Order Code RL31707
CRS Report for Congress
Received through the CRS Web
Sri Lanka:
Background and U.S. Relations
Updated September 10, 2003
Bruce Vaughn
Analyst in Asian Affairs
Foreign Affairs, Trade, and Defense Division
Congressional Research Service ˜ The Library of Congress

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Sri Lanka: Background and U.S. Relations
Summary
Sri Lanka is a constitutional democracy with relatively high educational and
social standards. The country’s political, social, and economic development has been
seriously constrained by two decades of ethnic conflict between the majority
Sinhalese and minority Tamil ethnic groups. Since 1983, a separatist war costing
some 64,000 lives has been waged against government forces by the Liberation
Tigers of Tamil Eelam (LTTE), a well-organized rebel group that has been seeking
to establish a separate state in the Tamil-dominated areas of the north and east.
The current Norwegian-brokered peace process has produced notable successes,
though it was suspended by the LTTE in the Spring of 2003 due to differences over
interim administration arrangements. In February 2002, a permanent cease-fire was
reached and generally has been observed by both sides though recent violations have
been reported. In September 2002, the Colombo government and the LTTE held
their first peace talks in seven years, with the LTTE indicating for the first time that
it is willing to accept autonomy rather than independence for Tamil-majority regions.
The two sides have agreed in principle to seek a solution through a federal structure.
Political rivalry between President Chandrika Kumaratunga, who leads the
opposition Peoples Alliance (PA) party, and Prime Minister Ranil Wickremesinghe,
head of the United National Front (UNF), has hindered peace efforts. Government
troops continue to occupy large swaths of Tamil-speaking territory and there remains
doubt about the willingness of the LTTE to renounce the use of force and disarm.
The United States designated the LTTE as a Foreign Terrorist Organization (FTO)
in 1997 and demands that the Tigers lay down their arms and foreswear the use of
force before that status can change.
U.S. policy supports efforts to reform Sri Lanka’s democratic political system
in a way that provides for full political participation of all communities; it does not
endorse the establishment of another independent state on the island. In August
2002, S.Res. 300 expressed the U.S. Senate’s encouragement of the Sri Lanka peace
process. The United States regarded as “extremely positive” the December 2002
announcement that parties to the Sri Lanka conflict have agreed to seek settlement
through establishment of a federal governmental structure. The Bush Administration
has vowed to play a role in multilateral efforts to settle the conflict and to assist in
the rebuilding of war-torn areas. The United States and Sri Lanka signed a new
Trade and Investment Framework Agreement (TIFA) in 2002, and U.S. trade-related
bodies have since been active in efforts to boost bilateral ties. The two countries also
maintain military-to-military relations. This report will be updated periodically.

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Contents
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Historical Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Political Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Ethnic Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Peace Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Obstacles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
U.S. Relations and Policy Concerns
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Bilateral Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Trade, Investment, and Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Human Rights Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
List of Figures
Figure 1. Map of Sri Lanka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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Sri Lanka:
Background and U.S. Relations
This report1 provides historical, political, and economic background on Sri
Lanka and examines U.S.-Sri Lankan relations and policy concerns. Congressional
interest in Sri Lanka focuses on the current peace process that seeks to end a two-
decade-old civil war as well as on terrorist activity, human rights, and U.S.
appropriations for food, economic, and military assistance.
SRI LANKA IN BRIEF
Population: 19.7 million (2003 est.); growth rate: 0.83% (2003 est.)
Area: 65,610 sq. km. (about size of West Virginia)
Capital: Colombo
Ethnic Groups: Sinhalese 74%; Tamil 18%; Arab 7%; other 1%
Language: Sinhala (official and national language); Tamil (national language); English widely
used
Religion: Buddhist 70%; Hindu 15%; Christian 8%; Muslim 7% (1999 est.)
Life Expectancy at Birth: 72.62 years (2003 est.)
Literacy: 92.3% (2003)
Gross Domestic Product (at PPP): $73.7 billion; per capita: $3,700; growth rate 5.2% (2003est)
Inflation: 9.6% (2002)
U.S. Trade: exports to U.S. $1.81 billion; imports from U.S. $172 million (2002) 38.7 % of
exports go to the United States (2001)
Sources: CIA World Factbook; U.S. Department of Commerce; World Bank; Economist Intelligence Unit; Global Insight
Recent Developments
The peace process in Sri Lanka continues despite violations of the cease fire and
uncertainty surrounding how the government’s recent offer to get the LTTE back to
the negotiation table will be received. In September 2003, Norway and Japan headed
an effort to revitalize the peace process in Sri Lanka and get the Sri Lankan
government and the LTTE negotiating again. The LTTE pulled out of the peace
negotiations on April 21, 2003. This prevented a seventh round of peace talks from
taking place in Thailand that was set to begin on April 29, 2003. The Japanese and
Norwegian efforts are aimed at keeping the faltering peace process between the
LTTE and the Sri Lankan government from devolving back into further conflict.
There have been a number of incidents of concern since the cease fire was
declared. Reports indicate that since the beginning of the cease fire, the LTTE has
killed a number of rivals, informants, and intelligence officers.2 On August 6, the
U.S. State Department “noted with concern” that the LTTE was “undermining
confidence in the peace process” by maintaining a military camp near Trincomalee
1 This report is based largely on the previous work of Alan Kronstadt, analyst in Asian
Affairs.
2 Amal Jayasinghe, “Violence Against Muslims Adds to Sri Lanka Peace Bid Worries,”
Agence France Presse, August 19, 2003.

