Financial Times

Crisis over Russia’s import duty on tea

By Natasha Gunaratne

A major crisis is brewing in the tea industry over Russia’s excessive duties on Sri Lankan tea bag imports which has created huge problems for local packers. Russia is packaging its own tea and blending it with tea from other origins and selling it on the market as Ceylon tea, a senior official from the Sri Lanka Tea Board (SLTB) said adding that local brands are fighting a losing battle at the moment unless they get some refunding.

He said the discriminatory duty tariff was imposed by Russia in 1996 at 5% duty for bulk and 20% duty for packets and tea bags to support the Russian packagers. The situation worsened during discussion between Sri Lanka and Russia regarding Russia’s accession to the World Trade Organization (WTO) in 2006 when an agreement was reached that Russia would bring down bulk duty to 0% and decrease the value added duty to 12.5% within three years of their accession to the WTO.

Unfortunately, the official said Russia is not getting into the WTO due to problems with other countries and have now reduced their bulk duty to 0% but have kept the value added duty at 20%. He said the duties are pushing Sri Lankan brands to package tea in Russia as it is not possible to compete with the Russian packagers.

The SLTB official said another problem is that the import duty in Russia is imposed on the gross weight instead of the net weight which is not done in other countries. The gross weight includes the weight of the envelopes and sachets in addition to the tea and could weigh even three times as much as the tea leaves. Furthermore, around 18 tons of bulk tea can be shipped in a container while only 4 tons of value added or enveloped tea bags will fit into a container. Approximately 45 million kilograms of tea are exported to Russia, 35% of that being value added and 65% being bulk. Russia imports around 17% of Sri Lanka’s total tea exports.

The official said that according to Russian law, if there is more than 51% of a particular origin of tea, they can label it as that despite blending it with tea from elsewhere. “Russia might put in a cheaper Vietnam or Indonesian tea, blend it and sell it as Ceylon tea and they won’t be violating any labour laws in that country.”

Chairman of the Sri Lanka Tea Exporters Association Jayantha Keragala said packaging the tea in Russia is one of the policies adopted by the Russian government to increase their employment. He added that the main international packers who have found Ceylon tea expensive have relocated their packing plants there. “Unless we find a solution by giving incentives to Sri Lankan exporter stay here and promote more Ceylon tea being packed here, we may soon become just a bulk exporter rather than a value added exporter.”

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