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NEWS ADMIN

Mahamad Rodzi Abdul Ghani

DATE

21/03/2005

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Mahamad Rodzi Abdul Ghani

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Business Line

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HEADLINE

Indonesia to protest hike in Indian palm oil duty
Mumbai , March 20 - UPSET with last month's steep hike in the customs dutyon palm group of oils, Indonesia, world's second largest producer andexporter, has decided to lodge a protest on the ground that the Indianduty structure favours soyabean oil and discriminates against palm oil.

The Indonesian Minister for Agriculture is expected to lodge a protestwith his Indian counterpart before the World Trade Organisation's informalmeeting of senior officials from G-20 member countries scheduled to beheld in India on March 28.

Indonesia's grievance is that if the tariff hike was necessary to protectthe interest of Indian oilseed growers, then the tariff on not only palmoil but also soyabean oil must be raised. At present, imported soyabeanoil is charged customs duty of 45 per cent while crude palm oil attracts80 per cent and refined palm oil 90 per cent.

On the face of it, there indeed is a discriminatory treatment betweensoyabean oil and palm oil, with the former enjoying a favourably lowerrate of tariff. But this duty differential is not designed todiscriminate, nor is there an intention to discriminate. It is acompulsion of the marketplace and India's WTO commitment.

The WTO-bound rate of duty on soyabean oil is 45 per cent. India cannotraise the duty any further without the consent of supplying countries.India's attempts to renegotiate the bound rate on soyabean oil a couple ofyears ago failed.

While duty on soyabean oil is at the highest level, it is not so with palmoil. The bound rate of duty on palm oil is 300 percent. However, theeffective rate of duty levied by India is much lower currently at 80 percent and 90 per cent respectively for crude and refined palm oil. Therewas a time not long ago when the duty on palm oil was as low as 15 percent. It was gradually raised to the present level.

There indeed are domestic compulsions for India to keep the rate of dutyon imported vegetable oils at a high level. India is a major producer andconsumer of edible oil; but in the last 10 years, a serious gap betweendomestic production and consumption demand has appeared, necessitatingimports to bridge the gap.

Indigenous production is high cost because of low yields. Typically,oilseed yield is just about 1,000 kilogram per hectare, resulting isrecovery of 350-400 kg of oil (at 35-40 percent recovery) per hectare.Production of palm oil is about ten times higher, that is 4,000 kg/ha.Soyabean yield in North and South America is about 2,700 kg/ha. With suchstark yield differences, Indian oilseed sector cannot withstandcompetition from imported oils, without tariff protection.

As quantitative restrictions on imports have been done away with, customsduty is the only instrument available with the Indian government; and itis being deployed fairly effectively. If the rate of customs duty was tooonerous, India would not be importing 45-50 lakh tonnes of various oilsyear after year, with palm group of oils accounting for over 70 per centof aggregate annual imports.

Palm oil producing nations such as Malaysia and Indonesia must stopwhining about Indian duty structure and start servicing the largestcustomer for palm oil more effectively. Unfortunately, they have beenshort-sighted and failed to look at the long-term potential of the Indianmarket.

At the same time, Indian policymakers must seriously examine ways andmeans to neutralise the tariff advantage being enjoyed by soyabean oil. Acase for imposing `anti-subsidy' duty on soyabean oil could be made outItis also possible to regulate import of soyabean oil produced out ofgenetically modified (GM) soyabean and treat that category of oilseparately. The onus of identity preservation and production ofdocumentary evidence that the oil sent to India is not produced out ofGM-soyabean should be on the overseas supplier.

The bound rate of 45 per cent on soyabean oil was negotiated in 1994-95when GM-soya oil was not commercially produced and traded. In other words,the negotiated rate of 45 per cent applies to non-GM soya oil.

Indian policymakers must seriously examine this aspect, not with theintention to please Malaysia and Indonesia, but more importantly toprotect the interest of domestic soyabean growers.