Impact of Para-Tariffs in Sri Lanka: The Case for Improved Transparency in Border Taxes

Abstract

In an era of global trade dominated by global value chains, much of the recent empirical analysis has focused on the impacts of non-tariff barriers, behind-the-border measures, and other transaction costs on integration. Though most countries have substantially lowered their Most Favored Nation tariffs, evidence is surfacing from developing countries that other border taxes are on the rise, increasing the level and complexity of protection. Para-tariffs are often disguised, under-reported, and, in some cases, total protection levels exceed committed tariff bindings under the WTO. A case study of Sri Lanka, using partial and general equilibrium modelling, shows that the phased reduction of para-tariffs and unification with existing customs tariff structures could boost domestic production, promote exports, raise employment and GDP, while simplifying tariff administration. Increasing the transparency of border taxes requires full implementation of WTO Article II on reporting tariff schedules, including para-tariffs, together with institutional capacity building of developing countries across their respective customs and other related agencies.