Indian traders have again complained to the Indian government that a huge influx of soybean oil from Nepal in violation of the rules of origin under the South Asian Free Trade Area (SAFTA) was hurting refineries and farmers in India.

SAFTA is the free trade arrangement of the South Asian Association for Regional Cooperation of which Nepal and India are founding members.

The Solvent Extractors’ Association of India, one of the oldest organisations of vegetable oil and trade, has asked the Indian government to fix quotas on imports, saying that soybean oil has become Nepal's top export commodity even though the country does not produce it commercially.

According to Nepal’s Trade and Export Promotion Centre, soybean oil shipments reached Rs35.75 billion in the first 10 months of the current fiscal year, a year-on-year jump of more than four times.

“Nepal has violated the rules of origin privilege granted under SAFTA,'' the association said.

Exports of soybean oil amounted to Rs8.36 billion in the first 10 months of the last fiscal year.

The trade data of the Department of Customs showed that Nepal imported crude soybean oil worth Rs39.46 billion in the same period.

Soybean oil exports alone make up 32.96 percent of Nepal’s total trade.

The country imported 355.29 million litres of crude soybean oil during the review period. Nepal bought most of its soybean oil from Argentina, Egypt, Paraguay and Ukraine.

In March, following a huge increase in the export of refined soybean oil from Nepal, the Indian government wrote to Nepal’s Ministry of Foreign Affairs to "confirm the genuineness and authenticity" of the product originating criteria or the certificate of origin issued by Nepali authorities for the export of edible oil to India under SAFTA.

Dinesh Bhattarai, secretary of the Ministry of Industry, Commerce and Supplies, told the Post that the ministry had replied to most of the issues raised by the Indian government regarding the authenticity of the certificate of origin of the product through the Foreign Ministry.

He said that his ministry, after a proper study, investigation and discussion with the concerned stakeholders, had sent proof and data regarding the authenticity of the certificate of origin of the product, including the value addition to the product in Nepal. "The ministry has not received any further communication from the Indian government."

Bhattarai said that the export of soybean oil was being done according to international trade norms, but that some traders had been exploiting the zero tariff privilege in a negative way.

“As long as it generates employment by adding some value and helps the government to raise revenue, it is worth trading.” Indian traders have the right to raise concerns over the certificate of origin with their government, he added.

A certificate of origin is a document declaring in which country a commodity was produced or manufactured. The paperwork contains information regarding the product, its destination and the country of export.

It is required by many treaty agreements for cross-border trade, and can help determine whether certain goods are eligible for import, or whether goods are subject to duties.

Tariff exemptions on Nepali exports to India under the SAFTA agreement give domestic traders an advantage. Countries outside of South Asia are slapped with tariffs of 54 percent on palm oil and 45 percent on soybean oil.

A proof of origin is required to claim preferential tariff treatment. The government has authorised three associations—the Federation of Nepalese Chambers of Commerce and Industry, Confederation Nepalese Industries and Nepal Chamber of Commerce—to issue the certificate of origin.

The Solvent Extractors’ Association of India said that massive imports of soybean oil from Nepal was hurting refiners in eastern and northern India and Indian farmers, besides incurring loss of revenue to the government.

"It is harming the interests of oilseed farmers as it distorts the domestic market. Thus, the very purpose of keeping import duties on edible oils is getting negated," the association said.

It has called for fixing quotas on the import of refined oils from Nepal, and distributing the imports month-wise and region-wise so that a particular region faces the minimum impact in case it is not possible to stop imports under SAFTA agreement.

Nepal produces very little soybean oil, not even enough to fulfil its own requirement. Paradoxically, this vegetable oil, which is used in cooking, is Nepal’s top export commodity with shipments valued in the billions annually.

President of Solvent Extractors’ Association Atul Chaturvedi told the Indian media that the Union Finance Ministry had issued a notification in August 2020 to strictly regulate the import of soybean and palm oils and check the misuse of rules of origin as soybean oil was still entering India at zero duty in contravention to existing rules.

“The current import duty, including cess, on refined palmolein and soya refined, is 49.5 percent. This means India is losing a revenue of around IRs54,000 [Rs86,000] per tonne of refined soybean oil and around IRs44,500 [Rs71,000] per tonne on palm oil coming via Nepal,” he said.

In a letter sent to Piyush Goyal, Union Minister of Consumer Affairs, Food and Public Distribution and Minister of Commerce and Industry, and Narendra Singh Tomar, Union Minister of Agriculture and Farmers Welfare, by the Solvent Extractors’ Association, India is losing revenue of over IRs12 billion [Rs19 billion] on import of annual average of 250,000 tonnes of soybean oil and palm oil from Nepal.

The stringent rules of origin requires Nepali exporters to fulfil the 30 percent value addition requirement to enjoy the zero-duty treatment.

Views on whether Nepal is misusing the preferential treatment given by India on such imports are mixed.

Shekhar Golchha, president of Federation of Nepalese Chambers of Commerce and Industry, said that although Nepal does not produce soybean and has been exporting by importing crude soybean oil the export of soybean oil is performed under the rules of trade and legal framework.

“We have been informed by the oil processing industry that there is a value addition of more than around 20 percent. I think agricultural commodities making over 20 percent value addition is permissible to enjoy the preferential treatment,” Golchha told the Post. “Raising issues on every single product by the Indian traders will have no meaning in bilateral trade relations.”

Trade economist Posh Raj Pandey, however, said it’s misuse of preferential treatment under SAFTA rules given by India to Nepal.

“The domestic traders are exploiting the customs duty difference imposed on raw material in Nepal and India while importing,” he said. “The government should not promote such trade practices to earn a little revenue. The government needs to take immediate control of it and instead make domestic goods competitive.”

Pandey said that the value addition needs to be strictly monitored by checking the difference between raw material price and produced price.

“The government is happy that it has met the trade export target of Rs100 billion set a decade ago but if the export of soybean oil is removed from the trade list, then the export will go to negative growth,” he said.