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and by conducting “political assassinations.”3 The Sri Lankan Muslim Congress,
which is a constituent of the UNF, has also accused the LTTE of killing Muslims in
the east.4 The LTTE has defied the Norwegian-led Sri Lanka Monitoring Mission
(SLMM) by refusing to dismantle the Wan Ela camp near Trincomalee. The SLMM
had ruled that the LTTE had breached the cease fire agreement by setting up the new
camp.5 On June 14, a Sri Lankan naval patrol intercepted a vessel suspected of
running guns for the Tigers.6
The recent peace initiatives by Norway and Japan followed an August meeting
of the Tigers with their constitutional experts in Paris. The meeting was part of the
Tigers’ effort to respond to a July 17 Sri Lankan government proposal for an interim
administration in the northeast of Sri Lanka. This was a major concession by the
government to Tiger demands which were a prerequisite for further talks.7 For their
part, the Tigers had previously made the key concession that they would settle for an
autonomy agreement rather than their previous goal of a separate state. Despite these
concessions by both sides, a peace agreement is not guaranteed. The LTTE has
indicated that they will once again seek secession and an independent state if
substantial autonomy is not achieved through the negotiation process.8
The government is split between more conciliatory elements, represented by
Prime Minister Ranil Wickremesinghe, and a hardline faction, represented by
President Chandrika Kumaratunga. Kumaratunga has recently floated the idea of
delinking the eastern province from the Tamil dominated northern province in
response to recent attacks against Muslims in the east which are thought to have been
committed by the LTTE. This move to split the two provinces would anger the
LTTE. The LTTE is also displeased by recent government efforts to recruit more
Muslims into the police force. It was hoped that the LTTE would respond to the
government’s offer and rejoin peace negotiations by the end of September 2003.9 An
earlier proposal for an interim administration in June 2003 was rejected by the LTTE.
The government is also having difficulty making offers as it is thought that a
constitutionally viable solution will require the consent of the more hardline
opposition in the government led by the President who has gone on record as
opposing further concessions to the LTTE.10
In a further development in September 2003, hardline Tiger guerilla S.P.
Thamilselvan replaced the more intellectual and moderate Anton Balasingham as the
3 “U.S. Notes with Concern LTTE Camp and Political Assassinations,” State Department,
Press Release, August 7, 2003.
4 V.S. Sambandan, “Sri Lanka to Step up Security in the East,” The Hindu, August 22, 2003.
5 Amal Jayasinghe, “Tigers Defy Scandinavian Monitors,” Agence France Presse, August
8, 2003.
6 Amal Jayasinghe, “Double Blow to Sri Lanka Peace Bid,” Agence France Presse, June 14,
2003.
7 Amal Jayasinghe, “Norway to Make Fresh Bid to Revive Sri Lanka Peace Process,”
Agence France Presse, September 3, 2003.
8 Amy Waldman, “Sri Lanka to Explore a New Government,” The New York Times,
December 6, 2003.
9 “Tamils Begin Paris Talks on Sri Lanka Peace Offer,” Agence France Presse, August 21,
2003.
10 Voice of America, “Sri Lanka Peace,” Federal News Dispatch, June 20, 2003.

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lead negotiator for the Tigers in the lead up to the next round of negotiations.
Thamilselvan is also known as “the Cobra.” Thamilselvan rose through the ranks
from being LTTE leader Velupillai Prabhakaran’s body guard to Tiger commander
on the Jaffna Peninsula before shifting to the political side of the LTTE.11
The international community has made an effort to support the peace process
by offering inducements for peace. An international donors conference held in Tokyo
in mid June 2003 obtained aid pledges for Sri Lanka totaling $4.5 billion. One billion
of the $4.5 billion was pledged by Japan over the next three years. Some 51 nations
and 20 international institutions participated in the conference, though the LTTE
boycotted it.12 Later in June, the World Bank approved a loan of $125 million to
assist Sri Lanka for poverty reduction, reconstruction in the northeast and to support
the peace process.13 Deputy Secretary of State Armitage expressed his support for the
peace process at the Tokyo conference by asking the LTTE to end their boycott of the
talks.14
Historical Setting
Once a port of call on ancient maritime trade routes, Sri Lanka is located in the
Indian Ocean off the southeastern tip of India’s Deccan Peninsula. The island nation
was settled by successive waves of migration from India beginning in the 5th century
BCE. Indo-Aryans from northern India established Sinhalese Buddhist kingdoms in
the central part of the island. Tamil Hindus from southern India settled in the
northeastern coastal areas, establishing a kingdom in the Jaffna Peninsula. Beginning
in the 16th century, Sri Lanka was colonized in succession by the Portuguese, Dutch,
and English, becoming the British crown colony of Ceylon in 1802. In the late 19th
century, Tamil laborers were brought from India to work British tea and rubber
plantations in the southern highlands. Known as Indian Tamils, the descendants of
these workers currently comprise 6% of the population, while descendants of earlier
Tamil arrivals, known as Sri Lankan Tamils, constitute 12% of the population.
Although Ceylon gained its independence from Britain peacefully in 1948, the
succeeding decades have been marred by conflict between the country’s mostly
Buddhist Sinhalese majority and predominantly Hindu Tamil minority. Following
independence, the Tamils — who had attained educational and civil service
predominance under the British — increasingly found themselves discriminated
against by the Sinhalese-dominated government, which made Sinhala the sole official
language and gave preferences to Sinhalese in university admissions and government
jobs. The Sinhalese, who had deeply resented British favoritism toward the Tamils,
saw themselves not as the majority, however, but as a minority in a large Tamil sea
that included the 50 million Tamils across the strait in India’s southern state of Tamil
Nadu. In 1972, Ceylon was renamed Sri Lanka (“resplendent land”), as it was known
in Indian epic literature.
11 Scott McDonald, “The Cobra Rears its Head in Sri Lankan Peace Bid,” Reuters,
September 2, 2003.
12 “Donors Pledge $4.5 Bill for Sri Lanka Peace,” Ji Ji Press, June 10, 2003.
13 “World Bank Gives $125 Million,” Agence France Presse, June 18, 2003.
14 “U.S. Asks Tamil Tigers to Resume Talks with Sri Lankan Government,” BBC
Monitoring News File, London June 13, 2003.

