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All local Vanaspati factories shut down after India tightens imports

Lanka Business Online, Sri Lanka

All local Vanaspati factories shut down after India tightens imports

7 June 2006

All Sri Lankan factories producing Vanaspati oil have shut down, after controversial Indian regulations to restrict duty free exports of the vegetable oil to India.

Last week, India slapped new controls that allow only the state run National Agricultural Co-operative Marketing Federation (NAFED) to import duty free oil, bakery shortenings and margarine from Sri Lanka.

The regulations, the Indian notification says, was issued in the public interest.

“It has been decided by all ten units to stop all the exports and production with immediate effect until the government of India removes the notification,” Sajad Mawzoon, President of the Vanaspati Manufacturers Association, said in a letter to top government officials on Sunday.

Sri Lanka’s Department of Commerce says it is still not sure as to how the new regulations will take effect, with Ministerial level representations due to India shortly.

Duty free exports of Vanaspati has been a sore point in Indo-Lanka trade relations, with Sri Lanka accused of flooding Indian markets at cheap prices, destabilising local industry.

Sri Lankan since capped exports to 250,000 metric tonnes a year to ten BOI approved factories despite a free trade agreement being in force.

Local manufacturers say they can finish that quota in six months. Most local factories are owned by Indian businessmen who set up shop here after the FTA.

The Vanaspati Manufacturers Association claim the industry has attracted 100 million dollars in investments to date.

“The notification was imposed unilaterally by the government of India and violates the spirit of the free trade agreement,” the Association said.

Until the shut down on Sunday, the factories had produced 140,000 tonnes of Vanaspati for export. Last year, Sri Lanka exported 108,000 tonnes of the palm based oil, used popularly for cooking.

India and Sri Lanka are also due to meet for trade talks at the end of June, on a Comprehensive Economic Partnership Agreement (CEPA), to free up trade in services.

India is currently Sri Lanka’s third largest export market, with just under two billion dollars in bilateral trade.