FTA With Mercosur group shouldn’t hit domestic veg oil, food industries

Financial Express, India

16 June 2004

FTA With Mercosur Group Shouldn’t Hit Domestic Veg Oil, Food Industries

ASHOK B SHARMA

Ahead of India preparing to sign a free trade agreement (FTA) with the
Mercosur group of countries, the vegetable oil and food industries have
cautioned the government to work out the arrangement keeping in mind the
interests of domestic industry.

A study conducted jointly by the Exim Bank and the Federation of Indian
Chambers of Commerce and Industry (FICCI), however, suggests better
prospects for trade in pharmaceuticals, chemicals and petrochemicals.

Mercosur is a regional trading bloc formed in March 1991, consisting of
Argentina, Brazil, Paraguay and Uruguay. In 1996, Chile and Bolivia
joined
as associate members. After the collapse of the WTO Cancun ministerial
meet,
both India and Brazil have taken initiative to further South-South trade.
India signed a preferential trade agreement (PTA) with Mercosur on
January
25, 2004 to be followed by negotiations for FTA. It is expected that
Brazil
and India may meet on the sidelines of the ongoing Unctad XI at Sao
Paolo
for further discussions on the proposed FTA.

Argentina and Brazil are major producers of soyabean and soyabean oils
and
this has invited grave concerns for the Indian vegetable oil industry as
the country prepares to sign an FTA with Mercosur. Soyabean oil has a
low
WTO-bound tariff rate of 42 per cent. The Central Organisation for Oil
Industry and Trade (COOIT) has, therefore, urged that oilseeds and
edible
oils be kept out of the purview of the proposed PTAs and FTAs. "In case
this
is not possible, a minimum value addition of 45 per cent should be
incorporated for providing a level playing field for the domestic edible
oil
sector with reference to our tariff, and compliance with minimum value
conditions should be strictly insisted upon," said KML Chhabra,
executive
director, COOIT.

The executive director of Vanaspati Manufacturers Association of India
(VMA), S Gurumoorthi, said: "A level playing field for domestic industry
is
necessary. The industry is suffering on account of the India-Nepal
Treaty of
Trade and FTA with Sri Lanka. While the Indian industry is paying 65 per
cent customs duty on the raw material, crude palm oil (CPO), the
producers
in these countries are benefited by the twin advantages of duty-free
import
of CPO and 100 per cent customs duty concession granted by India on
import
of vanaspati from these countries. India should, therefore, be cautious
in
signing FTAs with Mercosur and Thailand."

Some experts said it was difficult to assess value addition to the
extent
of 25 per cent and above in vegetable oils and processed foods. Value
addition of above 25 per cent would result in under-invoicing of raw
materials imported and over-invoicing of the finished products exported.

The executive director of the Centre for International Trade in
Agriculture and Agro-based Industries (CITA), Vijay Sardana, said:
"Converting butter into ghee should not be treated as value addition,
but
should be viewed as a commodity of the same category under trade. The
country of origin of the basic raw material should be considered as a
criteria, not the derived product. This is essential to check imports
from
a third country" Mr Sardana said.

India had good prospects of exporting wheat, wheat flour, barley, malt
of
barley, maize, onions, tea and spices to Brazil in return for importing
soyabean oil and cotton lint. "But we should be careful in dealing with
products where both countries have equal competitive advantages, like in
soyabean cakes, refined sugar, molasses, green coffee, tobacco leaves,
sugar
and mangoes," he said.

Similarly, he said India can export rice, green coffee, cashew nuts,
tobacco leaves, tea, spices, fresh fruits and vegetables, pineapples,
tomato
paste to Argentina and import dry beans, soyabean oil, sunflower seed
oil
and meat and meat products from that country. "We should be careful in
products like wheat , wheat flour, soyabeans, maize and refined sugar
where
both India and Argentina have competitive advantage, he said.

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