August 1, 2013 / 1:01 PM / in 4 years

EU scraps plan to levy duty on jet fuel imports

* EU had planned 4.7 pct tariff on imports from Mideast, India

* Aviation agreements override plans to impose duty

* Shift follows lobbying by aviation industry

By Ron Bousso and Barbara Lewis

LONDON/BRUSSELS, Aug 1 (Reuters) - The European Union backtracked from plans to levy a 4.7 percent duty on jet fuel imports from the Middle East and India after a round of internal consultations and discussions with the aviation industry.

The EU’s June decision to impose the tariff following a broad review of its preferential trade agreements sparked concern it would weaken the region’s struggling airlines and lead to higher flight fares.

In June, the European Union said it would impose the duty on imports from Gulf Cooperation Council (GCC) states starting Jan. 1, 2014 after removing the group from the generalised scheme of preferences (GSP), which offers trade advantages to developing economies.

Jet fuel imports from India would also pay duty even though the country was included in the new GSP scheme, as India’s refining industry was seen as sufficiently competitive in global markets.

But following a round of internal talks in the European Commission, it was agreed that hundreds of bilateral aviation agreements were in place that override the duty.

“The tariff would technically still be imposed under the changes of the GSP but after an inter-departmental review it was concluded that the duty can be waived under the air services agreements that exist between individual EU member states and third countries outside the EU,” an EU official told Reuters.

“As a result, jet fuel will be exempt of duty regardless of its origin,” the official said.

Airline representatives have made their case against the duty in recent weeks, while refiners in the Middle East and India oil traders struggled to assess its impact on trade next year.

“There has been dialogue and assessment with the aviation industry on the impact the duty could have, but it is now clear that it can be waived,” he added.

In one case, Abu Dhabi National Oil Company (ADNOC) inserted clauses in its jet fuel term sale agreements with European buyers allowing the review of prices at the end of 2013 should the duty kick in, traders said.

“Some 1,500 binding air transport agreements exist between EU Member States and third countries... These agreements include provisions exempting jet fuel from duties and taxes, disregarding its origin,” Commission spokesman for trade policy John Clancy told Reuters by email on Wednesday.

“Hence, jet fuel imports from the Gulf countries are exempt from paying duties.”

Jet fuel is the largest component of airline operating costs in Europe, representing almost 35 percent, compared with 25 percent a decade ago, according to the Association of European Airlines.

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.

Additional reporting by Barbara Lewis in Brussels; editing by Keiron Henderson

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