South Korean envoy, BoI chief discuss Lotte Group

ISLAMABAD (September 24 2010): Ambassador of South Korea Choi Choong-Joo convened an emergency meeting with Saleem H Mandviwalla, Minister of State/Chairman Board of Investment (BoI) to address the reservations shown by Korean investment company Lotte Group otherwise foreign direct investment from Korea may be adversely affected, reliable sources disclosed. Sources claimed that ambassador discussed the reservation of company regarding the government’s decision to withdraw fiscal incentives available to Pure Terephthalic Acid (PTA) from July 2010 after the European Union (EU) imposed 9 percent anti-subsidy duty on Pakistan Polyethylene Terephthalate (PET). The Lotte Group has an annual turnover of 40 billion dollars and has recently acquired the “Pure Terepthalic Acid (PTA) Plant” of ICI Pakistan for 400 million dollars adding an investment of 50 million dollars to set up a captive power generation plant. Besides, it plans to further invest 500 million dollars in doubling the existing production capacity of the PTA plant.

According to detail, EU imposed anti-subsidy duty at 9 percent on export of PET bottle grade resin produced by Novatex Pakistan. The total export of PET to EU members is about one percent of Pakistan’s total export. The schemes covered under the subsidy were PTA, export refinance scheme, long-term financing scheme, bonded warehouses and import of machinery at concessional duty.

The sources said on June 8, 2010, Economic Co-ordination Committee (ECC) of the Cabinet was informed that the Imperial Chemical Industry, Pure Terephthalic Acid (ICI-PTA) plant was provided tariff protection of l5 percent in 1998 through a sovereign guarantee by the government for a period of ten years.

In June 2008, the tariff on PTA import was reduced to 7.5 percent. To offset the duty impact on the polyester value chain, the government decided to zero-rate the PTA duty for the user industries so that the downstream value-added exports may not suffer. The zero rating was implemented through refund of the duties paid on PTA inputs, which stood at 7.5 percent for 2008-09 and 2009-10.

In addition to this, Textile Policy 2009-14 in order to promote utilisation of manmade fibers and diversify the export mix has decided that monetisation of customs duty @ 7.5percent (on PTA) may continue to offset additional cost for the users for the current year.

This entailed approximately an expenditure of Rs 4.5 billion during current financial year (2009-10). It was also decided that, in future, the level of protection desirable for manmade fibers should be decided/determined in consultation with the National Tariff Commission (NTC).

Meanwhile, Plastic Europe, a manufacturer of PET in Europe had lodged a complaint with the European Commission alleging injurious subsidised imports of PET from three countries, namely Pakistan, Iran and UAE. The EU, thereafter, issued notice for initiation of investigations under provisions of the World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures (ASCM).

Ministry of Commerce and National Tariff Commission (NTC) have acquired services of a Brussels-based law firm to prepare and defend the case. During the initial consultations, the lawyers indicated that the SROs giving effect to PTA monetization may pose problems and the EU may impose Countervailing Duty (CVD) up to 2.5percent of the import price. In addition, imposition of CVD on the basis of PTA monetization may attract cases against Pakistan’s textile sector as well as on SROs 1045(1)/2008 and 1299(1)/2008, which fall under the definition of subsidy being limited to a specific group of industries in terms of Articles 1 and 2 of the ASCM.

It was further explained that the Pakistan delegation during consultation with the European Commission (EC) officials indicated that the Government of Pakistan would withdraw the concerned SROs, thereby discontinuing monetization of PTA and removing the cause of complaint. Thus, the government has brought PTA under normal tariff structure.

Board of Investment (BoI), while agreeing with the proposal for withdrawal of SROs.1045(1)/2008 and 1299(1)/2008, pointed out that the tariff on cascaded scale was premature and also unnecessary as it could pre-empt any consensus that may emerge from the process of consultation with stakeholders, particularly the qualifying words “cascading scale.” BoI, therefore, suggested withdrawal of the second proposal of the summary or at least deletion of the qualifying words, “cascading scale.” After detailed discussions the ECC decided to withdraw SROs 1045(1)/2008 and 1299(1)/2008 pertaining to monetization of PTA from July 1, 2010. The word “cascading scale” was substituted with “suitable tariff structure/mechanism” mentioned in the proposal. Sources said that chairman, BoI assured the Korean ambassador that he had already taken the matter to the President and Prime Minister and their concerns would be resolved on priority basis – Brecorder