India has suspended the issuance of certificates of origin for export consignments of spices from Sri Lanka to India under the Indo-Sri Lanka Free Trade Agreement and the South Asia Free Trade Agreement.
The move follows huge revenue losses from imports of pepper supposedly grown in Sri Lanka but which actually originated in Vietnam.
To avoid paying customs duty, Indian traders had been buying Vietnamese pepper routed through Sri Lanka and other neighbouring countries to exploit bilateral trade agreements and avoid the 52 per cent import duty on spices imported direct from Vietnam.
Under the South Asia Free Trade Area, imports from Sri Lanka of pepper up to 2,500 tonnes are duty-free, while 8 per cent duty is levied on imports in excess of that weight.
Vietnamese pepper used to be imported into India via Sri Lanka with a fake certificate of origin from the island nation. This led to a surge in supply in India and a consequent fall in domestic prices.
Data for February show that suspending the certificates of origin is having an effect. Indian imports declined by 56 per cent from January to February when the suspension came into force.
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