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Malaysia requests Pakistan to remove import duty disparity

  1. Disparity in import duty of palm oil
  2. The declining foreign investment
  3. Rupee volatility
  4. Boom is not far away
  5. Increasing domestic and foreign debt

Local vegetable ghee and soap industries need flexibility in duties to improve performance

Special Correspondent, Islamabad
July 05 - 11,1999

According to Pakistan's latest import tariff structure on oils and fats, effective from March 27, 1999, RBD Palm Oil and Palm Olien have a higher import duty of Rs 1,000 per tonne as compared to imported soyabean oil. Similarly, the palm by-products such as PFAD, Palm Acid Oil etc carry import duty of 35 per cent ad val as compared to tallows which have a much lower import duty i.e. 15 per cent ad val only. These unfavorable and adverse import duties on Palm Oil, Palm Olien as well as on Palm by-products in the last two years have worked to the disadvantage and resulted in the reduction of import volumes of all Palm products, whereas, the import volumes of competing soyabean oil and tallow have soared.

In view of the existing import duty mechanism, the Government of Pakistan has been requested by the Malaysian government to reconsider and equalize the import duties on all Palm products with their respective competing soyabean oil and tallows. This will help achieve a fair equilibrium in the import pattern and import volumes of oil and fats. The equalization of import duties will also provide a level playing field for the Malaysian Palm Oil/Palm Olien to compete with imported soyabean oil for the manufacture of vanaspati, as well as, for Palm by-products with imported tallows for the manufacture of soaps on techno-commercial merits.

Specific proposals

Import duty on RBD palm oil be equalized with that of the imported soyabean oil. For import duty purposes, RBD palm olien, which is a liquid fraction of palm oil, be grouped with the soft vegetable oils i.e. with soyabean oil. Furthermore, the import duty on RBD palm olien be equalized with that of the imported soyabean oil. For the manufacture of toilet soaps, the import duties on RBD palm stearin be brought at a level that of 'Extra Fancy Tallow' which carries a much reduced import duty of 15 per cent ad val. The import duty of 35 per cent ad val on palm by-products, used in the manufacture of low quality laundry/washing soaps such as PFAD, palm acid oil etc, be brought at par with that of low grade tallow which also carries an import duty of 15 per cent ad val.

RBD palm oil and soyabean oil

Both these imported vegetable oils have traditionally been used by the vanaspati industry of Pakistan. These two vegetable oils used to carry similar import duties until the last quarter of 1995 when the import duty on soyabean oil was lowered to create a duty differential of Rs 1,000 per tonne in favour of soyabean oil, which went to the disadvantage of RBD palm oil. Since then, the import tariffs on these two oils have been changed and adjusted a number of times. The last two adjustments were made on 4th and 27th March 1999, respectively. In spite of such adjustments, the Rs 1,000 duty disadvantage on palm oil has continued to be retained. These two vegetable oils are used by the vegetable ghee industry of Pakistan usually in admixture for the same end-product i.e. vanaspati. Hence the rationale of having an equal import duty on these two oils be acknowledged and accepted giving flexibility to the vanaspati manufacturing industry of Pakistan to go for the most competitive and economical choice of vegetable oils as the feedstock raw material.

RBD palm olien and soyabean oil

Palm olien is a liquid fraction of palm oil and is commonly used as a soft liquid oil for the manufacture of cooking oil and vanaspati i.e. similar to the use of soyabean oil. Therefore, logically palm olien should be grouped with soyabean oil for the purpose of import duty mechanism. In this way, both these two oils can compete and complement each other for the end-use products based on their techno-commercial merits. Therefore, it will be fair to remove the import duty differential of Rs 1,000 per tonne on palm olien and equalize it with the duty on soyabean oil.

Tallow and palm by-products

Tallow has various grades. Extra Fancy Bleached Tallow is used in the manufacture of toilet soaps, while the lower grades are used for making washing and laundry soaps. Similar is the case with palm by-products i.e. RBD palm stearin which competes with Extra Fancy Tallow in the toilet soap manufacture, while low grade palm by-products such as PFAD and palm acid oil are used in the making of lower grades of laundry/washing soaps. Generally, all grades of tallow and palm by-products are the basic raw materials for the soap industry of Pakistan. However, higher import duty level of 35 per cent on palm by-products against the much lower import duty of 15 per cent on tallow, coupled with the continued lower landed cost of tallows, have put the palm products at a disadvantage. Consequently, their import and consumption in Pakistan have gone down since 1997 while that of tallow, as expected, has gone up sharply.

Background facts

The existing duty disparity of Rs 1000 per tonne against palm oil/palm olien versus soyabean oil has been prevailing since 1995. Similarly, since June 1997, the import duty differentials of 40 per cent, 30 per cent and subsequently 20 per cent with effect from March 27, 1999 have progressively prevailed against the palm by-products as compared to tallow.

The Malaysian palm oil industry, in September 1997, made a representation through Malaysian High Commission in Islamabad to the Ministry of Finance, Pakistan. In this representation, the ministry was requested to correct the adverse situation by equalizing the import duties on palm oil and its by-products. The request was not accepted on the ground that the landed cost of palm oil was less than its competing soyabean and the landed costs of Palm Fatty Acid Distillate (PFAD) and palm acid oil were less than those of tallows.

However, since the beginning of 1997, the international prices of oils and fats have changed i.e. since then, the landed cost of soyabean oil from the South American continent has been continuously lower than the landed prices of RBD palm oil/olien. This trend has continued throughout 1998 as well as through the 1st quarter of 1999. The landed cost differential has widened heavily in favour of soyabean oil. Due to this prolonged period of lower landed prices of soyabean oil, coupled with the import duty advantage of Rs 1,000 per tonne, the imports of soyabean oil have jumped from 150,740 tonnes in 1996 to 266,200 tonnes in 1998 and 105,920 tonnes in the first quarter of 1999.

Since early 1998, in a similar situation, the landed prices of PFAD have gone up as compared to the low grade tallow as well as the prices of RBD palm stearin have exceeded those of Extra Fancy Tallow. The lower landed costs of tallows along with the favourable import duty differential of 20 per cent have worked to the disadvantage of palm oil by-products whereby the tallow imports have gone up from 42,600 tonnes in 1996 to 99,630 tonnes in 1998 and 20,520 tonnes in the first quarter of 1999.

The above described landed costs and import volumes scenario deems it necessary to review the situation and re-adjust the import duties to do away with the disadvantage being faced by palm oil/palm olien against soyabean oil as well as by palm by-products against tallows. The equal import duties on basic raw materials of vanaspati and the soap industries will help achieve a level playing field in the spirit of competition for RBD palm oil and its by-products with the competing soyabean oil and tallows on their techno-commercial merits. Such a situation will provide flexibility to both, the vegetable ghee and soap industries of Pakistan, to select and substitute imported oils and fats for their efficient and economical performance.