed by the Member States at the 16th SAARC Summit held in Bhutan in April 2010. Currently some of the member countries are in the process of ratifying the agreement enabling it to enter in to force. Sri Lanka has already ratified the Agreement. The Schedules of the Specific Commitments will be negotiated and finalized in the Expert Group meetings, after the receipt of the initial Offer Lists and Request Lists from all Member States.

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7.1 TRADE PROMOTION

International trade promotion is one of the main functions of the Department. The activities undertaken under trade promotion involved providing market intelligence to exporters, addressing issues related to market barriers, educating exporters on product adaptation to the markets needs, introduction of buyers, facilitating trade fair participation and business networking with trade chambers both in Sri Lanka and abroad. These activities are coordinated through trade officers stationed abroad.

During the period under review, the Department of Commerce, with the assistance of the Trade Officers based in Sri Lankan Missions abroad and other Business Supporting Organizations in Sri Lanka, carried out an array of activities to expand and diversify the international market for Sri Lankan export products. While providing the main focus for the leading exporters to expand their market share in the international market through introduction of new export destinations and creating more conducive environment in existing markets, Trade Officers continued to assist the Small and Medium scale exporters to gain international market access for their products, especially through the Private Public Partnership Program. In line with the concept of “Mahinda Chinthanaya”, to support Small and Medium Scale enterprises (SMEs) to penetrate overseas markets for their exportable products, the Trade Officers in overseas Missions have carefully selected a basket of Sri Lankan exportable products to be promoted in the international market. The products selected for this purpose include coconut based products, rice bran, natural rubber and rubber based products, footwear, leather products, porcelain ware, tea, spices, processed foods, sea food, fresh fish, fruits and vegetable, handicraft, paper products, wooden toys, furniture, apparel products, chemicals, plastic items, gems and jewellery, reed ware, packing material and auyrvedic products. Trade Officers have adopted various strategies to promote the selected products in the respective countries and they include participation at selected trade fairs / exhibitions, organizing inward and outward trade missions, business forums and private-public partnership conferences, prompt servicing of trade inquiries, web-based advertising etc. Sri Lanka was able to participate at more than 60 international trade fairs / exhibitions in 2010.

7.0 Trade, Investment and Tourism Promotion

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7.2 Trade Promotional Events / Visits

Playing a key role in promoting Sri Lankan products, the Trade Officers have organized more than 35 business and investment seminars / forums in the respective countries in collaboration with the BOI, SLEDB, trade chambers etc. during the period under review. In 2010, more than 40 inward trade delegations were organized by the Missions while facilitating about 14 outward business delegations with a view to strengthening business and investment relations between Sri Lanka and respective countries. A number of individuals who visited to Sri Lanka on business promotion visits also have been facilitated by the Trade Officers during the period.

7.3 Promotion of Tourism

Tourism was one of the areas, which gained immediate attention after the defeat of terrorism in the country. Recognizing the enormous potential in the tourism sector, the Trade Officers have organized various promotional programmes in foreign countries with the support of the Sri Lanka Tourism Promotion Bureau and Sri Lankan Airlines to promote Sri Lanka as an attractive tourist destination. The main strategies adopted by the Trade Officers to promote Sri Lanka as a tourist destination include; arranging special forums and conferences, visits by tourist groups, participation at international tourism fairs, arranging Media delegations to Sri Lanka, setting up tourism promotion councils, providing publicity through electronic and print media in the host country.

7.4 Promotion of Foreign Direct Investment (FDI)

Trade Officers stationed abroad continued to play a major role in attracting foreign direct investments into the country. During the period under review, the Trade Officers had met with more than 100 foreign companies and individuals identified as potential investors and briefed them on investment opportunities available in the island. Some of these parties have already visited Sri Lanka to study the possibilities of setting up factories. 7.5 Trade Inquiries and Commercial Disputes The Department and its Trade Officers played a vital role in servicing trade inquiries and during the period under review, approximately 850 such inquires were serviced by guiding the potential buyers and arranging their matching contacts through the Trade Chambers and the SLEDB. Similarly, Commercial disputes are mediated by the DoC for amicable settlements between exporters and importers. During the period under review 71 such complaints were dealt with and 10 disputes were successfully settled with negotiated arrangements.

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7.6 Residence Visas The Department of Commerce assisted Secretary/Industry & Commerce in issuing recommendation letters to the Controller of Immigration and Emigration for residence Visas for the foreign businessmen, entrepreneurs, technicians, consultants and research staff based in Sri Lanka. In discharging this work, the Department paid extra attention to ensure that the visas recommended were genuine and supported towards the national development as well as human resource development. In 2010, the Department had issued 143 residence visa recommendations for various nationalities consisting of 66 Indians, 25 British, 15 Pakistanis, 11 Japanese, and other nationalities of Austrian, Australians, Belgians, Germans, Koreans, Russians, New Zealanders and South Africans. 7.7 Approval of Credit Agencies under the Mortgage Act. No. 6 of 1949 Under the Mortgage Act No. 6 of 1949, Director General of Commerce is empowered to declare any company, firm, institution or individual as an approved credit agency. The Director General is required to do so-on the basis of a recommendation by a Board consisting of a Chairman and two other persons appointed by the Hon. Minister under Section 114 (1) of the Mortgage Act No. 6 of 1949. 8 Issuance of Certificates of Origin (COOs) The DoC issues Certificate of Origin for goods exported under the following preferential and free trade agreements.