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Political Situation
Sri Lanka’s political life has long featured a struggle between two broad
umbrella parties — the Sri Lanka Freedom Party (SLFP) and the United National
Party (UNP) — both dominated by prominent family clusters. Since independence,
the two parties have frequently alternated in power. Initially, Sri Lanka followed the
Westminster parliamentary model. In 1978, however, the UNP instituted a strong
executive presidential system of government. Under this French-style system, the
popularly elected President has the power to dissolve the 225-member unicameral
parliament and call new elections, as well as to appoint the prime minister and
cabinet. President Chandrika Kumaratunga — leader of the SLFP and daughter of
two former prime ministers — was re-elected to a second six-year term in December
1999, three days after she lost vision in one eye in a Tamil separatist suicide bombing
that killed 26 and injured more than 100.
Although Kumaratunga’s People’s Alliance (PA) coalition won a narrow victory
in the October 2000 parliamentary elections, a year later she was forced to dissolve
parliament and call for new elections in order to avoid a no-confidence vote. In the
resulting December 2001 parliamentary elections, the UNP won 109 seats (to 77 for
the PA) and formed a majority coalition — called the United National Front (UNF)
government — with the Tamil National Alliance (15 seats) and the Sri Lanka Muslim
Congress (5 seats). UNP leader and Prime Minister Ranil Wickremesinghe pledged
to open talks with the Tamil rebels and to resuscitate the ailing Sri Lankan
economy.15
Ethnic Conflict
The combination of communal politics, as practiced by both Sinhalese and
Tamil political leaders, and deteriorating economic conditions created deep schisms
in Sri Lankan society. By the 1970s, the government was facing Tamil unrest in the
north and east, while a Sinhalese Marxist group waged a terrorist campaign in the
central and southern regions. Periodic rioting against Tamils spawned the creation
of militant Tamil groups that sought to establish by force a Tamil homeland that
would include the Northern and Eastern provinces. The Liberation Tigers of Tamil
Eelam, led by its charismatic founder and chief strategist Vellupillai Prabhakaran,
emerged as the strongest and best organized of these groups.
A full-scale separatist war broke out in the north following July 1983 riots in
which several thousand Tamils were killed in retaliation for the slaying of 13
Sinhalese soldiers by Tamil militants.
Two decades of war have claimed some
64,000 lives and displaced between 800,000 and 1.6 million people. LTTE forces,
estimated at up to 10,000 men and women in strength, are armed with long-range
artillery, mortars, and antiaircraft weapons, and control portions of the Northern
Province and some coastal areas of the Eastern Province. A small but effective naval
contingent, known as the Sea Tigers, includes speedboats, fishing vessels, and
underwater demolition teams. Weapons reportedly have been obtained through
illegal arms markets in Burma, Thailand, and Cambodia, and from captured Sri
Lankan forces. Financial support for the LTTE reportedly has come from the
15 Dayan Candappa, “New Sri Lanka Premier Sworn In Pledging Peace,”Reuters News,
December 9, 2001.

