G. Chandrashekhar

Mumbai, March 20

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

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

Indonesia's grievance is that if the tariff hike was necessary to protect the interest of Indian oilseed growers, then the tariff on not only palm oil but also soyabean oil must be raised. At present, imported soyabean oil is charged customs duty of 45 per cent while crude palm oil attracts 80 per cent and refined palm oil 90 per cent.

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

The WTO-bound rate of duty on soyabean oil is 45 per cent. India cannot raise the duty any further without the consent of supplying countries. India's attempts to renegotiate the bound rate on soyabean oil a couple of years ago failed.

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

There indeed are domestic compulsions for India to keep the rate of duty on imported vegetable oils at a high level. India is a major producer and consumer of edible oil; but in the last 10 years, a serious gap between domestic production and consumption demand has appeared, necessitating imports 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 is recovery 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 such stark yield differences, Indian oilseed sector cannot withstand competition from imported oils, without tariff protection.

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

Palm oil producing nations such as Malaysia and Indonesia must stop whining about Indian duty structure and start servicing the largest customer for palm oil more effectively. Unfortunately, they have been short-sighted and failed to look at the long-term potential of the Indian market.

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

The bound rate of 45 per cent on soyabean oil was negotiated in 1994-95 when 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 the intention to please Malaysia and Indonesia, but more importantly to protect the interest of domestic soyabean growers.

(This article was published in the Business Line print edition dated March 21, 2005)
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