Sri Lanka in talks with Russia to lower tea import duties

June 09 (LBO) – Sri Lanka is in talks with Russia to lower import duties on tea, as Russia begins freeing up trade in a bid to enter the World Trade Organisation (WTO). Russia, Sri Lanka’s largest market for tea, has offered to lower tariffs of 20 percent on value added black and green tea exports from Sri Lanka, to 12-13 percent over four years.

Sri Lanka has asked that it be lowered further to five percent, to encourage value added tea exports to Russia, top officials from the Department of Commerce told LBO on Friday.

“We have submitted our requests, but negotiations are still not over. This is done on a multilateral basis in the WTO, so all countries have to come to some agreement to decide the final rates,” Wasantha Senanayake, Acting Director of Commerce, said.

Sri Lanka produced 317 million kilos of tea last year, most of that in the form of black tea and just two million kilos of green tea, most of which is also exported to Russia.

Black tea is largely of the Orthodox variety, with smaller volumes of Cut Tear Curl (CTC) teas, where tea particles are of even size.

Most exports however are in the form of bulk tea, with less value added such as tea bags or tea in packets and almost negligible volumes of Ready to Drink (RTD) teas.

Russia takes up about 19 percent of total tea exports, with 32.6 million kilos exported as bulk tea last year, 13.5 million kilos in tea packets and 3.7 million kilos in tea bags.

But value addition provides almost double the price of raw tea exports, with tea bags raking in 545 rupees a kilo to the 222.75 rupees for a kilo of bulk tea.

Sri Lanka exported 18 million kilos of tea bags last year, 89.1 million kilos of tea in packets, 1.1 million kilos of instant teas and 174.5 million kilos of bulk tea, Tea Board statistics show.

Value added export volumes to Russia have actually been shrinking, commodity brokers say, as high Russian import duties keep value added tea exports out.

The industry is expecting a lot from new WTO negotiations.

“We should maintain our position and get the duty removed on value added products. We don’t need to go backwards and export more raw material which is what bulk tea is,” Anil Cooke, Senior Vice President of Asia Siyaka Commodity Brokers, told LBO.

Though tea is the single biggest product to benefit, negotiations with Russia also covers other products like fish, coconut and rubber products.

Meanwhile, Sri Lanka recently exempted export earnings from exports of tea bags from income tax, to encourage exports of value added teas.