I. Commercial Overview The business and investment climate in Sri Lanka has undergone a dramatic change in recent years, with private sector participation widely encouraged by market-oriented government policies and a commitment towards privatization of state owned enterprises. As a result of advocating open economic policies and export-led strategies since 1978, Sri Lanka is transforming into a private-sector, free-market economy. Economic policy is an issue in the 1994 national elections (not yet held at time of writing). The report that follows reflects the practices of the current United National Party government. Overview of Import Market Sri Lanka has liberalized most industrial licensing and tariff schemes. Foreign exchange controls have been eliminated for virtually all imports. In 1993 Sri Lanka imported over $4 billion worth of goods with an emphasis upon textiles, food, machinery, equipment, petroleum, and building materials. Japan is Sri Lanka's leading supplier, accounting for more than 11 percent of the total imports, followed by India and the East Asian economies of Taiwan, Hong Kong, South Korea and Singapore. The United States is 7th in line. Commercial Environment Most international trade is centered in Colombo and its environs. More than 90 percent of all imports enter through the port of Colombo. A large number of foreign firms are present, mostly represented through local agents. While hundreds of trading firms are involved in import and internal distribution, 20 to 30 relatively large ones do most international trading. A few of the larger companies have transport networks island-wide, otherwise distribution is dominated by independent truckers. Host Country Business Attitude toward the U.S. Both the Sri Lankan government and the Sri Lankan public are favorably inclined to the U.S. Due to garments, the U.S. is the largest market and largest trading partner of Sri Lanka. Exports to the U.S. totalled $1,008 million in 1993, while imports were about $200 million (up 14 percent from 1992). More than 200 U.S. companies are represented here and U.S. products are recognized as high quality. Business links with the U.S. continue to increase. Major Business Opportunities The leading trade prospects for U.S. business include agricultural and food products, aircraft and aircraft parts, telecommunications, energy production, textile equipment, computers, information processing, and pollution prevention and control technologies. Major Roadblocks To Doing Business Although it is easier to trade and invest in Sri Lanka than in many countries with per capita incomes of less than $600, the low income suppresses demand for high quality U.S. products, limits absorptive capacity, and constrains investment opportunity. Other major barriers to trade and investment include delays in government tendering, relatively high import tariffs and surcharges, poor infrastructure, and concerns about insurgency in the north and east. Judicial redress in trade disputes can be slow and chancy. Nature of Local and Third Country Competition Sri Lanka produces a limited range of light manufacturing and agricultural products. In certain areas, low-cost suppliers such as China and India dominate the market. European and Australian competition is strong in major projects. In certain high tech areas, such as computers, the U.S. is the leader.