Sri Lanka’s recent decision to prohibit the importation of goods wholly or partially produced using forced labour has placed the country among a group of economies that have taken steps to improve labour-related trade standards.
The move comes at a time when international markets are paying closer attention to forced labour within global supply chains and has already had implications for Sri Lanka’s trade relationship with the United States.
The US assigned Sri Lanka a 10% tariff rate under Section 301 of the Trade Act of 1974, a reduction from the default 12.5% rate applied to standard non-compliant economies. The tariff is an additional duty imposed on top of existing US import tariffs and applies alongside Most-Favoured-Nation (MFN) tariff rates.
This is significant given that the US is Sri Lanka’s single largest export destination, accounting for approximately 22% of total merchandise exports. Sri Lanka’s exports to the US reached $ 1.44 billion during the first half of 2026, recording marginal growth of 0.13% compared to the corresponding period last year.
While the decision has been welcomed by many exporters as a relatively favourable outcome amid changing US trade policies, there are concerns regarding its short- and long-term implications for exporters, compliance requirements, domestic businesses, and Sri Lanka’s competitiveness in international markets.
Commenting on the implications of the prohibition on imports produced using forced labour, Deputy Minister of Trade, Commerce, and Food Security R.M. Jayawardana said that it was still too early to determine the extent of its impact on Sri Lanka’s overall trade, especially in terms of imports, as the specific goods that may be affected would need to be more clearly identified.
Speaking to The Sunday Morning Business , he explained that the restriction mainly applied to goods produced in other countries using forced labour and that more information would be needed to assess whether Sri Lanka imported such products in significant quantities.
“We need to look into whether such items have been imported, what those goods are, if they exist, and what would happen if those imports were to stop. Without that information, it is difficult to get a clear idea of the impact,” he said.
Speaking to The Sunday Morning Business , Labour Ministry Secretary S.M. Piyatissa said that Sri Lanka had already begun work on addressing forced labour issues more than a year ago, including incorporating an action plan into the national budget process and working with the International Labour Organization (ILO) to identify and profile forced labour practices locally.
He explained that the Labour Ministry had trained more than 30 individuals through the Training of Trainers (TOT) programme, including officers from the Labour Department, Police, and other institutions, who were currently training additional personnel to expand awareness and enforcement efforts. Piyatissa pointed out that many people did not fully understand what constituted forced labour and that certain practices considered normal in workplaces may fall within its definition.
According to Piyatissa, the Labour Ministry is currently taking steps to incorporate these aspects into labour inspections while paying more attention to global requirements concerning forced labour and child labour in supply chains. He said that international markets were progressively focused on ensuring that both supply chains and imported inputs were free from forced labour, noting recent developments in the US and other markets.
“The world is now paying much higher attention to both forced labour and child labour. When we state that our goods and services are free from forced labour, we need to be able to verify that. Even when we started our domestic programme, we looked at how we could ensure that foreign inputs coming through our supply chain are verified. We are moving forward with the ILO’s verification process in this regard,” he said.
Piyatissa also highlighted Sri Lanka’s progress in addressing child labour issues over the years, noting that the country’s efforts had received international recognition. He said that Sri Lanka had recently been awarded the vice chairmanship of Alliance 8.7, the global initiative dedicated to eliminating child labour, with the Commissioner General of Labour representing Sri Lanka in that role.
Meanwhile, National Chamber of Exporters of Sri Lanka (NCE) Secretary General/CEO Shiham Marikar said that the NCE recognised the growing global emphasis on responsible and ethical trade practices.
He added that the prohibition on the importation of goods produced using forced labour reflected an international commitment to protecting fundamental human rights and promoting fair labour standards throughout global supply chains.
“Sri Lanka has long maintained a solid reputation as a responsible sourcing destination. Our key export sectors, especially apparel, tea, rubber products, spices, and value-added manufacturing, have invested significantly in complying with internationally recognised labour standards, ethical sourcing requirements, and sustainability certifications. This places Sri Lankan exporters in a favourable position to meet the increasing expectations of global buyers,” he said.
At the same time, he explained that improving due diligence requirements by major markets meant that exporters must go beyond compliance within their own operations. He added that companies would increasingly be expected to demonstrate transparency and traceability throughout their supply chains, including suppliers of raw materials and intermediate products. This presents both a challenge and an opportunity for Sri Lankan exporters.
“Many Small and Medium-sized Enterprises (SMEs), which form an important part of Sri Lanka’s export value chain, may require technical assistance, capacity building, and guidance to comply with evolving international regulations. It is therefore important that both the public and private sectors work together to support exporters in improving supply chain management, documentation, and compliance systems,” he said.
Marikar added that Sri Lanka should view these developments not merely as regulatory obligations but as an opportunity to further improve the country’s position as a trusted and ethical sourcing destination.
