While India dithers, Indonesia, Malaysia in talks to resolve palm oil duty row

It is of course a matter of conjecture as to when the Indian government would address the longstanding issue of marking the imported vegetable oil tariff value to the market price. The tariff value on imported refined palm oil is at a low level in relation to the current market price. The issue was imparted urgency because our country's principal palm oil supplier Indonesia slashed export tax on refined palm oil to promote value added export and kept export tax on crude oil at a higher level.

Despite a strong case in terms of revenue generation and reasonable protection for the domestic refining industry, nothing has moved because of New Delhi's unsuccessful fight against high levels of food inflation.

IMPORT BAN

So, while it is unclear when the issue of tariff value will be dealt with practically, the government has clearly ruled out another demand of the industry - that of a ban on import in consumer packs. While the rationale for seeking a ban on import in consumer packs (not in bulk) is that such imports would hurt domestic packers, in the assessment of the Department of Food and Public Distribution, domestic edible oil industry is not affected by import of edible oil.

From discussions with officials at various levels it is clear that the ban on import in consumer packs may not be imposed; and that the matter of raising the tariff value on refined oils will have to be decided by the Ministry of Finance.

Even as India continues to grapple with tariff-related vegoil issues, Indonesia and Malaysia are already in talks to address the issue. Clearly, Indonesia's export duty cut will willy-nilly affect Malaysia's export competitiveness of refined palm oil. Malaysia runs the risk of losing market share in price sensitive markets such as India, for instance.

JOINT MEASURES

The two top producing countries are already engaged in discussion to review their respective export policies. According to reports, joint measures that will benefit downstream palm oil processing industries are expected to be announced before year-end. Various possibilities relating to reworking export tax on both sides are being explored.

Interestingly, despite being the world's second largest producer and exporter, Malaysia imports crude palm oil from Indonesia to utilise its large domestic refining capacity. Duty-free quota on Indonesian crude palm oil bound for Malaysia is under active consideration. There is reason to believe, Indonesia will buckle under Malaysian pressure.

The Indonesian government is also under pressure from palm oil plantations and smallholder cultivators who complain that their crude palm oil exports attract higher rates of tax than processors who export refined oil. The possibility of smuggling in the wake of huge duty differential cannot be ruled out, a trade representative pointed out. So, some more action can be expected in this sphere of trade soon.

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