Financial Times

Reference to The Sunday Times FT story headlined “Desiccated coconut exports to India crisis,” on May 28 to the Commerce Department in a letter said the news item misinterpreted several facts in regard to export of desiccated coconut to India under the Bangkok Agreement. In that report, exporters were quoted at a public function as saying the Department was not doing enough to rectify the situation

The letter said:
The Bangkok Agreement, which came into effect in 1975, has already completed two rounds of negotiations on tariff concessions. The tariff concessions agreed upon during these two rounds are applied as fixed concessionary rates for imports originating from member countries vis-à-vis the general rate of duty (MFN) applicable for the respective products.

Until the 2002/2003 budget, the general rate of duty and the fixed concessionary Bangkok Agreement rate applied by India on imports of desiccated coconut remained at 35% and 30% respectively. (Enjoyed tariff concession is 14%)

During the 3rd round of tariff negotiations, the member countries agreed to stipulate these tariff concessions in the form of Margins of Preference (MOP) instead of maintaining them as fixed concessionary rates. The base year used for this was 2001.

Following the 3rd round of negotiations, which lasted over a few years and ended in 2004, the member countries agreed to implement these concessions on MOP basis with effect from 1st January 2006. However, the members later agreed to implement this from July 2006, as some of the countries needed more time to finalize their legal procedures for implementation of the third round decisions.

It is pertinent to mention that (while the third round negotiations were still on), India, through its 2002/2003 budget, increased the general rate of duty on desiccated coconut from 35% to 70%, while maintaining the fixed Bangkok Agreement rate at 30%.

Consequently, the volume of desiccated coconut exports from Sri Lanka, which remained only a few hundred metric tons per year until 2002/2003 budget, shot up to 12,817 in 2004. Another contributory factor to this increase was the drop of coconut production in India in 2004.

In July, 2005 India decided to align the Bangkok Agreement rate of duty with the general rate of duty of 70%, maintaining the 14% MOP between the two rates. Accordingly, India’s tariff rate under the Bangkok Agreement for desiccated coconut was revised at 60.2%. This increase in the Bangkok Agreement rate resulted in a sharp drop of desiccate coconut exports to India from Sri Lanka in 2005 and 2006.

In terms of the decisions made at the third round of negotiations, India is expected to align its Bangkok Agreement rates with the general rate of duty and maintain the specified MOP (14%) only with effect from July 2006.

In view of the fact that the upward revision of the Bangkok Agreement rate by India took place in July 2005, Sri Lanka, as the most affected country by this revision, sought the ESCAP Secretariat, the focal point for all issues related to the Bangkok Agreement, to intervene. Sri Lanka also raised the issue at the 24th Session of the Standing Committee held in Beijing, China in November 2005.

The ESCAP Secretariat suggested that Sri Lanka discusses this issue with India on bilateral basis for a mutually acceptable solution. Accordingly, Sri Lanka has made a formal request to the Indian side that the latter maintains the previous Bangkok Agreement rate of 30% for imports of desiccated coconut from Sri Lanka.

India has requested Sri Lanka to indicate a reasonable quantity for their consideration, based on the average annual exports of desiccated coconut over the last several years except 2004, which is considered an exceptional year.

The two countries are now in the process of finding an early settlement to this issue within the context of the ongoing negotiations under the proposed Comprehensive Economic Partnership Agreement (CEPA).

The Department would also like to state that the members have agreed in November 2005 to rename the Bangkok Agreement as Asia Pacific Trade Agreement (APTA) with effect from July, 2006. This is purely a decision made by the membership as part of the ongoing revitalization programme of the Bangkok Agreement.