India imposes 5% safeguard duty on Malaysian refined palm oil

India has slapped a 5 per cent safeguard duty on import of refined palm oil from Malaysia. This will help domestic refiners of palm oil, who almost lost the race in India because of cheap refined palm oil imports from Malaysia. Palm oil is a key ingredient in food products, detergents and cosmetics.

The companies that benefit from the decision include Adani Wilmar, COFCO International, Emami Agrotech and Ruchi Soya Industries among others.

RBD Palmolein, the product whose import will now become costlier, is the refined, bleached and deodorized form of palm oil which is extracted after crushing palm fruit. It is commonly used to formulate trans-free fats such as margarine, shortening and vegetable ghee.

The move comes in the backdrop of a bilateral safeguard investigation carried out by the Directorate General of Trade Remedies after imports of "RBD Palmolein and RBD Palm Oil" into India from Malaysia under India-Malaysia Comprehensive Economic Cooperation Agreement (CECA) had resulted in serious injury and threat of serious injury to the domestic producers of like or directly competitive product in India.

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Pursuant to the India-Malaysia CECA, duty on import of crude palm oil from Malaysia was reduced to 40 per cent and duty on refined palm oil goods to 45 per cent. Since the difference was a mere 5 per cent, importers found it attractive to import the refined oil instead of crude into the country. Domestic refiners complained that imports increased by 516 per cent during January-June, 2019, the period of investigation (POI) as compared to the 2015-16 level due to this anomaly.  The petition was filed by Solvent Extractors' Association of India on behalf of the Indian domestic producers.

What aided the decision was the realisation that Malaysian imports were resulting in significant decline in production and sales of Indian industry. The demand for the product declined from 8,095,565 MT (2015-16) to 7,982,537 MT (POI annualised), and production and consequently sales of the domestic industry declined from 5,558,240 MT (2015-16) to 4,833,716 MT (POI). Domestic production declined by 7.25 lakh MT, valued at around Rs. 3,000 crore, whereas demand for the product declined by just 1.13 lakh MT, the petitioners had pointed out. Capacity utilisation of industry has declined very significantly to mere 31 per cent in Q1 of 2019-20. This had also impacted the import of crude palm oil.

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The preliminary findings of Bilateral Safeguard Investigation also found that Malaysian imports were significantly undercutting prices of domestic industry. Indian producers who used to refine imported crude palm oil were not to recover even processing cost if they were to match prices of imported refined palm oil. The profits of domestic industry has declined by about Rs. 268 crore during Jan.-June, 2019 as compared to the period April-Dec, 2018, considering loss of sales of about 7.6 lakh MT during this period (actual and potential loss), and a reasonable minimum profit of Rs. 2,500 pmt that any refiner earns, the investigation had found.

The petitioners were able to establish that imports in relation to production and consumption have also increased significantly during the POI. While imports constituted 8 per cent in Indian production of this particular category of refined palm oil in 2015-16, it increased to 73 percent in the POI. Similarly, imports constituted 5 per cent of share in Indian consumption in 2015-16 which increased to 32 per cent in the POI. Imports from Malaysia, merely 17 per cent of total Indian imports which in 2015- 16 increased to 78 per cent of the total imports during the January-June 2019 period.

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