Generalized System of Preference (GSP) Global system of Trade Preference (GSTP) SAARC Preferential Trading Agreement (SAPTA) South-Asian Free Trade Area (SAFTA) Indo-Sri Lanka Free Trade Agreement (ISFTA) Pakistan-Sri Lanka Free Trade Agreement (PSFTA) Asia-Pacific Trade Agreement (APTA)

On average, the Department issues 600 Certificates of Origin (COOs) a day under the above agreements / schemes. In order to further facilitate exports, the Department has restructured the COO processing procedure to issue certificates within two hours of their submission. A team of highly motivated officers, who are assigned fulltime to the COO Division, are available for consultation and further clarifications at any time during office hours without prior appointments. On the average 60 consultations are carried out by the designated officials. Requests

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of those who travel from outstations, most of them are from Small and Medium Scale Enterprises (SMEs) are attended to on priority basis. The senior officials of the Department made a number of presentations at different forums to further increase awareness of tariff preferences available under GSP schemes, FTAs and PTAs. A comparative table depicting number of COOs issued under the respective agreements in 2009 and 2010 is given at Appendix -1. Total number of COOS issued in 2010 has increased to 123,113 from 118,363 certificates issued in 2009.

9. Export Development Rewards Scheme (EDRS) Under the direction of His Excellency the President Mahinda Rajapakse, the Government has introduced an Export Development Rewards Scheme (EDRS), enabling direct exporters to manage any vulnerabilities and risks associated with the global economic crisis experienced during the year 2009. The stimulus package granted under the EDRS aims at assisting export industries to secure their existing markets and penetrate new markets, establish and promote backward linkages, diversify the export basket and increase value addition, maintain the existing level of employment, compliance with environment regulations, quality standards and other best practices in international trade. Implementation of the EDRS was entrusted to the Department and it had successfully completed processing of the claims for the 1st and 2nd Quarters of 2009 by end of April 2010. A summary of the claims are given below. Summary Report on the status of EDRS claims as at 31st December 2010

Value in SLRs Mn

Element 1st

Quarter 2nd

Quarter Totals

No of Applications 252 233 485

Applications - Rejected 112 59 171

Successful and Processed 140 174 314

Total value of paid claims in 2009 665.1 117.0 782.1

Total value of paid claims in 2010 187.9 252.1 440

Total Payment as at 31st December 2010 1,222.1

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10 Department of Commerce website With a view to facilitating transparency and interaction between the Department of Commerce and stakeholders such as the private sector business community, general public, government institutions, research institutions, international bodies and other interested parties, the Department continued to improve and update its website. A new website, which can be accessed in Sinhala, Tamil and English languages, is being developed with the assistance of the Information and Communication Technology Agency (ICTA).

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Appendix - 1 Certificate of Origins issued by the Department of Commerce under Preferential Trading Agreements for the period of 2009 & 2010 2009 2010

No. Country No. of COO's % No. of COO's % Under GSP 1 Austria 313 0.26 306 0.25 2 Belgium 4403 3.71 4943 4.02 3 Bulgaria 82 0.06 77 0.06 4 Cyprus 742 0.62 711 0.58 5 Czech Republic 180 0.15 267 0.22 6 Denmark 573 0.48 883 0.72 7 Estonia 47 0.03 81 0.07 8 Finland 328 0.27 314 0.26 9 France 8028 6.78 6607 5.37 10 Germany 10668 9.01 14673 11.92 11 Greece 296 0.25 210 0.17 12 Hungary 81 0.06 127 0.10 13 Ireland 288 0.24 403 0.33 14 Italy 5933 5.01 7026 5.71 15 Latvia 110 0.09 163 0.13 16 Lithuania 79 0.06 82 0.07 17 Luxembourg 0 0 0 0.00 18 Malta 25 0.02 19 0.02 19 Netherlands 5004 4.22 5639 4.58 20 Poland 823 0.69 821 0.67 21 Portugal 173 0.14 150 0.12 22 Rumania 58 0.04 45 0.04 23 Slovakia 1735 1.46 1886 1.53 24 Slovenia 57 0.04 66 0.05 25 Spain 1225 1.03 1542 1.25 26 Sweden 1086 0.91 2793 2.27 27 U.K. 43405 36.67 39031 31.70 28 EEC 1372 1.15 1327 1.08

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29 Australia 583 0.49 587 0.48 30 Canada 664 0.56 661 0.54 31 Japan 3297 2.78 3280 2.66 32 New Zealand 156 0.13 155 0.13 33 Norway 372 0.31 422 0.34 34 Russian Federation 3770 3.18 3636 2.95 35 Switzerland 1190 1 993 0.81 36 Turkey 1133 0.95 2014 1.64 37 U.S.A. 2940 2.48 2210 1.80 38 Belarus 88 0.07 98 0.08 39 CIS 784 0.66 879 0.71