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worldwide diaspora of Tamil emigres, as well as from smuggling and legitimate
businesses.
Tamil Tiger suicide bombers are believed responsible for the
assassination of numerous Sri Lankan political leaders, including Sri Lankan
President Ranasinghe Premadasa in May 1993, and many moderate Tamil leaders
who opposed the LTTE. Former Indian Prime Minister Rajiv Gandhi, whose efforts
to assist Sri Lanka in enforcing a peace accord with the Tamils in 1987 ended in the
deaths of over 1,000 Indian troops, was assassinated in May 1991 by an alleged
LTTE suicide bombing.16 One leading scholar claims that the LTTE is responsible
for fully half of all suicide attacks worldwide in recent years.17 Four previous
attempts at a peaceful settlement ended in failure and violence.
Peace Process
Progress
The current Norwegian-brokered peace effort, which began in 1999, has
produced notable success since Prime Minister Wickremesinghe revived the process
upon taking office in late-2001. In February 2002, a permanent cease-fire was
reached and, despite several incidents of alleged violations, has since been observed
by both sides. In addition, confidence-building measures called for under the cease-
fire have been implemented. In April, LTTE leader Prabhakaran emerged from
hiding for his first press conference in 12 years and suggested for the first time that
the LTTE would be willing to settle for less than full Tamil independence. In
September 2002, Sri Lanka lifted its 1998 ban on the LTTE, a move which the Tigers
had demanded as a pre-condition for peace talks. Buddhist clerics and the JVP,
however, have opposed negotiating with the LTTE.18
In September 2002, at a naval base in Thailand, the Colombo government and
the LTTE held their first peace talks in seven years. The meeting, which resulted in
an agreement to establish a joint task force for humanitarian and reconstruction
activities, was deemed successful by both sides. On the third day of talks, the LTTE
announced that it would settle for “internal self-determination” and “substantial
regional autonomy” for the Tamil population rather than full independence — a
major shift in the rebels’ position. A second round of talks in October-November
2002 brought another breakthrough when the two sides agreed on a framework for
seeking foreign aid to rebuild the country (officials estimate that repairing the war-
damaged infrastructure in the island’s northeast could cost as much as $500
million19). A multilateral “donor conference” in Oslo in late November brought
16 Many Indians are intent on seeing top LTTE leaders, including Prabhakaran, extradited
to India to stand trial for the death of Rajiv Gandhi (see V.S. Sambandan, “Looking Beyond
the Peace Talks,” Frontline (Madras), April 11, 2003).
17 Cited in Amy Waldman, “Suicide Bombing Masters: Sri Lankan Rebels,” New York
Times, January 14, 2003.
18 Amal Jayasinghe, “Sri Lanka Lifts Ban on Tigers Ahead of Thai Talks,” Agence France-
Presse, September 4, 2002.
19 “Sri Lankans in Reconstruction Talks,” BBC News, November 18, 2002. Large numbers
of Tamil refugees have already begun returning to the war-torn region since the February
2002 cease-fire (Dilip Ganguly, “100,000 Refugees Return to Sri Lanka,” Associated Press
Newswire, September 20, 2002).

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numerous pledges of external assistance, with the United States promising to “play
its part” toward implementation of a peace plan.20
In what may be the most important breakthrough to date, talks in early
December 2002 ended with the issuance of a statement that “the parties have agreed
to explore a solution founded on the principle of internal self-determination in the
areas of historical habituation of the Tamil-speaking peoples, based on a federal
structure within a united Sri Lanka.”21 This language marks significant concession
from both parties: the Colombo government for the first time accepted the idea of
federalism, and the rebels, in accepting a call for internal self-determination, appear
to have relinquished their decades-old pursuit of an independent Tamil state.
A fifth round of negotiations took place in Berlin in February, but made no
notable progress other than to schedule further talks on revenue sharing issues. The
meetings began only three hours after three LTTE rebels incinerated themselves at
sea when Norwegian truce monitors boarded their weapons-laden craft. Although
“very clearly a violation of the cease-fire,” the incident did not derail the peace
process; it did, however, erode somewhat international confidence, especially among
potential donor nations. The United States called the Tigers’ arms smuggling effort
“highly destabilizing” and urged the LTTE to “commit itself fully to peace and desist
from arms resupply efforts.”22
Talks in Japan in March produced no major breakthroughs on political or human
rights issues. Norwegian brokers noted that the main purpose of the meetings was
to lay a foundation for a donor conference that Japan has offered to host in early
June. A Japanese participant suggested that the promise of major external assistance
— expected to be some $3 billion over three years — is what has kept the disputing
parties at the negotiating table.23 As in February, violence again threatened to derail
the process. On March 10, a Sri Lankan Navy vessel sank what the Colombo
government described as an attacking Tiger boat, killing 11. The Tigers condemned
the attack, claiming that their unarmed “merchant vessel” was not a threat. It is not
clear whether the incident took place in international waters or whether the Tiger boat
were carrying munitions. Norwegian truce monitors criticized both sides while
refraining from ruling who was at fault.24
In March, the World Bank established a special North East Reconstruction Fund
and pledged its “unconditional support” for Sri Lanka’s development programs. A
new Country Assistance Strategy (CAS) was announced on April 1, the first for Sri
Lanka since 1996. Organized around the central themes of peace, growth, and equity,
20 “Transcript: U.S. Prepared to ‘Play Its Part’ to Further Peace in Sri Lanka,” U.S.IS
Washington File, November 25, 2002.
21 Amy Waldman, “Sri Lanka to Explore a New Government,” New York Times, December
6, 2002.
22 “Sri Lankan Peace Talks Start in Berlin,” Reuters News, February 7, 2003; Amal
Jayasinghe, “Suicide Bomb Blunts Sri Lanka’s Peace Momentum,” Agence France-Presse,
February 10, 2003; “U.S. Criticizes Tamil Tiger Smuggling,” BBC News, February 12,
2003.
23 Scott McDonald, “Sri Lanka Propose Aid Body to Tamil Tigers,” Reuters News, May 28,
2003; Amal Jayasinghe, “Sri Lanka Negotiators Leave Japan With Little Progress, But Cash
Hopes Alive,” Agence France-Presse, March 22, 2003.
24 “Sri Lanka Monitors Chide Both Sides Over Sea Clash,” Reuters News, March 17, 2003.

