CVD on garments deals another blow to troubled industry

THE 12 percent countervailing duty (CVD) imposed by India on Nepali garme nts has come like a kick to an industry that is flat on its back. The southern neighbour started charging 12 percent CVD on all types of garments two weeks ago. Earlier, the tax was only applied to clothes made of polyester while a 6 percent CVD was levied on cotton apparels. India has informed the Ministry of Commerce and Supplies (MoCS) about the hike in the CVD. Life has been hard for Nepali garment manufacturers after the US ended the quota system in 2005 and the export market dissipated. Since then, the garment industry has depended on exports to India to sustain itself. However, garment exports to India plunged 63.2 percent in the first 11 months of the current fiscal year. Nepal exported readymade garments worth Rs 336 million as of mid-June this year, down from Rs 383 billion during the same period last year. Garment exports to India peaked in the fiscal year 2008-09, reaching Rs 1.71 billion. Joint secretary at the MoCS Jib Raj Koirala said the Indian Embassy had notified the ministry that the 12 percent duty was collected as per the decision of the central government of India. "As per the embassy, the Indian government has decided to charge 12 percent excise duty from its garment producers and an equal level of CVD has been imposed on Nepali exports," he said. He added that the ministry would discuss the matter with its Indian counterpart and ask them to withdraw the decision. Garment exporters have blamed the ministry for not taking the issue seriously and working towards a solution. "Though the Indian authorities have been levying higher duty on garment products which were once duty-free, the ministry so far has not taken any initiatives towards a solution," said Uday Raj Pandey, president of Garment Association Nepal. This is not the first time that India has imposed a countervailing duty on Nepal's garment exports. However, the tax has been high this time, said exporters. "India previously used to charge 6 percent duty, but it has refunded it many times in the past after political level intervention," Pandey said. "This is the first time that it has charged such a large amount of duty." Trade expert Bijendra Man Shakya said that though India had been importing Nepali garments under preferential treatment with 0 percent duty, it can charge a similar rate of countervailing duty on Nepali products when it charges a certain rate of excise duty on its local products. The Indian government may cancel the decision if a formal request is made as it has done in the past, he added.