Government cracks down on spice re-export racket

While prohibiting cinnamon imports, Sri Lanka Government is set to tighten entrepot trade regulations with the aim of cracking down on spice re-exporting rackets being carried out by unscrupulous exporters enjoying tariff relief under free trade agreements, Sri Lanka Customs sources said.

The Department of Customs has been directed to strengthen its Surveillance Division and entreport procedures relating to re-exporting spices including pepper, cloves, cardamom and nutmeg from Sri Lanka.

Sri Lanka Customs is being handled by a certain business mafia with the support of some officials, Finance Minister Mangala Samaraweera told a media conference in Colombo on Wednesday adding that the best example was the illicit pepper and areca nut export business, where the country has lost millions of rupees in tax revenue.

The Cabinet has approved a proposal to implement several new policies aimed at ensuring that spices re- exported from the Colombo Port are not diluted or fraudulently labelled indicating Sri Lanka as the country of origin.

With the intention of achieving the target of US$1 billion from spice exports in 2020, Sri Lanka has listed cinnamon as a prohibited commodity to import on the directions of the President.

This decision to ban cinnamon imports was taken after several detections were made by Customs where imported cinnamon was re-exported to several countries under entrepôt trade facilities.

The average annual production of local cinnamon is around 18,000 metric tonnes(MT) and of this quantity, around 15,000 MT are exported. The main export markets for Ceylon cinnamon are the US, EU countries and Mexico.

Customs recently detected four cinnamon containers that were imported and re-exported to Madagascar under entrepot trade, a senior Customs Department official said.

In another spice racket, a stock of 2800 tonnes of low quality pepper had been imported recently to Sri Lanka from Vietnam in 134 containers under entrepot trade with no taxes.

This large stock was re- exported to India mixing it with local pepper causing a loss of $9 million in taxes for the country, he disclosed adding that the re-exported pepper carried the Sri Lanka country of origin certificate obtained from certifying officer in the Department of Commerce.

Under the Indo-Lanka Free Trade Agreement (FTA) a stock of 2500 tonnes of pepper could be exported to India at zero tariffs.

Further Sri Lanka enjoys the export duty concession of 8 per cent when exporting pepper to India under South Asian Preferential Trading Arrangement.

These re-export rackets have been aggravated following India’s action to raise import duty on spice and areca nut imports from other countries including Indonesia, he claimed.

Under the Indo- Lanka FTA areca nut exported from Sri Lanka is given preferential trade access.

With a view of curbing illicit re-exports of spices, specially pepper from Sri Lanka to India, the Indian government recently introduced a minimum import price of 500 Indian rupees per kg of imported pepper, which amounts to $ 7,700 per metric ton.