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the CAS includes $800 million in grants and interest-free loans over the next four
years, more than tripling average annual World Bank lending to Sri Lanka since
1998.25 The United States hosted a potential donor country briefing in Washington
on April 14, 2003 in preparation for the June donor conference in Tokyo where aid
pledges for Sri Lanka totaled $4.5 billion.26
In April, the Colombo government said that it is considering holding an island-
wide referendum to endorse its current peace negotiations with Tamil rebels. The
non-binding referendum would endorse new legislation known as the Peace Bill; a
second referendum would be required to make any necessary constitutional changes.
A public opinion poll found that nearly 84% of all Sri Lankans believe that peace can
be achieved through peace talks, including more than 95% of Tamils. 27
Obstacles
The progress in peace talks has surprised many observers. Despite this,
negotiators face a difficult phase as they attempt to craft a political system that
maintains Sri Lanka’s unity while addressing the LTTE’s desire for substantive
autonomy.28 A variety of federal models are under consideration, including those that
have seen success in Switzerland and Canada, among others.29 In addition to
questions of power-sharing, numerous other highly contentious issues to be settled
include geographical region, human rights protection, political and administrative
mechanisms, public finance, law and order, and LTTE accountability for past
actions.30
A key unresolved near-term issue is the decommissioning of LTTE weapons,
which the Tigers repeatedly have stated will not occur until a permanent settlement
is reached. The opposition People’s Alliance claims that the rebels are “armed to the
teeth” and must disarm as part of the negotiation process.31 Also, there are reported
to be 35,000 government troops controlling as much as one-third of the Jaffna
Peninsula at the island’s northern tip. The Tigers have refused to make peace while
part of the country remains under “army occupation,” but the Sri Lankan military is
concerned that any resettlement of civilians could be used as cover by the Tigers to
25 Florence Wickramage and Kushani Ratnayake, “World Bank Pledges Unconditional
Support to Lanka,” Daily News (Colombo), March 28, 2003; “World Bank Discusses New
Country Assistance Strategy for Sri Lanka,” World Bank Press Release, April 1, 2003.
26 “Donors Pledge $4.5 Bill for Sri Lanka Peace,” Ji Ji Press, June 10, 2003.
27
Francis Harrison, “Sri Lanka Ponders Peace Vote,” BBC News, April 4, 2003;
“Overwhelming Support for Peace Talks — Poll,” Daily News (Colombo), March 24, 2003.
28 A Tamil state is considered to be a fait accompli by many, given the LTTE’s
establishment of well-organized police, court, and prison systems, a law college, motor
vehicle registry, tax and customs departments, health clinics, and even a forestry division
(John Lancaster, “In Some Ways, Rebels Without a Cause,” Washington Post, January 14,
2003).
29 See Teresita Schaffer and Nisala Rodrigo, “Sri Lanka: Finding the Start of a Long Road,”
South Asia Monitor 54, Center for Strategic and International Studies, January 1, 2003.
30 V.S. Sambandan, “Fashioning a Federal Sri Lanka,” Hindu (Madras), December 10, 2002.
31 “Tamil Tigers ‘Must Disarm,’” BBC News, December 13, 2002.

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better position themselves should fighting resume.32 Colombo is refusing to open up
the “high security zones” until the rebels lay down their arms, an action the Tigers
call “non-negotiable” at this stage.33 Some analysts express certainty that the Tigers
will be unwilling to disarm in the foreseeable future, and even some Sinhalese
intellectuals are reported to sympathize with the rebels’ hesitation to disarm, given
their perceived need for “leverage” against a Sinhalese-dominated government that
“has given no reason to the LTTE to trust it.”34 Many believe that the Tigers are
continuing recruitment and arms procurement efforts in violation of the February
2002 cease-fire agreement to maintain the military balance.35
A potential obstacle to a peace deal in the near- and middle-term is the
continuing political rivalry between President Kumaratunga, who has criticized the
prime minister’s conciliatory approach toward the LTTE, and PM Wickremesinghe,
whose UNF cabinet has accused the president of corruption and violating government
procedures. In September 2002, amid concern that Kumaratunga could effectively
veto any peace accord by disbanding parliament, Wickremesinghe’s government
proposed a constitutional change — the 19th Amendment — that would remove the
president’s power to dissolve the legislature.
Although some legislators from
Kumaratunga’s People’s Alliance have expressed support for the amendment, many
observers maintain that it will be difficult for Wickremesinghe — whose coalition
controls 129 seats — to win the 21 PA votes needed to secure a two-thirds majority.
The People’s Alliance has expressed concerns that the Norwegian mediators are
biased in favor of the rebels, and that the United States and Britain are “planning to
reward terrorism.” In November 2002, the party vowed that it would no longer
countenance developments which “jeopardize the country’s sovereignty.”36
Kumaratunga herself, while at times expressing approval of the ongoing process, has
issued sharp criticism of Wickremesinghe for a “lack of professionalism” in pursuing
a “peace at any cost” policy that may be harmful to the country’s interests.37 She also
has complained that Oslo’s role in assisting the LTTE’s December procurement of
a powerful FM radio transmitter raised serious questions about Norway’s
impartiality.38 Press reports indicate that the Tigers will use the new equipment to
extend their radio broadcasts into government-controlled regions for the first time
since the civil war began; some critics say the move provides the rebels with an
influential propaganda tool.39
32 Amy Waldman, “Sri Lanka Faces the Divisions Within,” New York Times, January 8,
2003.
33 “Sri Lanka Talks Face Hurdle,” BBC News, January 4, 2003.
34 Rasheed Bhagat, “No to War Isn’t Yes to Peace,” Business Line (Madras), April 8, 2003.
35 V. Suryanarayan, “Paradigm Shift in Sri Lanka?,” Hindu (Madras), January 21, 2003;
Anthony Davis, “Sri Lanka Intercepts New Arms Purchases,” Jane’s Intelligence Review,
April 1, 2003.
36 Frances Harrison, “Sri Lanka Peace Moves Attacked,” BBC News, November 15, 2002.
37 Amit Baruah, “‘India Should Play a Pro-Active Role,’” Hindu (Madras), April 12, 2003.
38 “Kumaratunga Angry at Norway,” BBC News, December 31, 2002. In a more positive
development, Kumaratunga in February 2003 offered that her country has “no other option”
but to continue with the peace process (“Country Cannot Afford to Go Back on War —
President,” Daily News (Colombo), February 26, 2003).
39 “Tamil Tigers to Mount Radio Offensive,” BBC News, January 2, 2003; Frances
(continued...)

