Cogencis (26/08/2019) - NEW DELHI – The import duty on refined palm oil from Malaysia could soon be increased by 5 percentage points to 50%, as the government plans to remove the commodity from the Malaysia-India Comprehensive Economic Cooperation Agreement, a senior government official said today.
The government has to safeguard interests of domestic oilseed farmers and industry. If it is found out that this pact is hurting them, the Centre may remove all variants of refined palm oil from the pact," the official said.
Under the Malaysia-India Comprehensive Economic Cooperation Agreement, which came into effect in 2011, India had agreed to bring down import duties on crude palm oil from Malaysia gradually to 37.5% by Dec 31, 2019, from 72% and on refined palm oil to 45% from 82%.
As per the agreement, the customs duty on refined palm oil imported from Malaysia is 45% and that on crude palm oil is 40% with effect from Jan 1, and the duties are set to be reduced further.
Import of refined palm oil at lower duty under the agreement led to concerns this year, as these imports rose to alarming levels. The narrow duty gap between crude and refined palm oil lured Indian importers and resulted in more shipments of the refined variant of the tropical oil.
This was, however, the first time that bound rates on palm oils were lower than the import duty levied. In 2018, import duty on refined palm oil was 54% and that on crude palm oil was 44%, irrespective of the country of origin.
Owing to the lower duty from Malaysia, India's refined bleached and deodorised palmolein imports had surged 726.8% on year in Jan-Jun to 1.5 mln tn, according to Malaysian Palm Oil Board data. Total palm oil imports, including of the crude variant, from the southeast Asian country during the period were at 2.58 mlm tn, 86% higher on year.
It is necessary to increase import duty on refined palm oil from Malaysia as the bound rates for the commodity in 2020 is also 45% and that on crude palm oil is 37.5%, lower than the current level of 40%. This will further narrow the duty gap between refined and crude palm oil to 2.5 percentage points from 5.0 percentage points.
The Centre has initiated a probe on the impact of robust imports of refined palm oil and to gauge the extent of damage it is inflicting to domestic producers and refiners. Most domestic refineries are running at their minimum capacity because of huge stocks of imported refined edible oil in the country. Imports of huge quantities of edible oil also weigh on the homegrown oilseed prices and hurt farmers.
Though the probe is still underway, the Centre has found prima facie evidence that the sharp increase in imports are severely hurting domestic producers and industry, the official said.
There is a provision in the Malaysia-India Comprehensive Economic Cooperation Agreement that allows India to remove any commodity from the list of commodities under the pact if its imports surge mramatically and start hurting the domestic market.
After removing refined palm oil from the pact, the edible oil from Malaysia would attract 50% import duty under the Association of Southeast Asian Nations free trade agreement.
With a 500-bps hike in import duty on refined palm oil from Malaysia, the duty gap between crude and refined palm oil would widen to 1,000 bps from the current 500 bps, equivalent to the duty gap prevailing in imports from Indonesia, the other key supplier, he said.
The wider duty gap would discourage imports of refined palm oil to India and boost imports of crude palm oil, which is refined by domestic refineries. Due to the duty advantage given to Malaysia for refined palm oil, its imports jumped significantly while those of crude palm oil fell to 676,552 tn in June from 812,703 tn in December, according to the Solvent Extractors' Association of India data.
The finance ministry has also initiated a review of India's free trade agreement framework to assess the impact of such pacts on the overall economy, media reports said early this week. A view that such agreements bring little benefit to India while helping the parter country more has been doing the rounds among policymakers and industry players.
India is the world's largest importer of edible oils, with annual imports pegged at about 15 mln tn, or about 60% of the domestic consumption. The country imports 8-9 mln tn palm oil annually.
India imports palm oil from Indonesia and Malaysia, the world's largest producers, crude soyoil from Argentina, the world's third largest soybean producer, sunflower oil from Ukraine, and canola (mustard) oil from Canada.
India recently launched a mission to ramp up oilseed production in the country to stem huge imports and cut the annual import bill of around 700 bln rupees. End
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