The government is considering a proposal to ensure that certain sectors in the chemical sector, particularly the polymers, are exempted from the World Trade Organisation?s (WTO) market-opening provisions called ?sectorals?.

?Sectorals? are aimed at mandatory reduction or elimination duties in several sectors, including some infant and vulnerable ones. The US has been putting pressure on India to make commitments at the WTO to eliminate or drastically cut duties on chemicals, electrical electronics and industrial machinery.

Since chemicals would end up as the most affected sector in the event of India agreeing to commit on ?sectorals? negotiations, the government is considering ensuring that there are carve outs on products, especially those in which India has a major domestic production base and where crude oil and naphtha are used as inputs.

One of the strategies being considered is to exclude products like polymers from the ?sectoral? talks, though a final picture will emerge only after more discussions at the WTO level, official sources said.

The ?plan B? is that if India agrees on reducing or eliminating duties on the chemicals industry as a whole, the government would come out with clauses in its customs notification saying that those specific sectors in the chemicals industry where duties would be bound at zero (as per India?s commitments at WTO), would be allowed duty-free import of raw materials or intermediates.

According to industry estimates, India is likely to be the world?s third largest consumer of polymers by 2010-11 (after the US and China), from its current rank of nine. At present, India?s per capita polymer consumption is approximately 6 kgs compared to the world average per capita polymer consumption of 27 kgs. Also, the country consumes over 6 million tonnes of polymers per year.

As against the $2.4 trillion global chemical industry, India?s chemical sector is worth around $35 billion. The total investment in the sector is over $60 billion and it has helped generate employment of over one million. According to the government, the sector accounts for about 14% of the country?s total exports and 9% of total imports. The sector is the 12th largest in the world by volume and third largest in Asia. The country?s total chemical exports are also expected to cross $300 billion by 2015.

In chemicals, India?s average bound tariff (or tariffs that it had committed at WTO) is 43%, while its average applied tariff (or those prescribed by the finance ministry) is 8.3%.

Official sources said after the recent discussions that the government had with the chemical industry, it was apparent that there was a lot of resentment against ?sectorals? in the sub-sectors of the chemical industry including pharmaceuticals, soaps, detergents, cosmetics, dyes, fireworks, explosives and plastics.

Currently, imports of inputs like crude oil and naphtha are allowed at zero duty due to high international prices. But since these items are unbound items (meaning, India has not agreed on binding its duties on these items at the WTO), the finance ministry is at liberty to increase duties once the global oil prices come down.

It is important to note that crude oil was one of the largest sources of revenue for customs. Customs department has already opposed binding duties on crude oil and naphtha at zero.

In the meantime, if the government agrees to drastically cut duties or eliminate duties on other intermediate and finished products in the chemical sector after WTO negotiations on ?sectorals?, it would result in an inverted duty structure.

In an inverted duty structure situation, the duty on intermediate and finished products is zero, while that on raw materials is higher. In the normal duty structure in all countries, lowest duties are imposed on raw materials, higher duties on intermediate products and the highest duties on finished items.