Free Flowing Tea

Existing regulations restrict the import of teas for blending and re-export and specialty teas including green tea and CTC teas. Processed tea imports, black or green, Orthodox or CTC, whether in bulk or packaged form can only be imported subject to a 25 percent tariff duty.

The joint committee recommendations are for allowing orthodox tea imports for blending and re-export, but have stopped short of allowing the free flow of these teas into the country. The existing status quo is to be maintained, where duty free imports are restricted to CTC main grades and specialty teas, allowing orthodox teas subject to an applicable tariff, the report said.

The compromise had been reached following producer lobby opposition to allowing total duty free imports of teas. The decision is thought to restrict exporters from capitalizing on gains of importing tea for blending, while giving producers the opportunity to improve their cost competitiveness. Also being recommended is a dismantling of export permit regulations to work side by side with the proposed scheme, easing re-export of blended tea. Export permit regulations currently in place are used as a check to prevent sales in the domestic market, control quality, monitor compliance with labeling laws and ensure that imported teas are re-exported in six months. Exporters will still be expected to follow with CUSDEC procedures with a statement attached that gives details of the source of imported teas in the shipment. Import permits and clearances that control the types and quality of teas imported will still be in place.

Meanwhile, the administration gap between the Tea Board and the Customs Department has made it a practical impossibility to allow imports of bulk or packeted orthodox tea imports even on the payment of 25 per cent tariff. Hence the task force is also pushing for simplifying imports under the existing tariff regime, with parellel clearance from the tea Board once the teas pass customs.

The teas to be re-exported after blending, will not however be eligible for any duty cutback or concessions under the existing Tea Board rebate scheme. The issue of tea imports for blending has been high on the industry agenda, with industry players divided as to if and how it should happen. The thrust of the argument for liberalization has been that world demand is moving away from single origin teas, and that opening up the industry to value added tea blends would widen our customer base taking Sri Lanka up the value chain. But free imports have raised the issue of its diluting effect on the image of Ceylon tea as a high quality tea worldwide, and the adverse effect on local brand development. Also being argued is that that producers will not be competing on a level playing field given our high cost of production. Opening doors to duty free imports of cheap orthodox teas at this stage could adversely affect the commercial viability of producer holdings and the image of Ceylon tea, the report said. The conclusions also threw water on recent suggestions that import of teas be allowed on an experimental basis for one or two years. The suggestion was rejected on the grounds that this would serve little purpose, with insufficient time to evaluate the impact of importation on tea prices at the Colombo auctions.