Date:23/03/2006 URL: http://www.thehindubusinessline.com/2006/03/23/stories/2006032301351200.htm

Back Entry of FCV tobacco to US sought

G. Srinivasan

The US tobacco TRQ was at 1.47 lakh tonnes limited to nine countries in which India did not figure. Major obstacle is tariff rate quota regime imposed by the US

New Delhi , March 22

Despite the bonhomie between India and the US, demonstrated by the recent visit of the US President, Mr George Bush, here, the domestic tobacco industry, particularly the exports segment, feels being put into a piquant situation by what it calls the restrictive import regime of the US for flue-cure Virginia (FCV) tobacco.

Sources in the industry told Business Line here that by far India remains the third largest producer and the fourth largest exporter of unmanufactured tobacco in the world. For India, FCV tobacco is the major export variety, as it constitutes about 70 per cent of the total unmanufactured tobacco exports. Last year, the country's exports of tobacco and tobacco products amounted to Rs 1362.18 crore from 1.63 lakh tonnes. During the first nine months of the current fiscal, the country exported 1.21 lakh tonnes at Rs 1006.48 crore. The FCV tobacco is grown principally in Andhra Pradesh (70 per cent), Karnataka (29 per cent) and Maharashtra and Orissa (below one per cent).

The sources said the US is a large importer of FCV tobacco as it imported one lakh tonnes in 2004-05. The principal obstacle to India's exports of FCV tobacco to the US is the latter's tariff rate quota (TRQ) system imposed in 1995 which circumscribes import of FCV tobacco ex-India.

high out-of-quota tariff

The sources said in 2004-05 the aggregate US tobacco TRQ was 1.47 lakh tonnes and that too limited to nine countries in which India did not figure. Over and above TRQ, there was a quota of 3,000 tonnes, which was open to other countries, including India on a first-come-first-served basis.

What has compounded the difficulty for India besides the small open quota is that the out-of-quota tariff rate stood at a huge 350 per cent ad valorem compared to an in-quota specific duty of $0.1009 per kg.

Of the nine countries entitled to TRQ, except Brazil which had utilised 100 per cent of its quota, the utilisation of quota by the rest ranged from 3.08 per cent in Zimbabwe, 6.69 per cent in Chile, 8.23 per cent in the Philippines to 24.14 per cent in the 25-member European Union (EU).

Even as the 3,000 tonnes thrown to open competition was fully utilised, there was a shortfall of close to 30 per cent in the utilisation of quotas by the nine countries.

Multiple advantages

Considering the fact that export of FCV tobacco from India has been growing at a robust pace of 15 per cent per annum since 2000-01, there is huge potential for stepping up leaf exports to the US, according to Assocham. It said that Indian tobacco commands multiple competitive advantages in the global market. They include, among others, competitive prices, lower nicotine and TSNA levels and lower pesticide residues.

They said that India's tobacco is being exported to the EU, South-East Asia, West Asia, Africa and Commonwealth of Independent Countries (CIS) and talks are on to export to China too.

Hence, the industry pleads with the Department of Commerce to take up the issue with the US for easy entry of Indian FCV tobacco by including India in the TRQ regime with an independent quota of at least 5,000 tonnes per annum.