The Hindu Business Line : FTAs threatening to hit domestic pepper trade

Since Vietnam and Thailand share a common border with Cambodia, it is feared that Vietnamese black pepper could find a way into India through Thailand.

Thiruvananthapuram , Nov. 30

FREE Trade Agreements (FTAs) with neighbouring countries and a porous advance licensing scheme have not just combined to lend a body blow to the domestic pepper sector but threaten to wipe out India's share in the world market.

India and Sri Lanka signed an FTA in 1998 by virtue of which any quantity of pepper can be imported duty-free into India. The result is that Sri Lanka's share in black pepper exports into India, which was around 26 to 29 per cent during 1996-98, have more than doubled to 51 to 72 per cent in 1998-2000.

A study of the sector by the WTO Cell of the Kerala Agricultural Department depicted a none-too-encouraging future for the pepper sector in the FTA regime.

Unlike other major producing countries, India is also a major consumer of pepper. Due to the price differential between imported and domestic prices of pepper, manufacturers of pepper products (such as oleoresin) and other traders feel encouraged to import duty-free pepper. Imported pepper does not attract any tax in the producing State or in the consuming State.

Another drawback of the FTA is that countries other than Sri Lanka have also been trying to smuggle in their output through Sri Lanka into India. According to reports, Sri Lanka produces around 7,000-8,000 tonnes of pepper, of which 5000-6000 tonnes are exported to India.

Allowing for Sri Lanka's domestic consumption of pepper at 4,800 tonnes, this should still leave the country with an exportable surplus between 2,200 and 3,200 tonnes only. This clearly indicates that pepper of other country origins are also routed through Sri Lanka.

Indo-Thai FTA: Similar fears are now being expressed in the case of the Indo-Thailand FTA that came into force from August 31. The FTA brings under its scope a select list of 82 items, which does not include pepper for now. But since Vietnam and Thailand share a common border with Cambodia, it is feared that Vietnamese black pepper could find a way into India through Thailand.

Advance licence scheme: The erstwhile Exim Policy 2002-07 allows for duty-free import of raw material for export production under the advance licence scheme on the condition that some positive value-addition takes place in the interregnum. There is no prescribed minimum percentage of value-addition required for re-export, providing ample loophole for exporters to manipulate stocks and figures.

The net result is that hardly any value-addition takes place before re-exports. Imported pepper is just cleaned and shipped out. The imported GL 500 pepper contains 13-15 per cent of light pepper, which is sieved out and sold in the domestic market at local prices. The deficit is made up by filling Malabar Garbled and re-exported as pepper of Indian origin. This practice has been found to undermine India's niche market for premium quality pepper abroad and might even wipe out our share in the world market.

Under the advance licence scheme, large quantities of pepper, cardamom, arecanut, cloves and other spices are imported duty-free on the condition of re-export or against already exported finished products of oleoresin, garam masala or other such products and sold in the domestic market. The nil customs duty and exemption from domestic tax give them the price advantage over domestically produced pepper.

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