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CRS-9
Economy
Formerly a colonial economy based on plantation crops (tea, rubber, coconut,
sugar, and rice), modern Sri Lanka’s manufactured products account for nearly 80%
of the country’s exports, including garments, textiles, gems, and agricultural
products. Tourism and repatriated earnings of Sri Lankans employed abroad are
other important foreign exchange earners.
The first country in South Asia to
liberalize its economy, Sri Lanka began an ongoing process of market reform and
privatization of state-owned industries in 1977. Privatization efforts have slowed in
recent years, however. In 2001, both tourism and investor confidence, on the
rebound in 1999, were seriously affected by major LTTE terrorist attacks and
political instability. The October 2002 Bali, Indonesia bombings may further damage
the tourist sector. Sri Lanka’s entire economy also suffered as a result of prolonged
drought (the worst in two decades), related hydroelectric power shortages, and the
worldwide economic downturn.
Despite the existence of such obstacles, current estimates show Sri Lanka’s
economy is doing well. The economy grew by 5.5% in the first quarter of 2003 up
from .05% a year earlier.40 Annual growth for 2003 is estimated at 5.2%.41 An
already sluggish agricultural sector was harmed by May 2003 flooding, and may
impede overall growth from what is expected to be robust output in the industrial,
manufacturing, and service sectors for 2003 and 2004.42 Success with renewed
privatization efforts and further progress in the current peace process will do much
to spur greater economic growth in Sri Lanka. Another important future variable will
be levels of U.S. and European demand for textiles. Despite the existence of
promising government-LTTE negotiations, the civil war continues to place a heavy
burden on the country’s economy, as well as to hinder its economic potential. Many
analysts believe that annual growth rates would be as much as three percentage points
higher in the absence of protracted ethnic conflict.43
With its location on major sea-lanes, excellent harbors, and high educational
standards, Sri Lanka has long been viewed as a potential regional center for financial
and export-oriented services. In recent years, however, defense expenditures have
risen from 1.3% of GDP in 1980 to 4-6% of GDP. Aside from defense spending,
other costs of the war include damage to infrastructure, expenditures for
humanitarian relief, and impact on tourism and foreign investment. For decades, Sri
Lanka has invested heavily in education, health, and social welfare, maintaining high
living standards compared to much of South Asia.
39 (...continued)
Harrison, “Tamil Tiger Radio Goes Legal,” BBC News, January 16, 2003.
40 Manik De Silva, “Asian Economic Outlook,” Far Eastern Economic Review, August 28,
2003.
41 “Sri Lanka Country Report,” Economist Intelligence Unit, July 2003.
42 Chamath Ariyadasa, “Sri Lanka’s Tea, Rice, and Rubber Crops Hit By Floods,” Reuters
News, May 26, 2003; Economist Intelligence Unit, “Country Data: Sri Lanka,” May 29,
2003.
43 “Sri Lanka: Executive Summary,” Global Insight, May 14, 2003.

