By Sunil Raman reporting from Delhi

India is set to complain to the World Trade Organisation (WTO) over the European Union's decision to impose no tariffs on imports from Pakistan.

A formal appeal to the WTO's Disputes Settlement Panel could come as early as June, government sources say.

India's commerce ministry has held several rounds of talks with EU representatives in Brussels, but officials say they have not been able to "convince" the EU that such preferential treatment to Pakistan will "adversely affect" India's exports to Europe.

EU officials are said to have rejected India's plea that it should be given the same benefit as Pakistan.

Calculating the losses

The Delhi government fears that competition from Pakistan is now hurting India's exports of agricultural products like fresh mangoes, mushrooms, sugar, rice and textiles.

Some products are said to be at least 40% more expensive than Pakistani goods, making them uncompetitive.

The commerce ministry is now trying to calculate the loss to the country's exporters.

Agricultural products will be hit

Milled rice is a typical example. During 2000 both countries exported roughly the same amount of milled rice to the EU.

After the duty waiver, Indian producers will have to pay a duty of 416 euros per metric tonne of rice, while Pakistani exporters will pay nothing.

The chairman of the Agri-Processed Export Development Authority (APEDA), Anil Swarup, said Pakistan "does not compete with Indian in most farm products".

Yet there are certain Indian products on which 3.5% duty will be charged while Pakistan will have to pay none.

"India stands to lose wherever margins are such as morels, milled rice and molasses," said Mr Swarup.

Finalising the case

Officially, though, India has not confirmed whether it will move against the EU.

S N Menon, additional secretary in the commerce ministry, merely said that "consultations are on and if they fail India will appeal" to the WTO.

But the BBC has learned that India has already decided to appeal to the WTO, because the Delhi government believes that the EU is refusing to compromise in the case.

Officials are now finalising the case.

The different import tariffs apply since January 2002, when Pakistan was added to a list of 11 Central American and South American countries whose exports are exempt from tariffs.

The preferential trade deals were offered to Bolivia, Columbia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru and Venezuela.

The deal was offered under a programme aimed at combating drug production and trafficking. It is designed to encourage farmers to grow cash crops other than those used in the profitable manufacturing of drugs.

No to drugs, good-bye to tariffs

Pakistan was added to the list after it assured the United States and EU countries involved in restoring civilian rule in Afghanistan, that it would help to end the drug trade there.

Huge profits from the production of poppy in Pakistan and Afghanistan reportedly had helped to finance the now-deposed Taliban regime in Afghanistan.

T S Vishwanath, an international trade expert with the Confederation of Indian Industry, says India "has a case because the EU has not sought a waiver from the WTO to provide extra benefits to Pakistan".

Mr Vishwanath argues that there "will be a lot of Indian products that will be hit, especially agriculture products and textiles".

He says the EU "should look at it a little more practically and help India also gain market access in the spirit of co-operation."