Lanka agrees to cap vanaspati exports to India

The long-standing trade dispute between India and Sri Lanka over import of duty-free vanaspati could end soon after Sri Lanka agreed to limit exports of vanaspati, bakery shortening and margarine every year to 250,000 tonne, according to a report in a leading Sri Lankan business portal today.

Sri Lanka also agreed to cap pepper exports to India at 2,500 tonne annually, against the current level of 7,000 tonne.

"The two sides (India and Sri Lanka) reached a compromise on export of 250,000 tonne of vanaspati, margarine and bakery shortenings a year, while exports of pepper was also capped at 2,500 tonne annually," Lanka Business Online quoted Sri Lanka's commerce secretary R M K Ratnayake as saying.

The new quota will be distributed among 12 existing vanaspati makers in Sri Lanka based on criteria like investment size and employment generated among others.

"The agreement will also pave the way for re-starting vanaspati units in Sri Lanka, which have been closed since June after India appointed state-run National Agricultural Cooperative Marketing Federation as the sole canalising agency for vanaspati imports," the report on the portal said.

"We hope that factories can resume exports within a month," Lanka Business Online quoted Ratnayake.

Duty-free vanaspati imports from Sri Lanka has long been a major trade dispute between the two neighbours. India alleges cheap vanaspati from Sri Lanka is flooding its markets, leading to closure of several domestic units.

It demanded a cap on import of vanaspati, bakery shortening and margarine at 100,000 tonne per annum and also canalisation of these imports through NAFED.

On the other hand, Sri Lankan authorities contended that canalising and limiting vanaspati imports was against the spirit of the free trade agreement signed between the two nations in 1998.

"Sri Lankan vanaspati manufacturers enjoy a huge cost advantage as they can import palm oil""a vital ingredient for making vanaspati""at zero duty, while in India we have to pay a duty of around 80 per cent. This allows Sri Lankan makers to sell cheap vanaspati to India," an official of Indian Vanaspati Producers Association said.

Ironically, it is mostly Indians who have invested around $100 milliom in Sri Lanka to set up vanaspati-making units, after the free trade agreement came into force.

"A team from India is due this month to meet with local officials to decide on implementation and hopefully close the dispute," the Lanka Business Online report said.

India is one of biggest trade partners of Sri Lanka. The two countries clocked up nearly $2 billion in bilateral trade in 2005-06.

Apart from vanaspati, India also imports copper, cloves, pepper, rubber products, aluminium wire, scrap paper, tiles, stones, marble, antibiotics, apparel and tea from Sri Lanka.