The European Union will levy a 4.7 per cent duty on jet fuel imports from India in addition to cargoes from the Middle East, its two top suppliers, an EU official said, increasing risks of price rises for European airlines.
The European Union said last month it would impose the duty on imports from Gulf Cooperation Council (GCC) states starting January 1, 2014 after removing the group from the generalised scheme of preferences (GSP), which offers trade advantages to developing economies.
India has not been removed from the GSP, but the EU will remove the waiver because its oil products have become competitive in global markets.
"Once a country becomes competitive as an exporter of a particular category of products, the tariff preference is not essential anymore," the EU official said on Thursday.
"This means that India will not benefit any more from the duty-free access to the EU market for oil products as of January 2014. Oil products imported from India will fall under the general tariff regime, which for jet fuel foresees a duty of 4.7 per cent."
Jet fuel will be the main product affected by the move, given that diesel shipments enjoy a blanket exemption from the EU duty.
The duty could lead to an increase in European jet fuel prices. European airlines have warned that the decision could cut into the embattled industry's competitive edge.
"We strongly condemn this levy as it is another tax burden imposed on airlines that have to face already so many regulatory and economic challenges," the Association of European Airlines, which represents 32 major airlines, said recently.
The levy "will further weaken the competitiveness of the European airlines", it added.
Jet fuel is the largest component of airline operating costs in Europe, representing almost 35 per cent today compared with 25 per cent a decade ago, the AEA said.
European demand for jet fuel amounted to 1.2 million barrels per day (bpd) last year, of which one third was imported, most of that from the Middle East, according to the International Energy Agency (IEA) and traders.
India exported an average of 57,500 barrels per day (bpd) of jet fuel per month to the EU in 2012, according to traders.
The third-largest exporter of jet fuel to Europe is South Korea, which could benefit the most from the changes in the duty system, according to traders.
Copyright @ Thomson Reuters 2013