Draft Discussion Note on Policy for Setting up of Plastic Recycling Units in SEZs

1. At present as per rule 18(4) of the SEZ Rules, the Board of Approvals (BOA) for SEZs does not consider proposals for setting up plastic waste/scrap recycling units within SEZs. For existing units also extension of Letter of Approval (LOA) by the Board is decided on a case to case basis by the Board. 2. Rule 18(4)(b) also stipulates that proposals for enhancement of approved import quantum of waste and scrap beyond the average annual import quantum of the unit since its commencement are not be considered by the Approvals Committee. Hence, currently setting up of new plastic recycling units within SEZs is not allowed and extension of LOA is subject to stringent conditions. 3. Point No. 40.3 in the agenda circulated before the 40th meeting of BOA on June 10, 2010, noted that there is a need to finalize the policy for setting up of plastics recycling units in SEZs and during the 39th BOA meeting, the BOA had specifically directed that the same be done at the earliest. 4. On January 7, 2010 a meeting chaired by Shri Anil Mukim, JS, Dept of Commerce was convened to deliberate upon the issue and it was recommended that non-toxic/non-hazardous plastic waste/scrap be allowed to be imported provided the conditions laid down by DGFT for the same are satisfied. It was also recommended that for existing recycling units the letter of approval may be extended provided they comply with all environmental laws. 5. The recycling industry's argument against such restrictions is that processing of plastic waste is an activity which generates employment. It was pointed out that mostly recycling units within SEZs make agglomerates which are sold in the DTA on payment of full duty. 6. Under the present import regime, import of agglomerates is freely allowed and reprocessing of plastics in SEZs results in import substitution. Hence, manufacturing of agglomerates in the SEZ leads to additional jobs and value addition in the country without any revenue implications as sale in the domestic market is on payment of full duty. 7. To formulate an appropriate policy on the subject several inter-ministry consultations were undertaken which were inconclusive and there is no clarity on the issue. In the absence of clear cut directions, BOA as a temporary arrangement has been extending the LOPs of the existing units subject to the final decision on the plastic reprocessing activity by the SEZ units. 8. The key questions facing the stakeholders, which need to be addressed, are the following: - Review of the present restrictions on permitting setting up of a new SEZ unit for recycling of plastic waste in SEZ. - Permission to existing reprocessing units in SEZs to continue operations and revalidation of LOP. - -Whether, mandatory physical exports of the goods made from reprocessed materials produced by units in SEZs be made a part of the policy and what will be a reasonable level of export obligation.