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CRS-10
U.S. Relations and Policy Concerns
U.S. policy supports efforts to reform Sri Lanka’s democratic political system
in a way that provides for full political participation of all communities; it does not
endorse the establishment of another independent state on the island. The United
States regarded as “extremely positive” the December 2002 announcement that
parties to the Sri Lanka conflict have agreed to seek settlement through establishment
of a federal governmental structure.
While commending both the Sri Lankan
president and prime minster for their respective roles in the peace process, the United
States emphasizes that further progress requires the Colombo government to “move
together as one.” Deputy Secretary of State Armitage has taken a lead role in U.S.-
Sri Lankan relations, arguing that, “The United States should be playing a role in
concert with other nations, committing our human and financial resources to settling
this conflict because it can be done. And because it’s the right thing to do.”44
Bilateral Relations
In July 2002, President Bush met with Sri Lankan PM Wickremesinghe at the
White House and pledged U.S. support for peace and economic development in Sri
Lanka. It was the first visit to Washington by a Sri Lankan leader since 1984. In
Colombo in August, Deputy Secretary of State Armitage pledged to “re-energize”
bilateral relations through increased cooperation in defense, education, commerce,
justice, and human rights. In September, a U.S. defense assessment team was sent
to examine the training needs of the Sri Lankan military, and State Department
Coordinator for Counter terrorism Taylor went to Colombo to discuss ways to
integrate “intelligence, law enforcement, legal and diplomatic efforts against
terrorism.” The United States and Sri Lanka held their ninth consecutive joint
military exercises from January-March 2003, with training focused on combined
arms operations and medical techniques.45 The United States and Sri Lanka recently
signed an agreement that will provide demining training to the Sri Lankan military.
The training is estimated to cost $2.2 million and will run from August 2003 to
February 2004.46 Ship visits continued with the visit of the USS O’Kane to Colombo
in June 2003.47 The U.S. and Sri Lankan navies also participated in a multilateral
search and rescue exercise off the coast of Chennai (Madras) in July of 2003.48
44 “U.S. Welcomes Progress in Sri Lanka Political Settlement Talks,” U.S.IS Washington
File, December 5, 2002; U.S. Department of State, “Remarks at Sri Lanka’s Donors’
Conference,” November 25, 2002; “Transcript: Armitage Says U.S., Other Nations Have
Role in Ending Sri Lankan Conflict,” U.S.IS Washington File, February 14, 2003.
45 “United States Help to Modernize Sri Lanka Military,” Agence France-Presse, August 30,
2002; “U.S. Counterterrorism Official to Visit Sri Lanka,” Reuters News, September 24,
2002; “U.S., Sri Lankan Militaries Cooperate in ‘Balance Style,’” U.S. Embassy — Sri
Lanka, Office of Public Affairs Press Release, January 14, 2003.
46 “U.S. Government Provides Sri Lankan Army with Demining Training,” State Department
Press Release, August 22, 2003.
47 “U.S. Naval Ship Visits Colombo,” State Department Press Release, June 20, 2003.
48 “U.S. Naval Ship to Take Part in Rescue Exercise,” The Hindu, July 9, 2003.

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CRS-11
The U.S. State Department first designated the LTTE as a Foreign Terrorist
Organization in 1997.49 In February 2003, Deputy Secretary of State Armitage
reiterated that “if the LTTE can move beyond the terror tactics of the past and make
a convincing case through its conduct and its actual actions that it is committed to a
political solution and to peace, the United States will certainly consider removing the
LTTE from the list of Foreign Terrorist Organizations, as well as any other terrorism-
related designations.” The LTTE continues to reject all calls that it renounce
violence, saying it will do so only when “the aspirations of [the Tamil] people are
met by a political settlement.”50
The global anti-terrorism campaign, which
reportedly has resulted in the international withholding of roughly $4 billion from the
LTTE and made it more difficult for the group to acquire weapons, has been cited as
a likely factor in the rebel’s decision to enter into peace negotiations.51 On June 25,
Sri Lanka joined the U.S. Customs Container Security Initiative aimed at preventing
shipping from being used to transport weapons of mass destruction.52
Trade, Investment, and Aid
The United States is Sri Lanka’s largest export market and the destination for
about 38.7% of its total exports.53 In 2002, Sri Lankan exports to the United States
were valued at $1.81 billion (down slightly from 2001), led by apparel and textiles,
leather products, and rubber. U.S. exports to Sri Lanka in 2002 were valued at $172
million, and included wheat, electrical machinery, fabrics, and medical instruments.
The Sri Lankan Board of Investment indicates that some 90 U.S.-based companies
operate in Sri Lanka with an estimated investment of more than $500 million.
During the Sri Lankan Prime Minister Wickremesinghe’s visit to Washington
in July 2002, the United States and Sri Lanka signed a new Trade and Investment
Framework Agreement (TIFA) to establish “a forum for Sri Lanka and the United
States to examine ways to expand bilateral trade and investment.” The agreement
“creates a Joint Council to enable officials to consider a wide range of
commercial issues, and sets out basic principles underlying the two nations’ trade
and investments relationship.” The Council also will “establish a permanent
dialogue with the expectation of expanding trade and investment between the
United States and Sri Lanka.”54
49 “Foreign Terrorist Organizations” are overseas groups designated by the Secretary of
State as meeting the criteria specified in Section 219 of the Immigration and Nationality Act,
as amended (U.S. Department of State Fact Sheet, Office of Counterterrorism, August 9,
2002).
50 “Transcript: Armitage Says U.S., Other Nations Have Role in Ending Sri Lankan
Conflict,” U.S.IS Washington File, February 14, 2003 (Assistant Secretary of State for
South Asia Rocca set similar criteria in March 2003); Alister Doyle, “Tamil Rebels Reject
U.S. Call to Renounce Violence,” Reuters News, November 25, 2002.
51 “U.S. Seeks to Allay Sri Lanka Fears on Rebel Ban,” Reuters News, April 19, 2002;
“Smiles That Conceal the Worries — Sri Lanka’s Civil War,” Economist (London), July 20,
2002.
52 “Terrorism Notebook,” Seattle Times, June 26, 2003.
53 CIA World Fact Book, 2003.
54 “Trade and Investment Framework Agreement Between the U.S. and Sri Lanka,” at
[http://www.slembassyusa.org/investment/tifa.html].

