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Harish Damodaran

New Delhi , Nov. 30

THE European Union's move to restrict the existing 250 euros per tonne duty concession on basmati rice to only traditional or `pure line' varieties with effect from January 1, 2004 will adversely affect exports from both India and Pakistan.

While the extent of damage may be comparatively less for Indian basmati exporters, it would be misleading though to call this a `victory' for India over Pakistan. The real `victor', at the end of the day, is the EU, which, by pitting exporters from both countries against each other, has unilaterally gone ahead with amending Commission Regulation (EC) No 1503/96 of July 29, 1996 to its advantage.

The existing regulation — more specifically Article 4bis - provides a uniform duty derogation of 250 euros per tonne on brown (unpolished) basmati rice, irrespective of whether it is a traditional `pure line' or a crossed hybrid variety containing only one true-line parent. At present, there are a total of 11 notified Indian basmati varieties and 5 Pakistani varieties, qualifying for the duty concession.

Normal brown rice imported into the EU attracts a maximum (bound rate) duty of 264 euros. Since basmati rice is eligible for a 250 euros duty reduction, it means that the maximum duty payable comes to just 11 euros. It is this duty derogation, conferred by Article 4bis of Regulation (EC) No 1503/96, that has been mainly responsible for the huge surge in basmati exports from India and Pakistan to the EU since the mid-1990s. While in 1994, basmati exports to the EU amounted to about 51,000 tonnes for India and a mere 4,300 tonnes for Pakistan, these quantities are expected to touch 1.6 lakh tonnes and 80,000 tonnes, respectively, this year.

The surge in basmati exports has come mainly at the expense of long grain rice from other countries, such as Thailand's `Jasmine' and `2473' of the US. To illustrate, traditional brown basmati of Indian origin is currently quoting at $675 per tonne free on board (f.o.b), which is way above the corresponding rates of $445 per tonne for Thai Jasmine and $250 per tonne for 2473.

What tilts the balance, however, is the 250 euros duty concession (not available to normal long-grain rice), which makes basmati relatively affordable in the European market.

But it is not the enhanced affordability of traditional basmati rice that has seemingly prompted the European Commission member, Mr Franz Fischler, to draft an amendment to Article 4bis of the Regulation No 1503/96.

The EC's argument is that the duty concession has been given to basmati, considering its premium quality status, which automatically ensures that does not pose a threat to European rice farmers.

The problem, however, arises if the duty derogation is being availed not just by traditional, but even crossed basmati varieties that fetch much lower prices and therefore do not deserve the concessional import treatment.

For instance, India's Pusa Basmati-1 is now selling at $480 per tonne f.o.b, while the corresponding rates for Pakistan's brown Super Basmati and Basmati 385 are $470-490 per tonne and $350-370 per tonne, which are almost the levels of Thai Jasmine.

It is in this context that the EC has found it "necessary... to define in a very precise way which varieties should have a right to the reduction" and hence limit the 250 euros concession to only the notified six Indian and two Pakistani traditional `pure line' varieties.

For Pakistan, the loss arising from this is obvious because it does not commercially grow any traditional variety and its entire 80,000 tonnes basmati exports to the EU comprises hybrid varieties.

India's exports are predominantly traditional basmati rice (1.1-1.3 lakh tonnes), but even the 30-50,000 tonnes annual shipment of Pusa Basmati is, by no means, insignificant.

The Government has every reason to be worried, more so when Mr Fischler's amendment proposes that even the restricted 250 euros concession amount "may be revised in response to market trends, in particular as regards the quantities imported".

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