Under APTA

- 40 Bangladesh 35 0.02 6 0.00 41 China 1212 1.02 1358 1.10 42 India 182 0.15 231 0.19 43 Korea 402 0.33 367 0.30

Under SAFTA 44 SAFTA-India 4 0 9 0.01 45 SAFTA-Pak 138 0.11 8 0.01

Under SAPTA

48 Bangladesh - 0

-

49 Bhutan - 0

- 50 India 130 0.1 208 0.17

51 Maldives 0

-

52 Nepal 1

- 53 Pakistan 32 0.02 34 0.03

Under GSTP 54 Peru 67 0.05 73 0.06 55 Mexico 23 0.01 26 0.02

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56 Chile 1 0 0 0.00

57 Brazil 2 0

- 58 Iran

Under Bilateral FTAs

59 ISFTA 7811 6.59 10436 8.48 60 PSFTA 5920 5 5229 4.25 Total COOs 118,363 100 123,113 100.00

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Staff Movements – 2010

Name of the Officer

Movement

Date

Mr. A. Dayaratne Silva, Deputy Director of Commerce

Posted to Geneva as PR / Ambassador to WTO

2010.07.19

Mr. R D S Kumararatne Deputy Director of Commerce

Posted to Brussels as Minister (Commercial & Economic Affairs) in Sri Lanka Embassy in Brussels, Belgium

2010.09.01

Ms. U Samarathunga Deputy Director of Commerce

Posted to Mumbai, India as Consul General in Sri Lanka Consulate in Mumbai

2010.07.16

Mr. D W Jinadasa Deputy Director of Commerce

Posted to Karachi, Pakistan as Consul General in Sri Lanka Consulate in Pakistan

2010.08.09

Ms. Z A M Shafi, Deputy Director of Commerce

Posted to Kuala Lumpur, Malaysia as Minister (Commercial) of the Sri Lanka Embassy in Malaysia.

2010.08.18

Mr. M Somasena, Deputy Assistant Director of Commerce

Posted to Tokyo, Japan as first Secretary (Commercial) of the Sri Lanka Embassy in Japan.

2010.12.10

Mr. S P K Wijesekera, Assistant Director of Commerce

Posted to Chennai, India as First Secretary (Commercial) of the Sri Lanka Deputy high Commission in Japan.

2010.08.23

Mr. S M C D Yattogoda Assistant Director of Commerce

Transferred from Myanmar to Seoul, Republic of Korea as First Secretary (Commercial) of the Sri Lanka Embassy in the Republic of Korea.

2010.09.16

Ms. J A Y G Jayasuriya Assistant Director of Commerce

Posted to Paris, France as Third Secretary (Commercial) of the Sri Lanka Embassy in France

2010.11.01

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Ms. E T M C S Abeyratne Assistant Director of Commerce

Posted to Moscow, Russia as Third Secretary (Commercial) of the Sri Lanka Embassy in Russia

2010.11.30

Ms. K D N Kodikara Assistant Director of Commerce

Posted to Pretoria, South Africa as Third Secretary (Commercial) of the Sri Lanka High Commission in South Africa

2010.11.24

Mr. H M Wijeratne Deputy Director of Commerce

Returned to the Department after completion of tenure as Consul General of Sri Lanka Consulate in Mumbai, India.

2010.07.19

Mr. V M Sidath Kumar Deputy Director of Commerce

Returned to the Department after completion of tenure as Consul General of Sri Lanka Consulate in Karachi, Pakistan.

2010.08.12

Mr. D M Ratnayake Deputy Director of Commerce

Returned to the Department after completion of tenure as Minister (commercial) of Sri Lanka Embassy in Japan.

2010.12.22

Mr. P A S Ponnamperuma Assistant Director of Commerce

Returned to the Department after completion of tenure as First Secretary (Commercial) of Sri Lanka Embassy in Russia.

2010.12.07

Mr. B G P Jayakody Assistant Director of Commerce

Returned to the Department after completion of tenure as Second Secretary (Commercial) of Sri Lanka Deputy High Commission in Chennai, India.

2010.08.30

Mr. Sanjeewa Pattiwila Assistant Director of Commerce

Returned to the Department after completion of tenure as Second Secretary (Commercial) of Sri Lanka Embassy in Sweden.

2010.10.05

Ms. C K Kiriwandala Assistant Director of Commerce

Returned to the Department after completion of tenure as Second Secretary (Commercial) of Sri Lanka Embassy in France.

2010.09.17

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Mr. D M N P Wijerathna Assistant Director of Commerce

Returned to the Department after completion of tenure as Second Secretary (Commercial) of Sri Lanka High Commission in South Africa.

2010.11.15

Ms. G M Devalegama Assistant Director of Commerce

On no-pay study leave for two years from 2010.08.16

2010.08.16

Ms. H K W Liyanage Assistant Director of Commerce

Study leave 2010.08.24 – 2012.04.02

Mr. Saman Udagedara Director of Commerce

Retired from the service 2010.07.30

Mr. W R Senanayake Director of Commerce

Retired from the Service 2010.12.12

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