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CRS-12
In subsequent months, several teams of U.S. officials have traveled to Sri Lanka
to explore avenues for cooperation. During a November 2002 trip to Colombo, U.S.
Deputy Trade Representative Jon Huntsman asserted that the island must make its
investment regime more transparent and predictable if it is to attract greater U.S.
private investment. In December, Assistant Secretary of Commerce for Trade
Development William Lash was in Colombo to encourage increased bilateral ties in
the areas of information technology, education, and infrastructure. In February 2003,
Deputy Secretary of State Richard Armitage asserted that “Sri Lanka is already a
solid exporter to the United States and has the potential with peace and the right
reforms to become a significant trade partner.”55 In March 2003, the second round
of TIFA Joint Council meetings were held in Washington, where Deputy U.S. Trade
Representative Huntsman and Sri Lankan Commerce Minister Karunanayake led
their respective delegations. The tenor of these meetings was wholly positive and
“progress was made on issues of concern to both countries.”56 In May 2003, U.S.
Trade Representative Zoellick reportedly stated that Sri Lanka showed potential as
a future free trade partner of the United States.57
U.S. foreign assistance to Sri Lanka focuses on increasing the country’s
economic competitiveness in the global marketplace; creating and enhancing
economic and social opportunities for disadvantaged groups; promoting peace, good
governance, and human rights awareness and enforcement; providing psychological
counseling to communities in the conflict zones; and demining. U.S. foreign
assistance to Sri Lanka in FY2002 (excluding loans) totaled $8.4 million (and
another $9.3 million in food aid58). The Bush Administration requested $10.4 million
for FY2003 and nearly $24 million for FY2004, including $14 million in Economic
Support Funds and $1 million for a new Foreign Military Financing program.
U.S.AID currently is running a two-year, $7 million program aimed at increasing Sri
Lanka’s competitiveness in the marketplace.59 Armitage pledged an additional $54
million in assistance to Sri Lanka at the donors meeting in Japan on June 10, 2003.60
Human Rights Concerns
The U.S. State Department, in its Sri Lanka Country Report on Human Rights
Practices, 2002 (issued March 2003), determined that the Colombo government
“generally respected the human rights of its citizens; however, there were serious
problems in some areas. ... Some members of the security forces committed serious
55 Office of the U.S. Trade Representative, “United States and Sri Lanka Sign Trade and
Investment Framework Agreement,” July 25, 2002; “U.S. Encourages Peacetime Sri Lanka
to Diversify,” Reuters News, November 21, 2002; “U.S., Sri Lanka to Work on Economic
Ties,” Reuters News, December 20, 2002.
56 Telephonic interview with U.S. Trade Representative official, April 9, 2003.
57 “Thailand Near Top of U.S. List for Next Free Trade Pact,” The Bangkok Post, May 10,
2003.
58 About 85% of this amount was delivered in the form of P.L. 480 Title I food aid loans.
59 U.S. Department of State, “FY2002 Country Commercial Guide: Sri Lanka;” U.S.
Agency for International Development, “Budget Justification to the Congress, FY2003.”
60 “Armitage Pledges $54 million at Sri Lanka Donors Conference,” State Department Press
Release, June 10, 2003.

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CRS-13
human rights abuses.”61 Major problems included torture of detainees and poor
prison conditions; infringements on privacy rights; violence and discrimination
against women; child prostitution and child labor; and human trafficking, among
others. Improvement was found in some areas: the independence of the judiciary
was respected, and government bodies have undertaken to address and investigate
abuses such as torture. The United States also finds that the LTTE “continued to
commit serious human rights abuses” in 2002, including “unlawful” killings,
disappearances, arbitrary arrests and detentions, extortion, and torture. The LTTE
reportedly continues to recruit child soldiers, to restrict freedom of movement, and
to censor the media in areas under its control.62 The government, on the other hand,
relaxed some of its restrictions on freedom of the press by ending its censorship of
reporting on military operations.
61 U.S. Department of State, “Country Reports on Human Rights Practices — 2002: Sri
Lanka,” March 2003.
62 See Amy Waldman, “Sri Lanka’s Young Are Forced to Fill Ranks of Endless Rebellion,”
New York Times, January 6, 2003; John Lancaster, “In Some Ways, Rebels Without a
Cause,” Washington Post, January 14, 2003. One report has the Tigers admitting to
recruiting more than 300 child soldiers during 2002, despite the cease-fire (“Tamil tigers
‘Admit Recruiting Children,’” BBC News, January 28, 2003). Amnesty International
echoes the criticisms of the United States, and condemns frequent reports of torture and rape
in police custody, the apparent impunity of security forces, and numerous complaints of
hostage-taking by LTTE forces in 2002 (see Amnesty International Report 2003, May 28,
2003, available at [http://web.amnesty.org/report2003/index-eng]).

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CRS-14
Figure 1. Map of Sri Lanka
India
Jaffna
Jaffna Peninsula
Delft
Elephant Pass
Island Palk
Kilinochchi
Bay
Bay
Mullaittivu
of
Mannar
N o r t h e r n
B engal
Vavuniya
G u l f
o f
Trincomalee
M a n n a r
Anuradhapura
N o r t h
C e n t r a l
Puttalam
Polonnaruwa
N o r t h
Batticaloa
E a s t e r n
W e s t e r n
C e n t r a l
Kurunegala
Matale
Kandy
Amparai
Kegalla
Nuwara
Badulla
Colombo
Eliya
Moneragala
U v a
W e s t e r n
Ratnapura
Sri Lanka
Kalut
National capital
S a b a r a g a m u w a
District capital
International border
Province boundary
0
20
40 km
S o u t h e r n
Hambantota
0
20
40
60 mi
Galle
Matara
I n d i a n
O c e a n
Adapted by CRS from Magellan Geographix.
4-00

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