Lankan pepper exports to India hit by minimum price

• India says cheap Vietnamese pepper coming to India through Sri Lanka under FTA 

The Spices and Allied Product Producers’ and Traders’ Association (SAPPTA) of Sri Lanka yesterday said that the Indian government’s decision to unilaterally set a minimum import price for pepper imported from Sri Lanka is adversely affecting the Sri Lankan pepper exporters and the spirit of the Indo-Lanka Free Trade Agreement.

The Indian government last December introduced a minimum import price of 500 Indian rupees per kilogramme of imported pepper, which works out to US $ 7,700 per metric tonne, which the SAPPTA said is not feasible for Indian importers, since the pepper in the Sri Lankan market is US $ 4,600 per metric tonne.

“This is another measure introduced by India to prevent imports of pepper, which is allowed under the free trade agreement (FTA). Besides, the shipments that have been made earlier are also being subjected to considerable delay in their clearance,” the SAPPTA said.

The Indian government has implemented this minimum import price since the farmers in the pepper growing southern states of India had complained that cheap Vietnamese pepper is shipped to Sri Lanka and then re-exported to India under the FTAs.

Last month, the Indian pepper lobby called on the Indian central government to further raise the minimum import prices since the current regulated price is having minimal effect.

Under the Indo-Lanka Free Trade Agreement, Sri Lanka can export 2,500 metric tonnes of pepper per annum to India with zero duty, while under the South Asia Free Trade Agreement, Sri Lanka can export pepper with a tariff of 8 percent. Pepper shipped to India outside an FTA is subjected to 70 percent duty.

The rules of origin under the FTAs require at least 35 percent value addition when goods are re-exported. Last year, Primary Industries Minister Daya Gamage confirmed that Vietnamese pepper is imported to Sri Lanka, value added and re-exported to India, although he had called for further investigation into the matter.
India in the past introduced significant unilateral barriers specifically targeting imports from Sri Lanka through the FTA following protests made by domestic Indian industries, despite an FTA being a bilateral document that binds the two sovereign states into the terms of the agreement.

The late Dr. Saman Kelegama, who was the former Executive Director of the Institute of Policy Studies, outlined how India had introduced unilateral quotas on pepper, bakery shortening and Vanaspati produced in Sri Lanka in the past, while also taking measures to restrict the copper shipped from Sri Lanka to India under the FTA.
When a situation similar to today prevailed in 2006 with the Indian pepper farmers complaining of third party pepper coming to India through the FTA, India unilaterally imposed the 2,500 metric tonne quota and restricted pepper imported from Sri Lanka to only be processed through the designated port of Kochi to monitor imports.
“More than the disruptions to the industries as a result of such quantitative restrictions, what is of concern is the undermining of confidence in the FTA as a whole due to strong unilateral measures,” Dr. Kelegama said in a working paper authored for the Asian Development Bank.

Sri Lanka is negotiating a deeper economic pact with India, as well as an FTA with China and those opposing these agreements are pointing out that Sri Lanka does not have the political power to oppose any terms governing these agreements or subsequent unilateral measures by the geopolitical heavyweights.