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Wary of GCC FTA, oilmin blocks duty cuts in Korea pact

Economic Times, India

Wary of GCC FTA, oilmin blocks duty cuts in Korea pact

G Ganapathy Subramaniam, Times News Network

18 June 2007

NEW DELHI: Call it the GCC effect. Apprehending stiff competition for the domestic petroleum industry - which has significant public sector presence - once India signs a free trade agreement with the Gulf Co-operation Council (GCC), the petroleum ministry has opposed inclusion of tariff cuts on petro products in the comprehensive economic partnership agreement (CEPA) being negotiated with South Korea.

While there is no possibility of cheap petro products from South Korea flooding the country, the petroleum ministry feels tariff cuts offered through the CEPA may have to be extended ultimately to all members of the World Trade Organization (WTO). The actual cause of anxiety is the inclusion of similar proposals in the FTA India plans with GCC members - major oil producers and key suppliers to India, highly-placed government sources said.

Hence, oil ministry officials want petro products and natural gas to be excluded from the tariff concession list of the trade pact with South Korea. India hardly imports crude or petroleum products from the Tiger economy.

GCC includes the UAE, Kuwait, Saudi Arabia, Qatar, Oman and Bahrain. During 2006-07, India imported around 111 million tonne of crude, most of it from the Gulf region.The commerce ministry’s view is that India’s offer list for the South Korean CEPA should include tariff elimination on crude oil, liquefied propane, butane and natural gas over eight years. In the case of petroleum products, LNG and LPG, the ministry has suggested elimination of import duties over five years.

Some items, such as petroleum jelly and paraffin wax, figure on the ‘exclusion list’ prepared by the commerce department for the CEPA with South Korea. The department has also suggested that 50% duty reduction be offered over 5-8 years in the case of sensitive products.

The petroleum ministry feels commitment to reduce import duty on crude would have an impact on Customs revenue. As crude oil prices are ruling high, the finance and petroleum ministries have been in dialogue recently on ways to reduce duty incidence and prevent a hike in the retail price of sensitive products such as diesel and kerosene. There is also concern over reduction in tariff on petro products without commensurate cut in import duty on crude as this would have adverse implications for domestic refineries, commerce department officials said.

The Customs duty on crude oil was halved to 5% in 2005 and there is no move now to reduce it further. In the case of diesel and petrol, the import duty was reduced to 10% in 2005 and brought down to 7.5% last year. There is no Customs duty on kerosene and LPG as it was scrapped in 2005. Similarly, the government does not charge any import duty on naphtha and low sulphur heavy stock (LSHS) - a residual fuel) - which are key inputs for the fertiliser industry.

The petroleum ministry’s view is that Indian refineries face negative protection in the case of products which do not suffer import duty. The average duty differential between petroleum products and crude is around 0.9% for public sector refineries. It has also been pointed out that refineries pay octroi and entry tax on crude oil, which diminishes protection further.