Bhutan mulls new trade policy

04 Sep '06

3 min read

The demand for the greenback has always been high but in recent years it has risen sharply driven by relatively new set industries that import raw materials from third countries. Polyester yarn, copper and more recently palm oil are the raw materials being imported, processed within the country and sold to India.

Initially when some of these industries started six to seven years ago, the government provided a maximum of US $ 2 million to make the imports on payment of 10 to 15 percent import duty.

But as more of these industries started up the trade ministry initiated a policy two years ago, given the country's limited hard currency reserves, to give full import duty exemption if these industries generate their own hard currency earnings.

With hard currency earnings coming from export of minerals, stones and cash crop to Bangladesh most of these industries' profit margins are pegged to the difference in the raw materials import duty between Bhutan and India.

The import duty, if government hard currency is used, is 100 percent for palm oil, 15 percent for copper and five percent for polyester yarn.

For those industries turning imported palm oil into Vanaspati the rate of returns is assumed to be very lucrative. The import duty on crude palm oil in India is about 86 percent.

It is also causing a lot of bitterness among many Bhutanese industrialists who have applied for similar business licenses but have been turned down. Atthe same time similar industries across the border have raised concerns that they are at a disadvantage.

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