``The tea industry is extremely happy that India has taken a decision to put tea imports from Sri Lanka in the negative list,'' United Planters' Association of South India (UPASI) vice-president and tea committee chairman MH Ashraff told PTI.

During talks with Sri Lankan authorities in Colombo last week-end and early this week spanning over three days, India decided not to allow duty-free import of tea and rubber from Lanka.

India's last minute decision to go back on its reported initial commitment to permit duty-free import of tea and rubber has created a furore in Sri Lanka with some of the officials saying the agreement has little value to their country after tea was put in the negative lists.

The Indo-Sri Lanka free trade agreement, the first of its kind in South Asia signed onDecember 28 last, provides for phased reduction in tariffs and enhanced economic cooperation between both the nations.

An Indian tea association official said domestic tea sector's purpose would be served by placing tea imports from Lanka in the negative list.

The agreement, signed during Lanka president Chandrika Kumaratunga's visit here, provided for India to phase-out all tariffs in three years. Lanka will remove tariffs over a eight-year period.

``Free import of tea from Sri Lanka would have had a disastrous effect, particularly on the plantations in South India, where cost of production due to high labour wage is extremely high,'' Ashraff said.

It would have led to flooding of cheap tea by Lanka into the country, thereby undermining viability of South Indian tea plantations, he said.

The ITA official said the industry had been basically working towards placing tea imports from Lanka in the negative list and India would have to prevail on Colombo on this aspect.

The agreement had sparked off acontroversy with Indian tea industry strongly opposing any move to allow duty-free import of tea from Lanka.

Indian tea association (ITA) chairman VK Goenka, opposing the move, has said though industry was against import of tea of any form into the country in view of the progress made in production, it was in favour of government keeping intact the existing duty structure.

After discontinuation of the five per cent special import duty imposed by the United Front government from March 1, tea imports currently attract 10 per cent basic customs duty, one per cent surcharge and four per cent special additional duty.

Under the Indo-Lankan treaty, India will impose zero Customs duty on 700-1000 items and reduce duty on another 500 items by 50 per cent in the first year and the remaining in the next two years.

Sri Lanka, which will adopt a three-state phase out of duty, will reduce Customs duty by 50 per cent in the first stage, by 70 per cent in the second stage and fully in the third stage on 600items.

The negative lists were exchanged informally on March 1 and further discussions are expected to resume soon. Besides the negative list, both nations also swapped list of products entitled for duty free imports and concessional customs duty.

Sri Lanka, world's second largest tea exporter and a principal competitor of India in the global tea market, had been looking at tea exports to the sub-continent mainly to offset losses suffered due to crisis in the Russian market after the rouble tumbled against the US dollar.

Indian tea industry had contended that allowing duty-free import would hit production plans, particularly when the counter was aiming to produce a record 890 million kg.

The agreement was expected to narrow the trade balance, which is currently heavily in favour of India. India's exports to Sri Lanka are around 560 million US dollars in 1997-98, while imports from Sri Lanka are worth about 45 million dollars.