He added that by embracing internationally accepted Environmental, Social, and Governance (ESG) principles and promoting responsible business conduct, Sri Lankan exporters could grow their competitiveness and secure even more access to premium global markets.
“The NCE remains committed to working closely with Government agencies, development partners, and the private sector to ensure that our exporters are well prepared to meet these evolving international trade requirements while continuing to grow Sri Lanka’s export sector in a sustainable and responsible manner,” he added.
Free Trade Zone Manufacturers’ Association (FTZMA) Chairman Dhammika Fernando also welcomed the Government’s move to prohibit imports of goods produced using forced labour, noting that it had contributed to Sri Lanka securing a more favourable tariff position in the US market.
Sri Lanka had previously faced higher tariff concerns amid changes to US trade measures and Fernando noted that the country’s proactive approach on forced labour had played an important role in trade discussions with the US.
He added that Sri Lanka itself did not use forced labour or child labour in workplaces and that concerns mainly centred on imported raw materials originating from countries that had been identified internationally for forced labour practices.
“The problem was that the import of raw materials and goods was done through certain countries that the US considered as using forced labour. Therefore, the Sri Lankan Government proactively implemented a measure through a notification stating that nobody can import any raw material or goods manufactured in a country where forced labour is being used,” he said.
Fernando said the decision was a positive development for Sri Lankan exporters, especially given that the US remained Sri Lanka’s largest export market.
Further, he noted that Sri Lanka remained competitive in the US market despite the additional tariff burden, explaining that the 10% tariff was imposed on top of existing MFN tariff rates applicable to various products. He pointed out that products such as tea, rubber, and coconut generally attracted lower MFN tariff rates and would therefore face comparatively low overall duties.
Certain exports such as apparel and rubber exports, which are already subject to existing MFN tariff rates, will now face an additional 10% Section 301 duty.
Fernando also observed that US trade policies had changed several times in recent years due to geopolitical considerations, making it difficult for exporters to predict future developments. Thus, looking ahead, he highlighted the importance of pursuing a bilateral trade agreement with the US in order to provide more certainty for Sri Lankan exporters over the long term.
“The earlier we can enter into a concrete bilateral trade agreement with the US, the better. Countries such as Vietnam and several others have already done so. That would provide certainty for Sri Lanka’s exporters in the long term,” he asserted.
Fernando acknowledged that an ideal outcome would have been the complete removal of the additional 10% tariff, but noted that Sri Lanka was presently in a relatively better position than previously.
Implementation and compliance requirements
Commenting on the longer-term implications of the prohibition, Economist and Arutha Co-Founder Rehana Thowfeek stated that the measure was positive from a labour rights perspective.
She noted that prohibiting imports linked to forced labour directly promoted labour rights and could improve Sri Lanka’s position in international markets over time. However, she also noted that short-term challenges remained, especially in relation to implementation and compliance requirements.
“In the long term, it is good as it directly promotes labour rights. The short-term issue will be whether the Government can get the operational guidelines done quickly,” she said.
Thowfeek noted that exporters had expressed concerns regarding compliance costs and the additional administrative burden associated with implementing such regulations. She further observed that monitoring and enforcing these rules could prove difficult in practice at times, highlighting the need for Government support for local exporters in this regard.
Overall, the US hit 60 trading partners with new tariffs between 10% and 12.5%, claiming that certain nations had failed to prevent imports tied to forced labour.
China, assigned the higher 12.5% tariff rate, rejected the allegations through its Ministry of Commerce. Calling the measures unwarranted protectionism, Beijing urged Washington to immediately roll back the restrictions. Meanwhile, China is among the biggest import partners of Sri Lanka.
In this context, offering another perspective, University of Peradeniya (UOP) Department of Economics and Statistics Professor Ananda Jayawickreme highlighted the practical difficulties associated with identifying goods produced using forced labour within global supply chains. He noted that many of Sri Lanka’s industries, especially textiles, relied heavily on imported raw materials from countries such as China, India, and other East Asian economies.
Prof. Jayawickreme pointed out that determining whether goods were produced using forced labour was not always straightforward and depended largely on how governments defined and identified such practices. Thus, he added that imposing restrictions based solely on broad allegations could mean practical challenges for industries that depended on imported inputs.
As global supply chains are deeply interconnected, many countries rely on Chinese imports for manufacturing and export production.
“China is a global factory that produces almost everything. Vietnam, Bangladesh, and many other countries import from China and then export their finished products. Sri Lanka is no different. We cannot simply cut down imports from countries that are major suppliers of raw materials without considering the implications,” he said.
At the same time, given the geopolitical changes, he highlighted that Sri Lanka should focus on improving domestic competitiveness further, perhaps by reducing taxes on production and other costs so that exporters could remain competitive despite these tariffs.
Prof. Jayawickreme added that maintaining lower domestic production costs would be one of the most practical ways for Sri Lankan exporters to remain competitive in international markets while adapting to changing global trade requirements.
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