This paper examines the impact of timber trade liberalisation on economic welfare and forest conservation in Sri Lanka. A partial equilibrium market simulation model was used to analyse the welfare impacts. Results show that removal of all border charges reduce timber price by about 25%. Decline in timber price reduces the incentives for illegal logging and enhances forest conservation in Sri Lanka. The price reduction also results in an increase of consumer surplus by about US $ 40 million per year. Timber trade liberalisation reduces local supply by about 12% to 31% depending on the elasticity of supply. The reduction of local supply can prevent 6,985, 13,971 and 17,469 ha of deforestation under the inelastic, unitary elastic and elastic demand and supply assumptions, respectively.