Financial Daily from THE HINDU group of publications
Saturday, Aug 07, 2004
Agri-Biz & Commodities
Industry & Economy - Exports & Imports
EU to allow duty-free import of brown basmati
New Delhi , Aug. 6
INDIA and Pakistan have both won a major reprieve, with the European Union (EU) agreeing to a duty free import regime for brown (husked) basmati rice from September 1, covering not just `traditional' or pure line cultivars, but even two `crossed' varieties, Pusa Basmati-1 and Super Basmati.
The EU was earlier providing a tariff concession of 250 euro per tonne on basmati rice, which, too, effectively translated into nil duty.
However, this facility was, from April 1 onwards, restricted to only seven premium `traditional' varieties. These included Basmati-370 (notified by both Pakistan and India), Basmati-386 (Indian), Taraori Basmati (Indian), Type-3 or Dehraduni (Indian), Basmati-217 (Indian), Ranbir Basmati (Indian) and Kernel (Pakistani).
The move had particularly hit Pakistan because unlike India, it does not grow any traditional basmati variety. The country's exports to EU - about 1.10 lakh tonnes (lt) this year - consist entirely of hybrid varieties such as Super and Basmati-385.
As against this, traditional varieties are said to account for three-fourths of India's exports to the region (around 1.80 lt, valued at over Rs 550 crore) and the rest being mainly Pusa basmati.
But come September, both countries will be able to export Super and Pusa and simultaneously avail of the duty free window on these shipments. Under the new rice import regime approved by the European Commission (EC) to replace the existing `margin of preference' (MOP) system from September 1, brown rice imports would attract a general tariff rate of 65 euros per tonne, while being zero for the seven specified basmati varieties.
Under the earlier MOP system, the duties were fixed through a complex process, linked to the EU's `intervention price' and a world `reference price'. The `intervention price' (similar to the minimum support price for paddy here) was pegged at 298.35 euros, which was then multiplied by 1.8 to obtain a `ceiling price' of 537 euro per tonne for brown indica rice.
The `reference price', in turn, was the prevailing price of US rice in the EU, based on the rates periodically notified by the US Department of Agriculture.
The final duty payable was computed by subtracting the `reference price' from the `ceiling price', subject to it not exceeding the EU's `bound rate' of 264 euros for brown rice under the World Trade Organisation (WTO) agreements. Further, brown basmati rice enjoyed a duty concession of 250 euros per tonne, which meant a maximum chargeable duty of 14 euros.
The move to dispense with the MOP regime has been necessitated by the EU's decision to halve its `intervention price' to 150 euros per tonne, also effective from September 1. Given that the `reference price' is now roughly 328 euros, the final duty payable under the old formula would have worked out to zero.
This would obviously have triggered a flood of imports. The EU annually produces about 21 lt of rice and imports 7-8 lt, which includes almost three lt from the subcontinent and the rest from the US and Thailand.
To protect its farmers' interests, the EU has, therefore, put in place a new simpler dual tariff regime, involving a duty of 65 euros for normal brown rice and zero duty for long-grain basmati rice. The underlying logic here is that basmati is a premium product, which does not really threaten European rice and, therefore, deserves special treatment.
At the same time, the zero duty would be extended only to `genuine' basmati, which is a variety containing at least one `pure line' parent. Both Pusa and Super, thus, find accommodation in this definition, whereas Pakistan's Basmati-385 (whose both parents are crossed basmati varieties) does not.
But there is a catch even in the new duty free dispensation for basmati rice. In the event of `market disturbance' taking place, the EC will "consult with India's competent authorities to agree an appropriate solution" and "if no agreement is reached, the EC reserves the right to revert to the bound rate of duty of 65 euros for husked rice".
Also, in order to ensure genuine basmati shipments, both Pakistan and India will have to establish a "Community control system based on DNA analysis at the border".
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