Treaty with Nepal should include flood control, vanaspati imports

Ashok B Sharma

India should thrash out all contentious issues while renewing the trade protocol treaty with Nepal, which is likely to expire in the first week of December.

Preliminary talks between the two countries have just ended and both sides have expressed their eagerness to enhance bilateral trade and strengthen economic relations. But many contentious issues, particularly, those relating to agriculture, are yet to be resolved.

Apart from issues like cheap imports of vanaspati from Nepal affecting the domestic industry, there are apprehensions in India about the future of other produces and products coming in from other countries through the Nepal route. Nepal being a least developed country imposes zero or a low level of duty on imports to meet its domestic demand. Therefore, there are chances of these goods entering India against zero duty arrangement under the Indo-Nepal Trade Treaty. China is a major producer of fruits and vegetables. Hence, there are chances of Chinese fruits and vegetables entering India as and when China liberalises its economy.

The ideal arrangement, therefore, is to move towards a common economic zone. India and Nepal can agree to impose a common level of duty on all imports from any third country. This will solve the problem of threat from cheap imports. Nepal may stand to lose, going by this arrangement, in terms of its economic development. But India can offer to compensate Nepal by assuring increased Indian investment and technical co-operation. Already, many Indian companies like Hindustan Lever, Dabur, Colgate-Palmolive, Kodak India, Berger Paints have either set up subsidiaries in Nepal or have tied up with Nepalese firms. Many vanaspati units in Nepal are owned by Indians.

Until the concept of common economic zone with Nepal becomes a reality, India will have to make bilateral arrangements and sign trade protocols for the benefit of both.

Nepal has argued that under the trade protocol, India has benefited more than it has. In 1999-2000, Nepal imported $549.4 million worth of goods from India while it exported only $303.6 million to India. But under the existing trade protocol, the vanaspati industry in India has been badly hit due to cheap imports from Nepal.

In fact, the domestic industry has alleged that vanaspati imports from Nepal rose to 1.5 lakh tonne in 2000-01 from 31,722 tonne in 1997-98. They said that the surge in vanaspati imports began in 1997 after the mandatory 50 per cent value addition clause was removed from the original Indo-Nepal Trade Protocol Treaty signed on December 6, 1991. The revised treaty of December 3, 1996 removed the valued addition clause and did not impose any quantitative restrictions on imports.

The domestic industry has, therefore, demanded that vanaspati be placed under negative list for imports under the new Treaty. If this is not possible then at least the domestic vanaspati industry be allowed a level playing field vis-a-vis their counterparts in Nepal.

Vanaspati units in Nepal import crude palm oil (CPO) against zero duty and 100 per cent of the imported CPO is used to manufacture vanaspati by a simple process of hydrogenation. The current global price of CPO is $370 a tonne. The manufacturers pay a nominal export tax of 5 per cent to the Nepalese government and then export to India. India imports these products against zero duty as per the treaty. This arrangement has facilitated cheap imports of vanaspati into India.

In this context, the domestic industry has suggested that mere reimposition of the earlier 50 per cent valued addition clause will not solve the problem. Actually, a 50 per cent value addition is not possible by any means in manufacture of vanaspati as the process of hydrogenation is simple. The domestic industry has, therefore, demanded a reduction in duty for import on CPO to 15 per cent for use in manufacture of vanaspati as this can ensure a level playing field for them. They have also demanded that the restriction of use of imported CPO up to 75 per cent should be removed. Domestic units argue that earlier there was no problem of cheap imports from Nepal as the local units were importing CPO against 15 per duty. Gradually, this duty was raised to 25 per cent and then to 75 per cent, robbing domestic units of a level-playing field.

Another major issue that should be discussed with Nepal in the taming and harnessing of rivers that flow through both the countries. Every year, particularly in the monsoon season, flood water from these rivers cause untold suffering to people in Bihar and eastern Uttar Pradesh. The water of these rivers can be harnessed for generation of power and enhancing irrigation potential in both the countries.

In the current season, seven districts of Bihar, namely Gopalganj, Samastipur, Begusarai, West Champaran, Sitamarhi, Muzaffarpur and Darbhanga have been severely affected by floods. The recurrences of floods can easily be controlled if an agreement with Nepal si worked out soon.