India mulls negative list for plastic goods to help industry

Focus story by Ajoy K Das

KOLKATA (ICIS)–India’s petrochemical industry is working with the government to prepare a “negative” list of duty-free imports of finished plastic goods that are weighing on the profit margins of domestic producers, a government official said.

The domestic market is not able to compete with these imported finished products as the raw materials they use to make similar goods have import duties imposed on them and this has eroded their margins, according to the official from the department of petrochemicals under the ministry of chemicals and fertilizers.

The government is now studying duty-free imports of several plastic product categories from countries such as Thailand, Singapore, Vietnam and Malaysia that India has signed free trade agreements (FTAs) with the aim of drawing up the negative list of products to end this situation, the official said.

The study will involve petrochemical industry representative bodies like All India Plastic Manufacturers’ Association (AIPMA) along with officials from department of petrochemicals, according to the official.

The review of the existing FTAs and framing a negative list of plastic product imports is also critical for the domestic industry because India is working towards a similar trade agreement with six countries of Gulf Co-operation Council(GCC), one of the largest base of petrochemical majors, the official said.

India’s negotiations for free trade with the GCC countries is in an advanced stage and maybe concluded in a years’ time, petrochemical industry sources said.

It was important to remove such issues involving the import duties before FTA was signed with the GCC, which has larger petrochemical producers, the sources added.

Citing from an industry study on Indian tariff structure on the entire petrochemical value chain, the official said that the current import duty structure provided nil incremental tariff protection between key petrochemical inputs like naphtha, liquefied natural gas (LNG) and propane and intermediate building blocks like ethylene, propylene, benzene and butadiene as well as products like polymers.

He said that with a 5% import duty on naphtha feedstock, there was no difference between tariff rate between feedstock and downstream intermediates whereas in countries with which India has FTAs, tariffs on downstream intermediates were on an average 6.5% higher than the feedstock.

Moreover, the 5% import duty on feedstock was lower than 20-30% in Malaysia, 15% in Philippines, 20% in Indonesia and 6.5-8.4% in China, the official said quoting from the industry report.

The tariff structure in India was such that the levy was almost uniform across the petrochemical value chain whereas in case of other south east Asian countries, not only was the duty higher on feedstock but moved up progressively based on value addition offering tariff protection to domestic plastic processors, the official said.

In India imports of several polymer and plastic product categories attracted a zero rate of duty from countries, which have signed FTAs resulting dis-incentive for domestic value addition and competitiveness of product exports, he added.

The same import duty on finished products and export duty on polymers resulted in erosion of export competitiveness of polymer producer-exporter while at the same time, value addition to polymers through processing too did not have matching incentive since finished products were imported at the same rate, the sources said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections