Financial Times

The Commerce Department said last week that Indo-Lanka talks to expand the current free trade agreement (FTA) into a Comprehensive Economic Partnership Agreement (CEPA) have not been endangered by copper, pepper and vanaspati disputes.

According to Indian news reports, Indian businesses have expressed worries over the surge of pepper and vanaspati exports from Sri Lanka after the Indo-Lanka FTA came into force. Copper exports from Sri Lanka to India too, increased dramatically. Under the Indo-Lanka FTA Sri Lanka can export all three items to India duty free and the increased exports are worrying Indian traders.

However, the Commerce Department, says the differences over copper, pepper and vanaspati exports are not grounding CEPA talks.

The Commerce Department also denied claims that India has threatened not to proceed with CEPA negotiations, unless exports of copper, pepper and vanaspati are curbed.

“This Department authoritatively states that neither the Government of India nor the Government of Sri Lanka, at any point of time indicated that any party would suspend the broader cooperation envisaged under the CEPA at the expense of few implementation-related issues such as vanaspati, pepper and copper,” said a statement from the Department of Commerce.

The department says the two countries are still negotiating to find a mutually acceptable solution regarding the three contentious products.

The last round of CEPA talks in June also, looked into the matter of vanaspati and pepper exports. Increasing Exports of vanaspati (vegetable ghee) and bakery shortenings by Sri Lanka under the FTA have got the domestic Indian vanaspati industry worried.

Due to pressure from the Indian vanaspati industry Sri Lanka agreed to voluntarily limit exports to a maximum of 250,000 MT per year.

However, India later maintained that combined exports of both vanaspati and bakery shortenings should not exceed 100,000 MT per year. The situation was further aggravated by India’s decision to canalize all imports of vanaspati, bakery shortenings and margarine with effect from 2nd June 2006.

To ease the situation, during the latest round of talks in June, Sri Lanka requested that India suspend its canalization decision. Sri Lanka also suggested that India allow Sri Lankan based businesses to export 250,000 MT of vanaspati and another 100,000 MT of bakery shortenings and margarine per year, at zero duty. India agreed to consider the requests.

India also wants to restrict imports of pepper from Sri Lanka. India says that Sri Lankan pepper exports are hurting economic interests of Indian pepper farmers. Therefore, India wanted Sri Lanka to limit annual pepper exports to 2,000 MT under FTA. However, Sri Lanka does not want to cap pepper exports, as that would reduce the benefits of the FTA to Sri Lankan pepper growers.

The Commerce Department says a decision on both vanaspati and pepper exports are yet to be arrived at.

“On the export of Vanaspati to India under the ISFTA (Indo-Sri Lanka FTA), draft modalities have been tabled at a special consultative session held in New Delhi between the trade officials of the two countries,” the Commerce Department said.

“With regard to export of Pepper to India under the ISFTA, the issue is still open and an appropriate policy decision is to be taken in this regard in consultation with the domestic stakeholders and the Cabinet,” it said. (DS)

A solution on copper exports is also on the way. “With regard to the export of copper to India under the ISFTA, the modalities have already been agreed at the recently concluded 7th round of Technical Level Negotiations held in Colombo,” said the statement.