It is argued that economic growth is a necessary condition for poverty alleviation while a liberal trade regime is a prerequisite for sustainable economic growth. However, trade liberalization affects consumers and producers differently. While tariff reduction on imports may bring welfare gains to consumers, there would be many producers who are adversely affected by such trade policy reforms. This paper attempts to look at the impact of trade liberalization on poverty and welfare of households, with a special focus on the rice and potato sectors of Sri Lanka. Both a descriptive approach (for rice and potato sectors) and an analytical model (for the rice sector) are used in this regard. The paper also analyses various trade policy reforms undertaken during the last decade, and the extent and nature of poverty in Sri Lanka.